What Is an Overlay?

An overlay happens when your estimated probability of an outcome is higher than the probability implied by the Betfair odds. In simple terms:

If you think something is more likely to happen than the market does, you have an overlay.

Overlays are the foundation of value betting. You don’t need to win every bet — you just need to consistently take prices that are better than the true probability.

How to Calculate Implied Probability

First, convert the Betfair odds into implied probability:

impliedProbability = 1 / decimalOdds

Examples:

• Odds 2.00 → 50%
• Odds 3.50 → 28.57%
• Odds 6.00 → 16.67%

Once you know the market’s estimate, you can compare it with your own.

Overlay Formula

The standard formula for overlay percentage is:

overlay% = (yourProbability − impliedProbability) × 100

If the number is positive, you have an overlay. If it is negative, the market believes the outcome is more likely than you do — a bad bet.

Worked Example: Simple Overlay Calculation

The market offers odds of 4.00 (25% implied probability). Your analysis suggests the runner has a 32% chance.

• implied probability = 25%
• your probability = 32%

overlay% = (0.32 − 0.25) × 100 = 7%

A +7% overlay is extremely strong value — even accounting for commission.

How Commission Affects Overlays

Betfair commission reduces net winnings, meaning the real edge is slightly smaller than the raw overlay percentage suggests.

To account for commission properly, use: Smarter Trades EV Calculator which automatically adjusts for Betfair fees.

Overlays and Expected Value (EV)

Every overlay corresponds to a positive expected value bet. The bigger the overlay, the higher the EV — assuming your probability estimate is accurate.

EV formula reminder:

EV = (p × profitIfWin) − (q × stake)

Because overlays reflect a mispriced market, EV will be positive whenever your probability > implied probability.

Finding Overlays in Practice

To identify overlays consistently, you need one of the following:

• A tissue price model
• A ratings system
• Form-based probability estimates
• A statistical model
• Specialist knowledge in a niche market

Once you have your probability estimate, calculating overlays becomes mechanical.

Overlay Example in Football

Market odds for the home team: 2.50 → implied probability = 40%. Your model says: 48%.

overlay% = (0.48 − 0.40) × 100 = 8%

That’s a very strong overlay — and likely +EV once commission is included.

Overlay Example in Horse Racing

Market odds: 8.00 → implied probability = 12.5%. Your form study says: 16%.

overlay% = (0.16 − 0.125) × 100 = 3.5%

Even small overlays compound over time to create long-term profit.

How Kelly Staking Uses Overlays

Kelly staking naturally increases stake size when overlays are larger. This helps grow bankroll more efficiently while managing risk.

You can calculate Kelly stakes here: Smarter Trades Kelly Calculator.

Common Mistakes When Using Overlays

1. Overestimating your own probability

Overlays only work if your probability estimates are realistic. Overconfidence is the biggest danger.

2. Ignoring commission

Commission reduces your real return, so always include it via an EV calculator.

3. Betting over-large when overlays appear

Even strong overlays lose regularly. Use fractional Kelly or flat staking to stay disciplined.

Frequently Asked Questions

Does every overlay guarantee profit?

No — overlays reflect long-term advantage. Short-term results still vary, and losing runs are normal.

Do overlays still apply to lay betting?

Yes — overlays exist on both sides. For lay bets, compare your estimated chance of the runner losing against the market’s implied chance.

Can overlays be found in-play?

Yes, but estimating probabilities in-play is harder and requires experience or modelling.

Where can I calculate EV and Kelly stakes?

All tools are available free here: Smarter Trades Tools.