Have you ever asked yourself, how do sportsbooks make money?
Legal sports betting in sportsbooks is not even 100 years old. The first Vegas casino to accept bets on pro sports and horse racing only did so in 1949. That’s recent enough that it occurred during my dad’s lifetime. That’s also almost a half-century after gambling came to Nevada. It’s strange to think of it, but I suppose the sportsbook is a modern invention, more contemporary than the slot machine or the roulette wheel.
For some bettors, the sportsbooks are appealing because it’s one of the only places in the casino where hard work and research can give you an edge against the house. For other bettors, the existence of offshore gambling sites that accept sports wagers makes betting on sports more convenient than ever, and they’re eager to try their hand at beating the oddsmakers.
The question of how a sportsbook makes money is easy to answer, but the answer is a little convoluted. I want to use this post to explain a few methods books use to gain an advantage against all comers, sharps and amateurs alike. It turns out that sportsbooks earn most of their income well before a game’s outcome is decided. More on that below.
How Does a Book Turn a Profit?
I’ve come up with four basic methods used by oddsmakers to ensure a profit for the sportsbook:
- charging for losing bets
- manipulating odds
- eliminating risk
- being smarter and better at gambling than their customers
No doubt some books have found unique ways to keep themselves in the green, but as far as I can tell, all sportsbooks profit using some ratio of the above four methods.
Bookmaking Basics
Once you understand the basics of sports betting, it’s time to dig deeper and learn the details of how oddsmakers and sportsbooks operate.
So, what is a sportsbook?
Take away the smoke-filled rooms, the surly tellers, and the stale pretzels and beer, and a sportsbook is just a guy with a chart and a cash register. When this guy takes in a wager, he collects the customer’s money. When his customer’s bets pay off, he has to hand them more cash back. Obviously, this guy’s goal is to take in more money than he has to hand out later. This is making book, at its most basic.
Since this guy can’t literally change the way a game is played, his only way to balance the books he keeps is to limit how much customers can win or lose given a particular outcome. These are called odds. Now, the guy can change the odds to make sure that he has the same amount of money on both outcomes – it’s a win-win for the guy, and a bad day for some of his customers.
Juice, Vigorish, Margin, Overround
If setting all those odds, re-balancing them when necessary, and then keeping track of all that movement sounds like a headache – that’s because it is. The guy realizes after a few days of this heavy labor that he could do something much simpler and ensure he makes money no matter what. He can charge for losing bets. This is called vigorish – or juice, vig, overround, or a million other pieces of gambler jargon.
What’s vigorish?
The easiest way to explain it is to once again use your imagination.
Imagine you and I are tossing a coin and betting on the outcome. Every time I flip the coin, there’s a 50% chance it will show heads and a 50% chance it will show tails. If I offered you true odds on that bet, I’d offer you even money. That would be represented odds-wise as +100, meaning for every $10 you bet and won, you’d get back $20 – your initial $10 stake plus the $10 profit for betting correctly.
Sure, it’s a fair bet for you, but how could I ever make money doing that? Over time, I’d pay out exactly what I took in from you, and we’d be wasting our time. If I set the odds to -110, for every $10 bet you lost, you’d technically be laying out $11. That’s a $1 per loss profit for me.
Sportsbooks do this, and it is a more powerful profit-making tool than any brilliant line they could ever set. Since any team can win in any given contest, juice helps the book cover any potential losses.
An Example of Vigorish in Action
You’ll almost never find a point spread with odds set to anything but -110.
Here’s why:
Imagine you’re placing a bet on the 2022 NBA Finals. You want to back Milwaukee to win Game 6 as 4-point favorites. The line, of course, is -110. If you want to win $100 at those -110 odds, you’ll have to bet $110. That extra $10 of your bet is the vig – it’s not a big deal if you win, because you’ll get back your initial stake plus your profit. But for losing bets, that extra $10 represents instant profit for the sportsbook. The vig means winning bettors risk $10 more – losing bettors give it away permanently.
Why don’t sportsbooks rely exclusively on vigorish to make money?
The real world is more complicated than the simplistic answers above. Every sports betting market offers way more than two possible outcomes, and it isn’t usually possibly for books to truly balance every side of every available contest.
Below, I’ll look at some other ways sportsbooks use to make money.
Sportsbook Traders/Odds Compilers
Traders, also known as odds compilers, are the people who do what industry types call “pricing the market” – in layman’s terms, they set the odds.
Bookmakers don’t depend only on juice added to bets – for reasons I covered earlier, that’s an inefficient way for them to do business. As I’ll cover briefly, the job of an odds compiler is to set odds in such a way that the book turns a profit.
The scope of work done by these traders is difficult to condense into a few paragraphs. Let’s start by saying that their basic task is to release odds that reflect the true likelihood of a particular sporting event outcome. They’ve also got to do their best to ensure a profit margin. They do this with a combination of sports knowledge, high-level math and statistics, industry experience, and no small measure of intuition. For obvious reasons, most traders specialize in one or two sports or even one or two specific markets.
It’s a matter of opinion to say how much the sports betting industry relies on these odds compilers for profits. I believe the impact of these professionals is at least as important as the vigorish in terms of book profits.
How Do Sportsbooks Limit Their Risk?
Another important profit generating technique used by books is good old risk elimination.
Yes, having a win-win situation no matter the outcome will eliminate risk. Since that’s practically impossible at a modern book with all of its markets and wager options, books use other tactics.
Just like you as a sports bettor can use gambling strategy to set yourself up in a better position against the house, the book offering you a wager has its own set of strategic tools to ensure a profitable outcome.
Let’s imagine another scenario – the obvious favorite in a postseason NFL game draws in $110,000 worth of bets, while the clear underdog has only brought in $55,000. The book is exposed to a decent risk here – a one-time hit for $45,000 if the game goes chalk and the favorite wins. What’s a book to do?
The two most common risk elimination tactics used by sportsbooks are circling a game and adjusting odds or prices. In sportsbook jargon, to “circle a game” means that a book has placed betting limits in the interest of capping their risk at a specific level. This is unpopular among bettors. It looks and feels like manipulation – which, of course, it is.
The other tactic, favored by books because it hides the risk elimination a little better than circling a contest, is adjusting the betting odds or vig to draw in money on the book’s soft side. By making the less popular bet in the above example more attractive to bettors, the book hopes to drop that $45,000 in risk by as much as possible.
Conclusion – How Do Sportsbooks Make Money?
It’s true that sportsbooks operate profitably regardless of the outcomes of major sporting events. Outside of a few big hits here and there, the big books gain and keep a mathematical edge over sports betting customers, and they don’t do anything shady to do it. They use good old math, the insight of the best sports betting minds in the world, and sales tactics not dissimilar from your neighborhood grocery store.
You can use what you’ve learned about sportsbook profits to place smarter and more confident bets. If you’re following along with this blog as you start out your sports betting hobby, I have lots of advice for you. First of all, keep reading. I plan to keep updating this blog as regularly as I can with fresh advice and insight for bettors of all experience levels.
My second tip? Read reviews of offshore sportsbooks, make a small deposit, and get started with live betting. If you set a budget for yourself and place minimum wagers for a few weeks of your favorite sport, you’ll feel more confident dealing with oddsmakers and gain useful experience with real money sports betting.
