How Do Sportsbooks Make Money?
Sportsbooks and their oddsmakers have quite a mysterious aura about them that not many other professions share. For some reason, they are seen as these all-knowing and somewhat criminal entities who are somehow in complete control of not only the sports world but the entire gambling world as well.
Of course, nothing could be further from the truth. Sportsbooks are nothing more than a very successful business model which, if you look at a bit more closely, aren’t mysterious at all.
What sportsbooks are doing is quite obvious as they operate out in the open. However, the question remains, if sportsbooks aren’t all-knowing criminal enterprises, how do they make money?
How sports betting works
To understand exactly how sportsbooks make money, you have to know how sports betting works. However, for the sake of this article’s length, we are going to assume you understand that sports betting exists and only dive into smaller, more overlooked details. This is not sports betting 101, but a more advanced course.
For starters, know that sportsbooks are responsible for setting the lines. “Lines” are somewhat of a catch-all term used for the odds, points spreads, and/or wagers available for a certain sporting event.
It is these lines which sports gamblers wager on. There are, of course, dozens of different wagers available per game in every sportsbook. Depending on the sport or game, there can be thousands of wagers available.
For instance, the Super Bowl is widely regarded as the biggest gambling day of the year, with billions of dollars in action and thousands of wagers available.
The most important “line” the sportsbook sets is the odds. The odds on any game or wager are essentially the payout, the money you are to receive by winning the wager.
Therefore, every wager has odds. Some wagers, like the moneyline, are completely dependent on the odds. The odds are the most important factor of any wager and where sports betting all begins.
How do betting odds work?
To put it in the simplest terms, the odds on a wager or game determines what your payout will be if the wager wins. These odds are expressed in many ways around the world, but they are all saying the same thing, odds equal payout.
In some parts of the world like Europe, they are expressed as ratios. In other parts of the world, they are fractions. They are telling you what you will receive for winning any wager.
In the US, you’ll see the odds of wagers or games expressed by the numbers (usually three-digit numbers) beside the team name on a wager slip. For example, if the New England Patriots are home favorites versus the Kansas City Chiefs, the NFL betting slip would appear like this.
- Kansas City Chiefs (+200)
- New England Patriots (-150)
The (+) next to the Kansas City Chiefs, for instance, informs us that they are the underdogs. The same way the (-) next to the New England Patriots informs us that they are the favorites.
The fact that the New England Patriots are on the bottom lets gamblers know they are the home team, just like in a newspaper box score.
Now, it can be a little confusing at first, but once you learn the formula for calculating the odds, you’ll be able to see the payouts without a problem.
It is important to know that the odds are expressed in terms of a $100 wager. The numbers next to the team names are telling you the payout if you were to place a $100 wager.
Sports betting lines explained
The best way to illustrate odds is via the moneyline wager. This wager is one of the simplest in the sportsbook.
All you do to win a moneyline wager is pick the winner of the game. No point spreads to consider or overs or unders to worry about.
Just pick the winner and win the bet. Then, if you do pick the winner, you are paid out at the given odds.
Of course, the odds of a favorite winning the game are going to be very different than the odds of an underdog winning a game. Therefore, the odds for the favorites are expressed with a (-), and the odds for an underdog are expressed with a (+). These symbols are key to understanding your odds and, therefore, your payout.
Positive (+) moneyline wager
The team with the (+) number is the underdog, so a win is going to pay out more than your original stake. In terms of a $100 wager, this number tells you how much the payout is if you win the wager.
Using the example above, this means a $100 moneyline wager on the Kansas City Chiefs will pay out $200. As you can see, these are 2 to 1 odds, only expressed as +200.
So, this would translate to a $50 wager paying out $100 or a $250 wager paying out $500. A $10 wager pays out at $20. Underdogs beating favorites straight-up are gutsy bets and are, therefore, rewarded accordingly.
