How do Sportsbooks Make their Money?
It’s often taken as a given that sportsbooks rake in money on each bet, but the reality is much more complex. They’ve got to offer great odds and competitive margins to get customers who will wager in their portal – which then creates income for their business.
Let’s take a quick look into how exactly this all works:
Creating Odds Pricing
When looking at a variety of sites, you may wonder how bookies actually create the odds that they’re offering. This is a keystone to a successful bookies, as they have to balance value for the player and their ability to make money. It’s an incredibly in depth process that takes an entire team, plus the specifics are usually highly guarded secrets too.
In the same way as an investment company will analyse the risk and rewards of an investment, this team will work in house with a bookie to create realistic odds. They take into account a range of factors, from previous performance to current news. Then, they also factor in just how much money is likely to be bet on the individual match.
So how does this translate into odds? Well, the traders will calculate their odds, based on a football match this would come out as three outcomes, one team to win, the other to win and a draw. This should make up 100%, as each outcome will have a percentage point of happening. Then, they add on their margin to each of the outcomes, which will usually put those numbers up to 110% to 120%, this is the edge that the bookie then has over the bettor.
They then factor these percentages into the final odds, which will be displayed on the sportsbook. They can bank on at least two thirds of these final bets not coming to fruition, if we go back to our example each of the outcomes is mutually exclusive. This means that they cover the successful bets with those that have been unsuccessful as well as making their profit on top.
Things get a bit more complicated with side bets and novelty bets, as they’re harder to predict. For example, a bettor may have a successful bet with the team that will score first as well as the outright winner. On these bets, there’s more margin built in but also more outcomes that can cover the cost of the successful bets. For example, you may be able to predict how many goals are scored, for each successful bet paid out on this, there are more unsuccessful ones as the range of bets is larger.
Odds can change without any notice, you’ll most likely find that bets placed in advance will be highly different to those placed closer to the match or race. In play bets and cashed out ones also have odds that fluctuate down to the last second. This is the result of traders watching the event closely and recalculating the odds.
Balancing the Books
After the bets are paid out, most bookies will still be in a profitable place, if not then they need to reassess their strategy. These statistics will be recorded for the traders to use in future, to inform on their future odds. It’s very unlikely that a bookie will ever leave themselves in the position of losing money on their odds, even with free bets and bonuses factored in.
Some bookies also recoup any losses by adding fees onto their cash out process. This can bring them in a further percentage of the profit back, some of this goes to covering payment fees, but an additional margin can also be made here.
With an online bookmaker, there aren’t too many overheads when compared to a physical betting shop. They do still have outgoings however, and these must be accounted for in the margin that they make. This includes aspects like their chat team, advertising and maintenance costs. They also have taxes to pay on behalf of the player, as well as licencing fees and administrative fees. While these may not be glamorous expenditures, they’re still necessary to keep the bookies running.
It all comes down to a mathematical process, with profit and loss at the heart of any business. If bookies overcompensate by driving their margin up too high, then they will end up with less players. If they pay out too much and don’t work with a good margin, then they won’t make enough to cover their costs.
As with any business, the bookies have to turn a profit to survive. With some punters, they act like this is a bad thing and that it means the odds are stacked against them. In the simplest terms, if they didn’t make a profit then they’d shut down and there would be no bookies to bet with. The margin and odds can be a necessary evil to take into account to have the thriving gambling industry that we have today.