Edit Content

Betting Basics: How Do Bookmakers Make Their Money?

Does anyone know how bookmakers make their money?

One good thing about sports betting is that you can make profits consistently by understanding the system and applying the right strategies.

But, winning in sports betting needs more than understanding how it works. No matter how good you are, you’ll lose money.

There are a lot of reasons why this happens, and one of them is bookmakers using some hidden techniques to give themselves an advantage in every prediction.

Being successful in sports betting? Cashing out every other week? Is dependent on your understanding and then destabilising this advantage, and how bookmakers make their money.

Article Content:

Who is a bookmaker?
Types of bookmakers
Bookmakers and how they set odds
How do bookmakers make their money?
The basic principle of bookmaking
Charging the vigorish / overround: How it works
Odd compilers and what they do
Bookmakers margins: how they work
how bookmakers create a balanced book
Key Takeaways: How to make money from bookmakers

Who Is A Bookmaker?

A bookmaker or bookie is a sports personnel who oversees gambling, especially on sports events. A bookie sets the odds you find on a Prediction Site, accepts and places your bets, and pays winnings on behalf of oddsmakers.

Types Of Bookmakers

There are three types of bookmakers to select from when betting online.

1. Fixed Odds

Fixed odds bookmakers issue odds in fractions to create betting markets. Odds are offered in three outcomes of a match – Home, Win, Draw, and Away Win.

The odds have an inbuilt profit margin or house edge. Bookies take bets on every option that reflects a probability and creates a profit.

2. Spread

Here, bettors wager on the outcome to be lower or higher than the spread. Spreads are represented in two numbers, traders buy at a high number and sell at a lower number.

Spread-betting bookmakers earn money from the difference in stakes and payouts. Markets change depending on buy and sell stakes.

3. Exchange

Betting exchanges are represented in decimal odds and support peer-to-peer betting. It puts together bettors who want to back an outcome and layers who bet against it.

Exchange bets are matched at equally beneficial prices, partially or not matched at all. These bookmakers issue a back and lay price for outcomes in sports. Back prices are lower than the lay price.

An exchange bookmaker makes money from commissions on winning bets. This ensures that they make profits regardless of the outcome.

Bookmakers and How They Set Odds

One way bookmakers win is by calculating the odds of them winning an event. They do this using statisticians and developing complex models. “Moneylines” and “spreads” are important factors for them. Other times, their calculations are based on the ones developed by casino actuaries or risk calculators.

Basically, they underscore which teams the bookmaker believes will win a match. Lines and spreads can be adjusted in the time leading up to an event based on the bets made in their books or fluctuations in casino bets. Bad weather, injuries to players, and doping scandals influence odds too.

A bookie aims to maintain balance in the books by adjusting the odds as much as they can so that an even number of bettors back a win or loss. If the books are balanced, the bookmaker earns only the vig. But, if a bet is one-sided on a team or outcome, they have a higher chance of losing money.

How Do Bookmakers Make Their Money?

Bookmakers make their money by charging a fee (“vigorish” or “vig”) on every bet they take, and pay out earnings when customers win a bet. Their goal is to earn more cash than they pay bettors.

They do so by adjusting the odds to even the amount of people betting on a win or loss.

A vig is up to 10%, although high-profile bets like a tight line on the Super Bowl can be higher than this.

Here is an outline of other ways bookmakers make money:

Bookies set the right bet prices.

They set and change betting lines.

Balancing the book and curbing risks.

Counting on bettors’ emotions and lack of knowledge.

See: Betting Basics: Optimizing Your Betting Selections

Basic Principle Of Bookmaking

The basic principle of bookmaking is, a bookie accepts money when they lay a bet for a customer, and pays out money any time the customer wins a wager.

Professional bookmaking ensures that they take in more money than they pay out.

Bookmakers can’t control an event’s outcome out, but they can control how much they’ll lose or win in any results. Bookies set the odds for all the bets they lay, which always guarantees them a profit.

