As almost every professional bettor will tell you, backing heavy favourites is a sure fire way to the poorhouse. That’s common knowledge, right? Perhaps, but there’s one problem with that type of thinking: it’s dead wrong.

The received wisdom is the linesmakers skew their odds on heavy favourites because the public love betting on the best teams. The bookies no doubt see a flurry of parlays involving clubs like Chelsea, Barcelona and Juventus every weekend. Surely there’s value in taking the underdog in these situations, isn’t there?

In fact, numerous studies have shown that blindly backing long shots is a losing proposition in the long term. To see why that is the case, we have to understand how a bookmaker operates. Since the bookies take most of their action on short-priced favourites, it’s often assumed they are exposed to big liabilities if all the hot teams win. While this is sometimes the case, and many bookmakers suffer months of huge losses, there are several ways a bookie can protect himself.

It’s important to remember that most heavy favourites are combined in parlays involving at least three teams. A bookmaker only needs one loser to take his customer’s money. As a result, there’s little need to lower the odds on a “public” team. Many sportsbooks will even inflate the odds of a hot favourite to attract new customers, safe in the knowledge that parlay players won’t hurt their bottom line.

If the favourite’s odds are an accurate reflection of it’s true probability of winning, the bookmaker must make adjustments elsewhere. That usually means offering worse odds on the underdog and the draw. Understanding the concept of theoretical hold can make this clearer.

When creating lines, a sportsbook will offer odds on each team that give it a slight edge, ensuring a profit no matter how the game turns out. This is called the Theoretical Hold and is expressed as a percentage. It represents the combined amount of customers’ bets that the bookmaker expects to keep.

It’s called theoretical because in reality a bookmaker rarely has balanced action on all sides. If a bookie takes the bulk of his bets on a heavy favourite, he can offer it at a more generous price and accept a smaller profit margin. Short-priced favourites generally have small margins, but high volumes. Bigger odds mean bigger margins. There’s little incentive for a bookie to offer competitive odds on a big underdog if he doesn’t expect much betting interest in that team.

For evidence of this, look no further than the betting exchanges. At Betfair, for example, the theoretical hold on a soccer money line is usually 1-2%, compared with around 11% at traditional bookmakers. Because the hold is so low and the percent market is close to 100%, the exchanges represent an almost perfect market. They can give us a closer indication of the true probability of an event happening. The following table shows the odds available at several bookmakers for an upcoming match between Qatar and Argentina:

Bookmaker Qatar Draw Argentina Theoretical Hold

Betfair +1800 +660 -500 1.72%

Nordicbet +1100 +445 -500 9.10%

Bet365 +1000 +400 -500 11.05%

Interwetten +900 +400 -667 14.5%

Admiral +850 +365 -455 12.28%

Two things are immediately striking. An exchange like Betfair has significantly better odds on Qatar and the draw, which are the less probable outcomes of this game. But Betfair’s odds on Argentina, the heavy favourite, are in line with the prices offered by traditional bookmakers. In fact, even though Betfair’s market has razor thin margins, it can’t beat the odds on Argentina offered by Admiral, a bookie with a theoretical hold over 12%!

What can we learn from this? If the exchanges are a nearly perfect market, they prove that heavy favourites are fairly priced at the traditional bookmakers, but underdogs are massively underpriced and poor value. Some research has shown that backing all short priced favourites (at -500 or greater) is a profitable proposition in the long term. Now we can understand why. As a general rule, only bet on long shots at the exchanges; if you like to play favourites, stick with the traditional bookies.