For starters, the short answer to how betting sites make a profit is by accepting bets on a market and setting up a price that does not entirely represent the differences or probability of the outcomes. To dive a little deeper into all these factors and learn more about how a bookie makes money, keep reading.
A bookmaker or ‘bookie’ as mostly referred in slang, is someone whofacilitates gambling, especially in sports events. Their role largelyconstitutes setting odds, placing bets, and paying out winnings.Their work also includes adjusting the books so that the number ofpeople betting on a win or loss remains even.
Not so long ago, sports gambling had been illegal in most states inthe USA, which sparked illegal bookie operation. It was not uncommonto find some bookies involved in organized crime, although there werestill some who operated independently.
It was, however, not until 2018 when the US Supreme Court ruled infavor of sports betting. The new ruling against the Professional andAmateur Sports Protection Act would open doors to sport betting inthe whole country provided any state agreed to favor it.
The immediate result has been an increased number of bookmakers overthe past couple of years.
Similar to the term ‘The house always wins’, many people have alwaysbeen left wondering why it was so difficult beating the bookies. Thisis because that the bookmakers always end up winning. As we delvedeeper into the subject, let’s start by expounding on some fewconcepts that will better help us understand how bookmakers makemoney.
Balancing the Book
The term ‘bookmaker’ stems from the practice of laying bets, and mostprecisely, recording such bets on a ledger. Hence, the phrase ‘makinga book’.
It is through making a book that the bookie will lay each possibleoutcome of the given events, in such a way that they will beguaranteed profit. That is regardless of the outcome of the event.
Better explained, the bookie achieves this by the setting of appropriate odds in every possible outcome, which allows them to make an amount of money on each final outcome.
Similar to the Punter, the bookie also has no control over theresults of the sporting events. They can, however, control how muchthey rake in or lose in any particular outcome. But how do theyexactly do this?
When it comes to setting odds, bookies set the prices in a way thatreduces variance, ensures profit, and at the same time reflects theactual probability occurring. It is this balance that will ensurethat the punters are still attracted to the bet outcome, and thebookies still make a profit.
Vig, Vigorish/ Overround Concepts
Also known as Juice or edge, this concept revolves around how bookiesstart off by setting their margin, i.e. 5%. The odds they will setafterward on various outcomes will incorporate this commission. As wewill see further down, it is this margin that will allow the bookiesto make money.
To better explain this, we will use the example of a coin toss whichrepresents a 50/50 possible outcome. For every coin flip, there’s a50% chance for tails and another 50% for heads. If a bookmaker wereto follow this assumption and offer true odds for the coin flip, wewould expect them to offer even money. That is a 2.00 in decimal oddand 1/1 in fractional odds. But that is not always the case.
Instead, they always provide an odd less than 2.0, let’s say 1.98 forboth outcomes as it would guarantee a profit to the bookmaker foreither of the result (tail or heads).
If our bookie was offering the true odds on the coin flip, it wouldmean that every successful outcome after $100 stake would result in$200, which is twice e the original stake. But what if the bookie has100 customers all placing $100 bets on the coin flip. 50 betting onthe head result, and the remaining 50 on tails.
If the results was ‘heads’, that would mean that the 50 who wouldhave staked on ‘tails’ would have lost a cumulative of $5000. Butthen, the bookies would use the same money to pay off the ones whohad won. That would be in addition to returning the initial $5000they had staked, bringing the total to $10,000. If you were followingclosely, you will realize that the bookmaker will not have made asingle coin in the entire transaction.
But what about the other scenario where they used lesser odds of 1.98on either outcome. This would mean that for those who won, they wouldget a cumulative $5000 as their initial stake, and an additional$4900 as profit. This is because $5000*1.98 (odd) equates to $9900.The remaining $100 would be the profit the bookmaker makes. That isregardless of whether the punters lose or make a win in their bets.
Hence, the bookies make money by calculating the probability of eachgame and then subtracting the margin. This gives rise to the new odd(1.98 in our case scenario).
Why Do Odds Move/Change in Response to Betting?
When it comes to calculating odds, the bookies arrive at the realprobabilities of an event outcome by using statistics, history form,and sometimes human opinion. The more data there’s, the more likelyit is to reflect on the real probability. On the reverse, if there’sless data on the outcome, the bookmakers become more cautious. Hence,their odds will be lower than the real probability.
However, it is important to note that probability is not always theonly aspect behind odds pricing, bookies are most likely to set oddsbased on how likely they perceive that punters will stake on eachoutcome. This allows them to further balance their books.
A good example is when betting on favorites, let’s say a matchagainst Arsenal and Norwich City. Where Arsenal happens to be thefavorite. Since most people will be staking on Arsenal, the Bookiesmay decide to set a higher margin on Arsenal. This would explain whythere’s always such a big variation on odds against such games. Andeven if you staked on Norwich City, and it actually won, theywouldn’t mind as they would be making money altogether.
Moving on further, most punters wonder why the bookies suspend oddsand markets, and whether they still make money. Yes, suspended oddsare not a rare phenomenon, but it is actually another way thatbookies make money.
Think of it this way, Bookmaking being a private business, it canaffect when and how they offer their odds. So, yes, if a bookiedoesn’t like the way the betting is going and that they’ve beenoverexposed to a particular outcome, they can decide to drop theodds. They often lower the odds dramatically or even suspend themarket in extreme cases. Unfortunately, there’s not much you can doas a punter.
One way to avoid being trapped in such a scenario is staking on yourgames early enough, or being warier of live betting altogether.
How Does Competition Control Prices in Bookmaking?
Although a Bookmaker is a private business, not being the only one inthe market actually favors the gambler in many ways. Otherwise, thepunter would be most advantaged if there’s were only a few bookmakersas they would tend to control the market as they wished. It would bemore of a ‘take it or leave it’ scenario.
For a bookmaker to make money, they need to attract the punters. Thisis not always easy as the market is now flooded with bookmakers allwanting to make a profit too. Today, all a punter needs to do is usea site and run a comparison on the bookmaker offering the best odds.
It is common to see bookmakers try to push their odds, all in anattempt to balance their books. They, however, have to be careful aspushing the odds too much to the extreme discourages the punter fromgambling with them.
Whereas competition might dictate the amount of money the bookie willmake, it sure does serve to make sure that the punter is notexploited by the bookmaker.
Final Thoughts
It is always every gambler’s dream to beat the bookies, but aspreviously discussed it is not as easy as they have almost perfectedthe art of balancing the books. Instead, you should focus more onmaking your wins as the bookies will make money either way.
How Do Bookmakers Make Money
Always practice researching on which bookmakers are offering the best odds, bet on low edge markets (i.e. Head to Head matches), and don’t hesitate to us multiple betting sites when possible.