Charging The Vigorish / Overround: How It Works

Vigorish (juice, margin, or overround) is the main method bookies use to set odds in their favour. They build it into odds to help them make a profit.

But, how does a vig work? We’ve explained everything using this coin toss example:

A coin toss has two outcomes – “Heads or Tails” and both are equally likely. There is a 50% chance of heads and a 50% chance of tails.

If a bookmaker offered true odds on the toss of a coin, they would offer more money than they already do. This would be:

2.00 in decimal odds
+100 in moneyline odds
1/1 in fractional odds.

A $10 bet at even money returns $20, which is $10 profit plus the initial stake back. If the bookmaker had 100 customers betting $10 on the toss of a coin, half bets on tails and the other half on heads, they won’t make any money in this scenario.

In the image above, if the bookmakers are accepting a total of $1,000 in bets, they must also pay out a total of $1,000 in winnings no matter the result. But, since they are in business to make money, this scenario does not favour them.

That is exactly why bookies include vig into odds. So that they make money no matter the result of an event or match. When two outcomes have the same chances of happening, they’ll use odds of 1.9091 (-110 in moneyline, 10/11 in fractional).

In the coin toss example, there will be the same odds on heads and tails, but now at 1.9091. meaning that a wager of $10 will return a total of $19.09 ($9.09 in profit plus the $10 original stake).

Below is how it’ll look for the bookmaker, with 50 bettors backing tails and another 50 backing heads.

how do bookmakers make their money — **Credit:** Gambling Sites

From the above image, the changing odds make a significant difference, and the bookmaker gets a sure profit for every coin toss. The amount they pay out is fixed at $954.50 against the $1,000 they got in total wagers.

The standard profit margin which is the overround in this scenario is $45.50 and it’s expressed as a percentage of the total – 4.5%.

In betting markets with more than two possible outcomes, bookies won’t always accept the same amount on every outcome. This is why bookies don’t just make money by charging a vig. There use other methods like odd compilers.

Odd Compilers And What They Do

Odd compilers or traders set odds at bookmaking firms. The odds they set determine the amount in wagers, a bookmaker can take in and how much they make.

Setting the odds for a sports event is pricing the market. A few aspects are involved in this process. And the aim is to ensure that the odds correctly reflect the likelihood of any outcome while guaranteeing too that there’s an inbuilt profit margin.

Outcomes are determined by statistics, some sports knowledge, and a strong understanding of certain mathematical and statistical principles too.

When a compiler wants to price up a market for a match between two opponents who are equally strong. They consider factors like each side’s ability on the playing surface, past meetings, and current form.

Using those things, they conclude that one side has a 60% chance of winning the game, and the other a 40% chance. Approximately, the odds will reflect these chances as side A at 1.67 and B at 2.50. These odds are void of a vig which the compiler also considers.

Compilers have a target margin, which varies for many reasons. But in this case, if the margin is 5%, they’d reduce the odds for each side by 5%, giving side A 1.59 and B 2.38.

A bookmaker’s margin is calculated by adding the reciprocal of the odds for every outcome and converting it into a percentage. Here, there are two outcomes and the equation below is used.

The odds compiler achieved a target of a 5% margin. However, they must make sure bookmakers have a balanced book.

Bookmakers’ Margins: How They Work

In bookmaking, anything over 100% is the bookmaker’s profit. This is known as an overround, which is just another way to describe a bookie’s profit margin.

There are two ways bookmakers’ margins are represented, we’ve discussed them in this section.

1. Win/Draw/Win

A 1X2 market on a football game like the one below is a good way to expand on how bookies apply an overround.