Negative (-) moneyline wager
As common sense will tell you, the negative (-) moneyline wager is calculated in the exact opposite manner. Here, the number tells you how much you would have to wager to win $100.
After all, the (-) number is for favorites, and betting on the favorite is not going to earn you as much as betting on an underdog. Using the example above, you would have to wager $150 on the New England Patriots to win $100 since they are the favorite. Betting on the favorite won’t earn you as much as betting on the underdog, as it should be.
What is juice, vig or vigorish in sports betting
So, how do sportsbooks make money? Well, the short answer is off the “juice.” The juice can also be referred to as the “vig” or the “vigorish.” Of course, this begs the question, what is the juice, vig, or vigorish?
It is best to think of the juice as a fee sportsbooks charge each winning wager. A winner’s tax.
You see, the sportsbooks are not in the business of placing wagers (more on that below), they are only in the business of offering wagers. They are selling sports betting action, and their price for doing so is the juice.
Anywhere from 5% to 20% will be collected from every winning wager as the juice. The juice is built into the odds the sportsbook offers to be sure they are collecting money off every winning wager.
The major sportsbook misconception
Many people, even many sports gamblers, believe the sportsbooks are betting on the games as well. As if the sportsbooks and oddsmakers are setting lines with the sole aim of getting most of the sports gamblers in the world to wager against them and lose. After all, there is a very old (and very misguided) rule that the house always wins.
Of course, this may usually be true. The house sure does win a lot, but not for the reasons you would think.
Just imagine the time and effort it would take to pull off such a conspiracy. It just makes no sense.
Sporting events are many things, but one thing they are not is predictable. So, no, the sportsbooks themselves are not gambling.
However, this doesn’t mean they don’t win almost every game they offer. The fact of the matter is whether you like it or not, you are paying the juice on any time you win, and no wager illustrates this better than a point spread wager.
Point spread wagers and the juice
The point spread wager is the most popular sports bet in the sportsbook. The favorites are giving the points, and the underdogs are receiving the points.
To win a point spread, your team has to cover the spread. Everyone knows the point spread wager.
However, what many people don’t realize is that there are odds on a point spread wager, and they just so happen to perfectly reflect the juice. This is why on point spread bets, you’ll see the odds printed as (-110) or (-105).
That 10 in the (-110) is the juice, and it’s the reason why when you win a $10 wager, you only collect $9. Remember, on (-110) odds, you’d have to bet $110 to win $100. So, where does that 10% go? To the house, of course.
Understanding the role of bookmakers
In all actuality, all the sportsbooks want to do is collect their juice and move on to the next game. Getting that 10% from every winning wager is their goal.
This is why they’ve become so adept at setting the lines. After all, the lines are what bring in the money, and, for the sportsbook to be successful, these lines have to be compelling on both sides of the wager.
This is the most important aspect of understanding how sportsbooks get paid. What the sportsbooks are truly attempting to accomplish with every line is to get equal amounts of money on both sides of the wager.
To turn a profit, sportsbooks have to be neutral and completely unleveraged on every wager. They want the same amount of money on the underdog as they do on the favorite.
The oddsmakers are not attempting to handicap games as much as they are only trying to entice you to wager. For example, let’s say the New England Patriots are three-point favorites at home versus the Kansas City Chiefs.
- Kansas City Chiefs +3 (-110)
- New England Patriots -3 (-110)
Now, the popular misconception here is that the sportsbook is handicapping the game and their oddsmakers, through hours and hours of research, have found that the New England Patriots are three points better than the Kansas City Chiefs when playing at home. Of course, this is not true.
This line was created as nothing more than a starting point. The point spread is meant to bring in action on both sides of the bet and has nothing to do with handicapping the game.
This way, because of the odds, the sportsbook can keep all the money from the losing side of the wager and shortchange the winning side to the tune of 10% or (-110).
However, one has to wonder, how do the sportsbooks get equal amounts of money on both sides of the wager? Are the oddsmakers that good at setting lines?
