How does the gambling business work? The more you know, the better your chances of winning become!
If you have been betting for any amount of time, you may have already formed an opinion about the sportsbooks or bookmakers sites you use, and will have questions about how it all works and how do sportsbooks make money?
When you set out, you might think the answer to how bookies make money is that they make their money from the losing bets that are placed with them. However, as you continue your journey, you will soon realize it is not as simple as that. For that reason, we have created this guide to how do bookmakers make money.
What is a bookie?
To answer the question of how bookies make money, we need to first define what we mean when we talk about a bookie in the context of this guide. A bookie (bookmaker, or sportsbook operator depending where in the world you happen to be) is a person, group of people or company that sets and sells odds on the various outcomes possible in an event or more usually a sporting fixture.
This is not to be confused with a betting exchange (if you have not come across one of those before check out our betting exchange explained guide) which is a peer to peer betting platform where the odds are set by the users of the site. As you will see later on, this is a different concept entirely and it is incorrect to refer to bookmakers and betting exchanges as the same thing.
Why do we need to know how bookies make money?
As a bettor, you may have wondered, ‘how do bookmakers make money?’ and also ‘do bookies make a lot of money?’ And while it would be interesting to find out, what you might not be aware of is why it is important to know these two things.
After all, whether you win or lose your bet isn’t governed by the bookies, so why does it matter how they make their money? The answer to this question is that how bookies make money can affect the amount you could win from your bet, and this is because of something called an overround.
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What is an Overround?
In short, the overround is the margin created by bookmakers by pricing the various outcomes of an event in a way that does not reflect the true probability of the possible outcome. While this is perfectly legal, knowing how it works can help you place smarter wagers.
When you look at a horse racing racecard, it is almost impossible to see any clues to how bookies make money in this way, and it is still difficult to spot when looking at just the three different results in a soccer match (check out our what does 1×2 mean in betting for more information). However, when you look at it in the context of a simple coin toss, it becomes much more apparent.
As we all know, when you flip a coin fairly, the chances of it coming down either heads or tails is equal, or 50/50. So the odds you might expect to see for their of those outcomes would be evens, which, when expressed in decimal odds both outcomes would be expressed as 2.0
However, these are not the odds you would be given by a bookmaker because they need to introduce a margin whereby they can make a profit. So, instead of offering 2.0 for each outcome, they might only offer odds of 1.9, which would mean that even if you bet £100 on both possible outcomes (and theoretically putting yourself in a ‘no lose’ position) you would still only receive £190.
This overround is where bookies make their money, and if you are not familiar with the term overround, then you may have also heard it referred to as either the ‘vig’ or ‘juice’, especially if you live in the US.
A balanced book
Of course, this is a simplistic example, but it does provide a demonstration of how an overround works and how bookies make money. This strategy, however, is dependent on another factor that governs how bookies make money, and that is the bookmaker getting their numbers right and balancing their book.
And, when it comes to answering the question of how bookies make money, the factors that affect that balance, how they compensate for those changes and even how they come up with the odds in the first place are all key factors to consider.
As pointed out above, there are extra complications to consider when you try and answer the question ‘how do sportsbooks make money?’ – most apparently in that there is more than one bookmaker and bettors are free to choose who they bet with, so they have to react quickly to fluctuations in the market.
This can result in different bookmakers offering wildly different odds to each other in the same market, something that is often exploited by bettors for a profit who want to take advantage of a value bet or arbitrage opportunity (more on this later).
The odds on a particular event become more volatile as the start of the event approaches, for instance in a soccer match when the teams are announced and a star player is unexpectedly absent. This might lead to a higher proportion of bets on the opposing team than the bookmaker projected, so they will decrease the odds on the opponent accordingly, to decrease their liability and achieve a balanced book.
Again, it has to be stressed that a balanced book is the ideal scenario for a bookmaker. This means that they will have to pay out approximately the same amount to us regardless of what happens on the pitch, court or racecourse. Once they have achieved this, the way they have priced their odds means that the margin created, the overround, guarantees them their profit.
As you would expect, to react to events like this quickly, the changes are normally carried out automatically by computers who do the maths and move the odds to compensate. The original prices though, while based on mountains of statistical data, are often defined to the interpretation of this data by odds compilers.
