How Sportsbooks Make Money
One of the most quoted phrases in the sports betting world is the cliché: the house always wins. Newer bettors often like to question the validity of this statement, with many swearing that they are the exception to the rule. Many more take the phrase to mean that bookies rely on losing bettors to remain afloat.
Its true meaning, however, is on how the gambling industry as a whole is set up to ensure that money is always pouring into the bookies’ accounts—regardless of whether you win your upcoming wager or not. These are businesses, after all. If there’s no money in it for them, then there’s no reason for them to offer services to gamblers in the first place.
So if you’ve ever wondered how sportsbooks guarantee that they always make money, here’s everything you need to know regarding that very topic.
Vig in sports betting & how it works
Vigorish is a term that every bettor should know simply because they’re always going to interact with it, whether they are aware of it or not. A simple definition of the term is the small fee that sportsbooks charge when taking on a bettor’s wager. For this reason, it’s commonly referred to as ‘commission’ or ‘the cut’. You may also hear other bettors refer to it as ‘juice’ or ‘the vig’.
Bookies employ this charge to ensure that no matter the outcome of an event, they are guaranteed money at the end of the day. This makes their business model not have to rely on freak results, like underdogs winning, which is a common misconception that many people have when asked how bookies make their money. Sure, unexpected results mean that sportsbooks will milk larger profits, but think of vigorish as the failsafe that guarantees money for sportsbooks regardless of the result.
And even though it’s a fee, vigorish isn’t something that you pay upfront. It’s always incorporated into the betting odds.
To understand this best, take, for example, an event with a 50/50 chance, like the flip of a coin. The odds for such ideally should be +/-100, which would translate to the above 50% probability. Bookies, however, will offer such an event at odds of -110.
So this means that if you wanted to win $100, you’d have to place $110 on such an event. The bookies are guaranteed $10 in this situation, regardless of whether you win your wager or not. This $10, therefore, is the vig.
For events such as match totals (over/under) and point spreads, the vigorish is usually standard as most of the odds for such markets are -110 on both sides. This translates to a 4.5-5% commission for the sportsbooks, which is considered a standard cut within the gambling industry.
Some sportsbooks might offer you odds of -105 on the above lines, giving you added value on these options. This is why it’s important to always shop for the best odds. For bookies offering the -105 odds, this translates to a 2.3% to 2.5% margin for them, meaning that they’re still making money on such lines.
Certain sportsbooks charge higher than the standard 5% in different types of markets, most commonly in markets where the odds don’t have to be equal, such as moneyline wagers. In such situations, if you want to know the vig, you’d need to calculate it for yourself. There are easy ways to do this in our internet age: a simple web search will redirect you to many websites that offer free vig calculators.
However, you may want to calculate this for yourself. To do so, you first have to familiarize yourself with the term overround.
Overround, in simple terms, is the accumulated sum of probability of a given event. In theory, any outcome should have a cumulative total of 1 (when calculated in odds) or 100%, for example, a coin toss has a 50% chance of landing on heads and a similar 50% chance of landing on tails. The cumulative total of this probability, therefore, is 100%.
Bookies, however, will price many events in such a way that the cumulative total of their probability is greater than 100%. You might find that events have a combined probability of 108% or 110% after adding their implied outcomes. In this case, the additional 8% or the 10% is the overround.
The example below will help you better understand overrounds and how to calculate the vig.
Example of how vig is calculated
The New York Giants are facing off against the Seattle Seahawks. The odds for the moneyline (team to win) are as shown below:
- New York Giants – (-400)
- Seattle Seahawks – (+250)
If you wanted to calculate the vig here, you’d first need to know the implied probability. This is easily done by dividing the stake wagered by the probable return. I.e. 400/500= 80% chance of winning for the New York Giants, while the Seahawks have an implied probability of 28.6% which has been derived from 100/350.
Add the two, and you can see that the sum of the probabilities is 108.6%. The overround, in this case, is 8.6%.
The formula to calculate the vig is a straightforward one. Just use 1-(1/overround) x 100.
In our case, it will be 1- (1/108.6) x 100. This will come to 0.0792, equating to a vigorish of 7.92%.
Such a process may be a long one. So if you’re in a rush to place a bet, opting for an online vig calculator may help save you some time. Whichever route you take, it’s always best to know how much bookies charge so that you’re able to see whether you’re paying a premium or the standard vig rate.
How do sportsbooks manage risk?
Bookies need to be savvy in their operations. It’s a requirement of the industry, especially for a sportsbook that wants to maximize potential profit. One such way that bookies employ their savviness is through line movements.
Line movements occur when sportsbooks change previously released lines as a reactionary measure. This can be due to several reasons, but one of the most common ones is because one side of the bet has received a greater percentage of the action from the public.
When these lines are altered, it’s a psychological maneuver from the bookies to try and encourage an equal amount of action on the other side of the bet.
