It's clear that Real Madrid should be the most likely to defend their trophy. But, as you said, it's weird they got second, not first. Prob Pep's factor is the reason why we're still seeing City at the first place. Also, the funny thing is that Arsenal is more favored. They have smaller odds than Munich, which beat them last season. But the only acceptable reason is probably due to the new coach of Bayern Munich. Still, this looks so strange.
All of that can still change when the season starts because for me it is also not right to put Real Madrid in second place after what Real Madrid achieved last season and also with the current Real Madrid squad. If it is because Pep is still coaching Manchester City, I think it is also not wrong if we consider Ancelotti as a good coach for Real Madrid so that every Real Madrid player is able to play the way he gives. We can see an example when Real Madrid beat Atalanta where in the first half Real Madrid did not play well enough, but in the second half everything changed and Madrid became a team that was able to win.
But indeed, as time goes by there will also be a difference and maybe it will also give other teams a good chance too. Because, as time goes by, it is very likely that any team will get an injury to its main player or perhaps other factors that will affect the team's performance throughout this season. Because after all, this position is also just a sequence based on the odds they have at this moment, and as a bettor you will of course have risks as time goes by throughout this season.
So yes, I think maybe for now it won't be a problem if Manchester City is the favorite team. Because of that, of course it would be a good moment for us if we wanted to choose Real Madrid, which would still get better odds than choosing Manchester City. Thus, this is a moment for us to get good odds to determine the team of choice that has the chance to win the trophy this season.