How do bookmakers make money?
One of the fundamental and attractive aspects of sports betting is the ability to consistently make a profit. You need to know what you are doing and apply the right strategies, but it can be done. However, most players lose money in the long run. There are several reasons why this is the case, one of which is that bookies use certain methods to always have an edge.
Successful sports betting is mostly about overcoming this edge. The bookmakers are essentially your opponents and you need to learn how to beat them. Before you can do that, you need to understand exactly how they are guaranteed to make money.
In this article, I will explain the methods that bookies use to get an edge. I will also look at the other main reason why they make money: most players make bad bets.
The basic principle of bookmaking is simple and fairly obvious. The bookmaker receives money whenever they place a bet on a customer and pays out money every time one of their customers wins the bet. The idea is to get more money than you pay out. The art of bookmaking is to make sure it happens.
Bookmakers cannot control the outcome of sporting events, but they can control how much they can win or lose on any given outcome. They set the odds for all the bets they place, which ultimately allows them to make a profit.
The main method that bookmakers use to increase the odds in their favor is to turn on energy. Vigorish, or vig, is also known as juice, margin, or wrap. It is built into bookmakers to help them make a profit. Basically, it is a commission charged for placing bets. To better explain the whig, we will use a simple coin toss example.
A coin toss has two possible outcomes, and each of them is equally likely. There is a 50% chance of coming up heads and a 50% chance of coming up tails. If a bookmaker were offering true coin toss odds, they would be offering even money. This is 2.00 for decimal odds, +100 for moneyline odds, and 1/1 for fractional odds. A successful bet of $10 tie returns $20, which is a profit of $10 plus the return of the original bet.
Let’s say this bookmaker has 100 customers and they all bet $10 on a coin toss, with half betting on heads and half on heads. In this case, the bookmaker will not work at all.
The bookies take a total of $1,000 in bets, but they also have to pay out $1,000 in winnings regardless of the outcome. Since they are in business to make money, this is obviously not a good scenario.
That is why they build a bet on the odds. Thus, they can guarantee, at least in theory, that they will make money regardless of the outcome. When two outcomes are equally likely, they usually use odds of 1.9091 (-110 on the money line, 10/11 on the fractional).
Continuing with the coin toss example, the odds of heads and tails will still be the same, but now they will be 1.9091. This means that a successful $10 will return a total of $19.09 ($9.09 profit plus $10 original bet).
Let’s see what it looks like for a bookmaker now with 50 customers betting on heads and 50 customers betting on tails.
As you can see, changing the odds made a big difference, and now the bookmaker is making a guaranteed profit on every coin toss. The total they pay out will always be $954.50 versus the $1,000 they received in total wagers. Their built-in profit margin of $45.50 is vigorous or excessive and is usually expressed as a percentage of the total stakes received. In this case, the Whig is approximately 4.5%.
This is a very simplified example, but it serves to illustrate how bookies set odds to give them an edge. Things get a little more complicated when it comes to sporting events, as the possible outcomes are usually not equally likely. In many betting markets there are more than two possible outcomes and bookmakers are not always going to charge the same amount on all possible outcomes.
For these reasons, making money with a bookmaker is not as easy as just charging a fee. Other methods are required to ensure consistent profits, and this is where the odds builder comes into play.
Odds compilers set odds at bookmakers. They are also known as traders and their role is absolutely essential. The odds they set ultimately determine how many bets a bookmaker can get and how much money they can make. The act of setting odds on a sporting event is known as market pricing.
There are a number of aspects associated with pricing in sports event markets. The main goal is to make sure that the odds accurately reflect the likelihood of a particular outcome, and to ensure that there is a built-in rate of return. The determination of the probability of outcomes is largely based on statistics, but very often it is necessary to apply certain sports knowledge.
Therefore, compilers must be very knowledgeable about the sports for which they are evaluating markets; thus, they often specialize in only one or two. They must also have a solid understanding of various mathematical and statistical principles.
Let’s take a look at how a compiler might evaluate the market for a tennis match in which Novak Djokovic plays Andy Murray. These two players are very close in ability, so the compiler will have to take into account a number of factors. For example, they will look at the current form and known abilities of each player on the respective playing surface. They will also take into account the results of past meetings.