Example: The New York Knicks are playing The Golden State Warriors. The O/U line opens up at 190.5 points. More than 75% of the bets coming in on this market opt for the over. The sportsbook takes note of this and moves the line to 193.5 points. Majority of the bets now coming in choose the under instead. With this line movement, the bookies have been able to achieve their desired balance.
Remember, since bookies have the vig on their side, it ends up working out for them. That’s why sportsbooks should have an almost balanced amount of action. Regardless of the result, they remain in the green.
Is sports betting a legal business?
Yes! Sports betting in America is a legal business. After the landmark 2018 SCOTUS ruling that deemed the then ban on sports betting to be unconstitutional, states were given the freedom to pursue sports betting if they wished.
Currently, close to half of the fifty states have some form of legalized sports betting. Some of these have online betting, while others that only have in-person betting are also trying to legalize online betting. Most of the states that are yet to legalize gambling are also seeing the merits of doing so, which is why many of them are seeking legislative changes.
Each state also has a regulatory body that oversees sports betting operations to ensure that sportsbooks follow the stipulated regulations.
The New York State Gaming Commission is the governing body that oversees all of the gambling activities within New York. If you’re in a different state, you can easily check whether gambling is legal through the internet and also find out what your state’s governing body is in case you have an issue to report to them.
However, offshore sportsbooks operate illegally since they don’t have any local regulatory oversight. There are also many dangers of opting for such offshore books. The best solution, therefore, is to always opt for a legal and regulated American sportsbook.
Is there any way to continually beat the sportsbooks?
Many people say that it’s impossible for bettors to continually beat sportsbooks, which leads them to wrongly quote the phrase the house always wins. Continually beating the sportsbooks, though, is not entirely impossible. Many bettors go toe to toe with sportsbooks and make a living by doing so. Others may not make a living doing so but still reap large amounts of money that make their battles with the bookies worth every bet.
So continually beating the sportsbooks is possible. You don’t even have to be a multimillionaire with a seven-figure bankroll; you can just start from where you currently are as you build your bankroll. This is also why it’s important to know how sportsbooks make money. If you want to exploit their weaknesses, you have to know what their strengths are first.
One way that will help you beat the bookies is by thinking like them. When you see a certain line, ask yourself why the bookies saw it fit to pick that specific line. When a line shifts, again, ask yourself why that line changed. Using this mindset will help build your discernment when analyzing possible wagers. It will also help build your foresight; a crucial tool that is indispensable when handicapping future matches.
With time, you’ll even be able to accurately price wagers before the lines are even released.
But the key to continually crushing the bookies is the most crucial aspect of sports betting: research. Many sports bettors disregard the importance of research, but it’s what separates the part-time bettors from the full-time pros.
Without the appropriate amount of research, you can just hand your stake to the bookies as a charitable donation instead.
Which sport makes sportsbooks the most money?
If you’re looking for the most profitable sports to bet on, that largely depends on several factors. Some leagues like the MLB have many more season games than the NBA and the NFL, giving baseball an edge in terms of betting volume.
However, the most popularly wagered sports in America are football and basketball. A majority of these bets are placed on NFL, NBA, and college league games. The Super Bowl itself is one of the biggest draws for sportsbooks, with billions placed on Super Bowl Sunday alone.
Boxing and tennis are other popular betting alternatives, with baseball also in and around the top five preferred sports for bettors.
Internationally, soccer is the most profitable sport for sportsbooks largely due to its massive popularity.
How can I profit on sports bets long term?
To profit on sports betting long term, all you need to do is come up with a method that will suit the way you approach sports betting. You can start by creating one from scratch or by going through some of the most profitable methods that pro bettors employ. This will require a lot of research, which, again, is crucial if you’re in this for the long term.
Ensuring that you have good bankroll management will also go a long way in helping you stay profitable. A lot of bettors win large sums of cash early on and disregard all the tenets of bankroll management. Others start losing and, instead of sticking to their betting limits, end up placing all of their money on one bet. Such risks should be avoided because they can make you lose everything in a flash.
Shopping for the best lines and odds should also be a key priority. It may not seem like much in the short term, but it will eventually add up. And if you truly are in it for the long haul, every small margin counts.
Is long-term profitability possible as a sports bettor?
Yes! Long-term profitability is possible as a sports bettor. As mentioned above, develop a savvy approach to sports betting, make research your priority, think critically like the bookies, and chase every small margin. Such actions will pave the way for a profitable career in sports betting.
Final take on how sportsbooks make money
Though it may not seem important to know how the bookies operate, learning a thing or two about how they make money may influence one of your future betting decisions. If you want to avoid paying premiums on a wager’s vig, or if you want to find out how you can shop around for the best lines, studying how sportsbooks make money will be more than beneficial for you.
It may also help you if you’re looking for ways to defeat the bookies. Remember, to exploit their weaknesses, you first need to study their strengths.