Overlay

What is an Overlay?

In the context of gambling and sports betting, an overlay represents a scenario where the odds offered by a bookmaker are more favorable to the bettor than the true underlying probability of the outcome. When a bettor identifies an overlay, they have found a "value bet" – a wager with positive expected value (+EV). In simpler terms, the potential payout of the bet is greater than the risk involved, creating a profitable opportunity for the bettor in the long run. While the term is most commonly used in sports betting and horse racing, it can also apply to other forms of gambling, including poker.

In poker tournaments, "overlay" has a slightly different, but related, meaning. It refers to the money added by the tournament organizer to the prize pool when the total amount of player buy-ins is not enough to meet a guaranteed prize pool (GPP). For example, if a tournament has a $1,000,000 guaranteed prize pool but only collects $900,000 in buy-ins, the organizer must add $100,000 to meet the guarantee. This $100,000 is the overlay, and it represents added value for the players who entered the tournament.

How It Works

The concept of an overlay is rooted in the difference between the bookmaker's implied probability and the bettor's assessment of the true probability. A bookmaker's odds are not just a reflection of the probability of an outcome; they also include a margin or "vigorish" (vig) – the bookmaker's commission for taking the bet. This is how they ensure they make a profit regardless of the outcome. An overlay occurs when, despite this vig, the odds are still skewed in the bettor's favor.

To identify an overlay, a bettor must first calculate the implied probability from the odds offered. For decimal odds, the formula is (1 / decimal odds) * 100. For American odds, the formulas are:*

• For positive odds: 100 / (positive odds + 100) * 100
• For negative odds: negative odds / (negative odds + 100) * 100

Once the implied probability is known, the bettor must then determine their own, more accurate, probability for the outcome. This is the most challenging part and requires a deep understanding of the sport or event, statistical analysis, and often, sophisticated modeling. If the bettor's calculated true probability is higher than the bookmaker's implied probability, an overlay exists.

Example

Let's consider a tennis match between Player A and Player B. A bookmaker offers odds of 2.50 for Player A to win. The implied probability of Player A winning, according to the bookmaker, is (1 / 2.50) * 100 = 40%.*

Now, suppose a savvy bettor has done their homework. They have analyzed the players' recent form, their head-to-head record, the playing surface, and other relevant factors. Their analysis leads them to believe that the true probability of Player A winning is actually 50%. Since the bettor's assessed probability (50%) is higher than the implied probability from the odds (40%), this represents an overlay.

To put it in terms of expected value, for every $100 bet on Player A, the bettor can expect to make a profit of $150 if Player A wins. The expected value of this bet can be calculated as:

EV = (Probability of Winning * Potential Profit) - (Probability of Losing * Stake) EV = (0.50 * $150) - (0.50 * $100) = $75 - $50 = $25

This positive expected value of $25 indicates that for every $100 wagered on this overlay, the bettor can expect to make an average profit of $25 in the long run.

Why It Matters

Identifying and capitalizing on overlays is the cornerstone of successful, long-term sports betting. It is what separates professional bettors from recreational gamblers. While anyone can get lucky with a few bets, consistently finding overlays is a skill that requires discipline, research, and a systematic approach. By consistently betting on overlays, a bettor is essentially turning the tables on the bookmaker and playing with a long-term mathematical advantage.

It is important to note that betting on overlays does not guarantee that every bet will be a winner. In the example above, there is still a 50% chance that Player A will lose the match, and the bettor will lose their stake. However, by repeatedly making +EV bets, the wins will eventually outweigh the losses, leading to a net profit over time. This is the law of large numbers in action. Therefore, understanding and identifying overlays is not just a strategy; it is the fundamental principle behind profitable sports betting.