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How Do Sportsbooks Make Money?

Sportsbook Oddsboard - NCAAB Odds - Bag Full of Dollar Bills

We all know that a sportsbook is a place where bettors can make wagers on various sporting or non-sporting events. These sporting events ranging from baseball, football, basketball, hockey, soccer, golf, tennis, MMA, boxing and many, many more.

We also know that gamblers who correctly pick the winning side make money from their bets and those who picked the wrong side to lose money. what about sportsbooks? How do these sportsbooks make money?

For starters, sportsbooks don’t just hold the bets for both sides. They are companies which exist to earn a profit as well and mind you, out of all the parties to a bet, the online betting sites often always comes out as the big winner in any sporting or non-sporting betting event. Surprised? Let us discuss further.

Betting Odds

At first, betting odds look complex and even confusing but in reality, they are not. Odds are the probability that an event is going to happen. Betting odds tell you how much money you are going to win with a particular wager. These betting odds are presented in a variety of ways. They can be either decimal, fractional or American. Let us explain each:

  • An example of decimal odds is 9.0. This means that a winning $1 stake will yield $9.0 ( 9.0 x $1.00) or a profit of $8.00 ($9-$1) for a winning bet.
  • An example of fractional odds is 4/1. This means that a winning $1 bet will give you a total of $4.00 or a profit of $3.00 ( $4-$1) for a winning bet.
  • An example of American odds is -$110. This means that a $110 bet will give you a total of $210 or a profit of $100 ($210-$110) for a winning bet.

Different bettors prefer the different presentation of odds and online sportsbooks will give you an option as to which way you want the odds to be presented. All you have to do is choose. Now that you know what the odds are, you might ask who comes up with these numbers and how do they come up with these numbers?

Betting Line

These odds are carefully created by the in-house oddsmakers working for online sportsbooks. These oddsmakers are the brightest minds in the sportsbook and they use public perception and key statistics to come up with the betting odds. Oddsmakers first create an overnight line which is also known as the opening odds. This is an educated guess of the starting point which oddsmakers think will get the same amount of betting action from bettors of both sides.

The opening line is usually offered to a select number of bettors, the professional ones. Once the bookmaker gets an idea of what these few professional bettors think, they will modify the line based on that plus taking into consideration other factors like home advantage, stats, weather, and injury reports. Then the line goes public.

The line released to the public does not stay the same. It either moves up or down depending on the betting movement from both or either sides. What the online betting site ideally wants is that there is equal betting money on both sides because that’s how they make their money.

The Vig

Sportsbooks make money by including a vigorish or “Vig” in the betting odds. The vig is a commission charged for making bets. It is collected from the betting money of losing bettors. We talked about odds earlier and to explain what this vig is all about, let us use American Odds.

The most common bettings odds are to put the two sides at -110 each. For example, the betting line could read this way: Lakers -110, Celtics -110. This means that to win $100, a bettor must place a $110 bet.

For Example

Let’s say a sportsbook takes a $110,000 bet on the Los Angeles Lakers and another $110,000 bet on the Boston Celtics. In total, the sportsbook gets $220,000 in bet money. After the game, only one team wins and the sportsbook will pay the winning bets a total of $210,000 ( $100,000 profit plus $110,000 original bet). Under this example, the sportsbook gets an income of $10,000.

Usually, though, the better team is pegged as a favorite at a “minus”, for example, -110 while the inferior team is pegged as an underdog at a “plus”. An example of plus money is when an underdog is priced at +110. But since the sportsbook always takes a commission, the “minus” money is always greater than the “plus” money. In no instance can the odds be at -110 for one team and +110 for the other. For example: Lakers -115, Celtics +105. In this example, the sportsbook still has a spread of 10 as its commission regardless of who wins the game.

Creating a Balance

Now the sample we presented above is the ideal scenario which the sportsbooks want: an equal amount of betting action on both sides. However, this does not always happen and in fact, it rarely happens. This is the reason why we see lines move from time to time. The oddsmakers are always on top of the situation. When betting money moves to favor one side and it is going to affect their commission, they tilt the balance to the other side by enticing bettors with juicy offers for the other side. At the end of the day, it’s a win-win situation for the online betting site.

Going back to our example, the sportsbook made $10,000 on a $220,000 betting action. Now we know that gambling is a billion-dollar industry so imagine just how much money these online sportsbooks make. And it’s not just one, two, three or four sports they cover. That doesn’t even factor how many games per sport happen daily. The vig isn’t a huge monetary figure when you come to think of it. But the sheer amount of betting money coming makes gambling one of the biggest industries on the planet.