Of course not, but they do have another trick up their sleeve, and that’s the ability to move the lines.
How do bookies balance their books?
Once a line has been set, and the wagers start coming in, the sportsbook will pay close attention to which side of the wager the money is on. If the money is on one side of the wager more than the other, the sportsbook is suddenly in a bad situation.
They are leveraged, and this is not where the sportsbook wants to be. When they are leveraged, they have essentially picked a side of the wager and are gambling as well. This is not where they want to be.
Now, the sportsbook has to get money on the other side of the wager. To do this, they will simply reset the line in a way to make the other side of the wager more attractive.
They can do this by changing the point spread or the odds or both. This way, more money will go in on the other side and equal out the money.
For instance, let’s say the New York Giants are (-8) home favorites versus the Philadelphia Eagles, and the line is set on Monday. As the week goes on, more and more wagers come in, the sports gambling public keeps taking the Eagles (+8).
So, to entice more money to the other side of the wager, the sportsbook changes the point spread to Giants (-7). However, there is still more money on the Eagles on Thursday, so the sportsbook moves the point spread again to Giants (-6.5).
With this move, the money starts to even out, so the sportsbook leaves it as is. Then, when the game kicks off on Sunday afternoon, the point spread is a full point and a half lower than it started.
Good leverage vs. bad leverage
Of course, sportsbooks are not going to be able to get equal amounts of money on both sides of the wager. It doesn’t matter how perfectly they set the line or how many times they move the line.
Sometimes, they are leveraged and stand to lose a lot of money. However, this also means they could win a lot of money. These two scenarios probably equal out, though, right? Well, not exactly.
The house allows wins
Sportsbooks are privy to plenty of data, especially when it comes to gambling patterns. They’ve been taking a lot of wagers for a long time now, and it is safe to say they know a thing or two about sports betting.
If you had plenty of information on gambling patterns and the ability to set and move lines, wouldn’t you try to skew the lines to be leveraged in your favor? Of course! And this is exactly what sportsbooks do.
Sportsbooks know two very true things about sports gamblers:
- Sports gamblers love to take the favorites. It doesn’t matter the line. It doesn’t matter the spread. It doesn’t matter the odds. Sports gamblers are ready to load up on the favorite.
- Sports gamblers love to take them over total wagers. It doesn’t matter the sport. It doesn’t matter the matchup. Sports gamblers overwhelmingly go for the over.
Since sportsbooks know this, the lines they set reflect these facts. All of the lines, odds, point spreads, over/unders, moneylines, etc., are skewed in the house’s favor to give them “good” leverage.
If a team is favored by 10 points, it should probably be eight or nine. If an over/under line is set at 143, it should probably be 140.
A (+200) favorite on the moneyline should probably payout at (+220). This way, if the sportsbook does become leveraged, it is probably going to be in their favor because they’ve set up sports gamblers to fail according to their betting patterns.
So, how do sportsbooks make money? Well, they do it in a few ways. First and foremost is via the juice on every winning wager.
This is the real moneymaker, and the 10% they are getting from every wager is a very profitable business. Plus, if the sportsbook ever finds itself a bit leveraged, it’s probably in its favor and, therefore, not all that bad of a position for them to be in.
However, it isn’t really how the sportsbooks make money; it’s who they make money off of.
Most sports gamblers only do so recreationally. They’ve watched a ton of sports their whole lives and feel as if they can make a few bucks here and there with this knowledge.
Sportsbooks love these people because they are bad at gambling. They bet on their hometown teams. They chase their losses with more bad bets. They love to bet favorites and overs.
They make mistake after mistake, and any money they win will be returned to the sportsbook five-fold.
This may seem like bleak news as if there is no way to win versus the sportsbook. This, of course, is not true. After all, there are professional sports gamblers out there making themselves quite a living.
The key is to take sports gambling seriously, just as the sportsbooks do. If you do this, with some time and practice, you can be as successful as they are.