It doesn’t matter if you are a new bettor who is still wondering what does draw no bet mean? Or if you are the type of experienced bettor who doesn’t need to have Asian handicap explained to them, you will recognise that where there is a human element, opinions will vary and the same statistics can be interpreted differently.
Value bets and how they can work to your advantage
This brings us back to the concept of a value bet. The term ‘value bet’ is used when the price of a certain event is much higher at a bookmaker than expected in either your opinion or the rest of the market. This can be due to an oversight or as an attempt to balance a book.When this happens, there is more than one way to take advantage of this.
Firstly, by simply placing the bet, and if successful, reaping the extra profit. Secondly, if the bookmaker’s prediction is out of sync with not only other bookmakers but also a betting exchange, because you now have a mathematical edge, it is possible to lay the bet off at a betting exchange for a guaranteed profit, regardless of the outcome.
Bookmakers and betting exchanges
Another variable in the question of ‘how do sportsbooks make money’ is the issue of betting exchanges, which are very common in the UK but have yet to catch on in the US. As already explained, while a betting exchange site may look a lot like a sportsbook or bookmakers from the outside, how they work is very different.
Betting exchanges are peer-to-peer betting platforms, which means bettors bet against each other, albeit anonymously. With bettors effectively deciding the odds themselves, how does this change the answer to the question ‘how do sportsbooks make money?’ and their efforts to keep a balanced book.
‘Keeping bookies honest’
More experienced bettors might tell you that betting exchanges ‘keep bookies honest’ by creating an alternative to their services. In principle, this means that if you don’t like the odds offered by your bookie, you can simply go and see what the prices are at Betfair, Smarkets or Betdaq.
Of course, this added factor means that bookmakers have to be very attentive to movements in prices to stay competitive with not only other bookmakers but betting exchanges where, in theory, the odds do not have to include any allowance for the overround. This situation can again create many opportunities for savvy bettors and is part of more than one betting strategy.
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Betting.net has other resources to make you a savvier bettor
By now, you’ve probably realised that there is a lot more to Betting.net than just this guidebook on how bookies make money. We have reviews and ratings of all of the casino and sportsbook operators, including new online bookies, as well as a growing section on the various betting strategies available that can help you become a more savvy bettor, whether you are new to betting or have years of experience.
Conclusion – now you know how bookies make money
Now you’ve read this guide, you should be aware of how bookies make money, and all of the factors that affect their ability to do so. There are three main takeaways in the answer to the question ‘how do sportsbooks make money?’
First of all, how bookies make money isn’t necessarily from losing bets, as many people might think, but from calculating the odds to give them a margin regardless of what happens.
Secondly, this margin is called an overround, and calculating this effectively is subject to many factors that a bookmaker needs to respond to, in an effort to balance their book. A balanced book is the ideal situation for a bookie, where their liability is roughly equal no matter what happens and they get their guaranteed profit for the overround.
Last of all, because of the odds movements needed to achieve this state, and the additional competition from bookmakers, price discrepancies can occur regularly and present opportunities for savvy bettors to take advantage of. Now you can take off to greener pastures and apply your newfound knowledge!
How do bookies make money FAQ
❔ Which bookies offer the best odds?
Bookmakers odds will vary at times right up to the start of the event, making it difficult to identify the best odds. However there are ways to find the best odds for both new and experienced bettors, along with other free resources to make you a more savvy bettor at Betting.net
💰 Do you get better odds from a bookie or Betfair?
Betting exchanges like Betfair are popular with both new and experienced bettors who use it as an alternative to a bookmaker or a sportsbook. You can find out ow both bookies and betting exchanges make their money and work out their odds by referring to the information at Betting.net
💭 What is a balanced book?
A balanced book is the ideal situation for a bookmaker, and they dedicate many resources to trying to keep their book balanced. To find out how bookies make their money and why a balanced book is so important bookmakers and sportsbook operators have a browse of betting.net.
💸 How do bookies always win ?
There is a common saying that you never see a poor bookie, but how they stay in business is not as simple as just keeping the money from losing bets. To discover how bookmakers and sportsbook operators make their profits, check out the insightful and comprehensive sportsbook guide over at Betting.net
🏇 Do bookies always want the favorite to win?
Contrary to popular belief, bookies do not necessarily care if the favourite wins or loses, as bookmakers do not make their money the way most people think. To discover how bookmakers and sportsbooks make their profits, and what they have to do to achieve that, check out the free information at Betting.net.