In the example, when odds are quoted as a fraction they can be converted easily into decimal odds to know the implied probabilities. We explained further below:

1(Home Win) – 27/20 (fractional odds) = (decimal odds) 2.35 = (implied probability) 42.55%

X (Draw) – 23/10 = 3.30 = 30.30%

2 (Away Win) – 23/10 = 3.40 = 29.41%

The implied probability of the three outcomes when added (42.55 + 30.3 + 29.41) = 102.26%. this is an overround of 2.26% which guarantees the bookie’s profit no matter the match’s outcome.

This 2.26% looks small now, but when collected from the millions staked on thousands of events daily, this will mount up to a large profit for bookies.

2. Compounding

If bookies aren’t content with a 2.26% profit margin, they use other methods like accumulators, doubles, and trebles to get money from you.

When you calculate this overround on every selection, you can determine if there is a ‘value’ bet based on your market estimations.

When you select from the 1X2 market with the 2.26% overround. And include a second selection to make a double, what happens is that the bookie will have another 2.26% profit margin, giving them a total overround of 2.26 + 2.26 = 5.52%; compounding their first profit margin.

A 3rd selection totals to 2.26 + 2.26 + 2.6 = 7.78%.

The profits keep compounding when you add selections to an accumulator. The odds of your bets landing moves further, and the bookie’s profit margins get higher.

Side note: this is why experts advise that you stay away from accumulator bets.

Check: 5 Common Mistakes Bettors Make

Why You Should Calculate Bookmakers’ Margins:

Most bookmakers don’t openly show the market overround as an exchange would.

If you can calculate margins, then you can identify and understand variations across bookmakers and how it significantly impacts your potential return.

Betting value relates to the whole market, which means you should consider the odds for every outcome. The bigger the profit margin, the lower the overall value for you.

How Bookmakers Create A Balanced Book

If a bookie has a balanced book on the market, they’ll make the same amount of money no matter the outcome. For an imbalanced book, the outcome affects how much they make and may result in a loss. So, they prefer their books balanced, which is why they need odds compilers.

For the match between two strong opponents we discussed in an earlier example, the balanced book looks like this:

As indicated, based on $10,000 in total bets, the bookie will make $500 no matter the match’s outcome. This is for a 5% margin, but what happens if $10,000 is evenly spread on both sides?

In the above example, the bookie’s book is imbalanced. He will profit if Side A wins, but lose if Side B wins. They try to avoid this, which is why the odds on sports fluctuate over time.

Odds compilers continually adjust odds to balance their books. They can increase the odds on Side A to encourage more bettors to back their winnings or reduce the odds on Side B to discourage you from betting on them to win. They can do both too.

Adjusting the odds might not create a balanced book, but it helps. This is why the volume of bets is important to bookmakers. More money means they can get the balance right. If they can’t do this, they’ll try to get it as close to perfect as possible.

Sometimes odds compilers want an imbalanced book. If they are sure of an outcome, they’ll create a way for them to make a profit if it happens. They can do this by pushing the odds out on Side A to get more action on that side of the book.

Key Takeaways: How To Make Money From Bookmakers

As we have hopefully proven to you in this article, your bookmaker does not complain of a losing streak because they used a failsafe plan in form of vig and profit margin, to ensure that they don’t.

Now that you have known what they know and understood what really goes on, here are a few ways you can make your money back from the bookmakers, and place smarter bets too. (It’s possible, we promise)

1. Use A Good Bookmaker

Bookies want to keep you happy and patronising them, so they offer you benefits like the best odds available in the market, promotions, great customer service, and a variety of sports.

2. Test The Quality Of Markets With Overround

The overround is a foolproof way of knowing the true quality of betting markets generally. Add up the possibilities, convert them to percentages and see the final result.

The close a profit margin is to 100%, the better for you. Good margins give you an in to break down what your best betting options are based on the available odds.

3. Use Promotions

Bookmakers are already taking too much from you, the least you could do is exploit their need to please bettors and retain their patronages by offering them numerous promotions.

This means you should use bonuses as much as you can, instead of being wary of them. Just be sure that you’re getting the best of any promotion you’re offered.