# How Bookmakers Make Money

One of the fundamental, appealing aspects of sports betting

is that it’s possible 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 bettors lose money in the long

run. There are several reasons why this is the case, one of

which is the fact that bookmakers use certain techniques to make

sure they are always at an advantage.

Successful sports betting is basically about overcoming this

advantage. Bookmakers are essentially your opponents, and you

have to learn how to beat them. Before you can do this, you need

to understand exactly how they are ensured to make money.

In this article, we explain the methods bookmakers use to

give themselves the advantage. We also look at the other main

reason why they make money: most bettors

make bad bets.

## So, How Exactly Are the Bookmakers Making Money?

Bookmakers make money by the following:

- They set the right bet prices (the vig)
- Setting and changing the betting lines
- Balancing the Book – Eliminating Risk
- Counting on Bettor Emotions and Lack of Knowledge

## Basic Principle of Bookmaking

The basic principle of bookmaking is straightforward and

pretty obvious. A bookmaker takes money in whenever they lay a

bet to a customer, and they pay money out every time one of

their customers wins a bet. The idea is to take more money in

than pay out. The art of bookmaking is in making sure this

happens.

Bookmakers can’t control the outcome of sports events, but

they can control how much they stand to win or lose on any

particular result. They set the odds for all the wagers they

lay, which ultimately enables them to ensure a profit.

## Charging Vigorish/The Overround

The main technique bookmakers use to put the odds in their

favor is the inclusion of vigorish. Vigorish, or vig, is also

known as juice, margin, or the overround. It is built into the

odds bookmakers set to help them make a profit. In essence, it’s

a commission charged for laying bets. To best explain vig, we’ll

use a simple example of a coin toss.

The toss of a coin has two possible outcomes and each is

equally likely. There is a 50% chance of heads and a 50% chance

of tails. If a bookmaker were offering true odds on the toss of

a coin, they would offer even money. This is 2.00 in decimal

odds, +100 in moneyline odds, and 1/1 in fractional odds. A

successful $10 bet at even money returns $20, which is $10

profit plus the initial stake back.

Let’s say this bookmaker had 100 customers all betting $10 on

the toss of a coin, with half of them betting on tails and half

of them betting on heads. The bookmaker would stand to make no

money at all in this scenario.

As you can see from the above image, the bookmakers are

taking in a total of $1,000 in wagers, but they also have to pay

out a total of $1,000 in winnings whatever the result. Since

they are in business to make money, this is obviously not a good

scenario.

This is precisely why they build in the vig to the odds. They

can thus guarantee, theoretically at least, that they will make

money regardless of the outcome. When two outcomes are equally

likely, it is common for them to use odds of 1.9091 (-110 in

moneyline, 10/11 in fractional).

Continuing with the coin toss example, the odds on heads and

tails would still both be the same, but they would now be at

1.9091. This means that a successful $10 would return a total of

$19.09 ($9.09 in profit, plus $10 original stake).

Let’s see how that looks for the bookmaker now, with 50

customers betting on tails and 50 customers betting on heads.

As you can see, the change in odds has made a big difference,

and the bookmaker is now making a guaranteed profit on every

toss of the coin. The total amount they pay out is always going

to be $954.50 against the $1,000 they have received in total

wagers. Their built-in profit margin of $45.50 is the vigorish,

or overround, and it’s usually expressed as a percentage of the

total wagers received. In this case, the vig is equal to roughly

4.5%.

This is a very simplified example, but it does serve to

illustrate how bookmakers set the odds to give them an

advantage. Things get a little more complicated when it actually

comes to sports events, as the possible outcomes aren’t usually

equally likely. There are more than two possible outcomes in

many betting markets, and bookmakers aren’t always going to

take in exactly the same amount on all possible outcomes.

For these reasons, making money as a bookmaker isn’t as

straightforward as simply charging vig. Other techniques are

required to ensure consistent profits, and this is where the

role of odds compilers comes in.

## The Role of Odds Compilers

Odds compilers set the odds at bookmaking firms. They are

also known as traders, and their role is absolutely essential.

The odds they set eventually determine how much in wagers a

bookmaker is likely to take in, and how much money they are

likely to make. The act of setting the odds for a sports event

is known as pricing the market.

There are a number of aspects involved in pricing up markets

for sports events. The primary goal is to make sure the odds

accurately reflect how likely any particular outcome might be,

while also ensuring that there’s a built-in profit margin.

Determining the likelihood of outcomes is largely based on

statistics, but very often a certain amount of sports knowledge

must be applied as well.

Compilers therefore have to be very knowledgeable about the

sports for which they are pricing markets; thus, they often

specialize in just one or two. They also have to have a solid

understanding of various mathematical and statistical

principles.

Let’s look at how a compiler might price up a market for a

tennis match in which Novak Djokovic is playing Andy Murray.

These two players are very close in ability, so the compiler

would have to take a number of factors into consideration. They

would look at current form, for example, and each player’s known

ability on the relevant playing surface. They would also take

the results of past meetings into account.

Based on all these factors, they might reach the conclusion

that Djokovic has roughly a 60% chance of winning the match and

Murray roughly a 40% chance. The odds that approximately reflect

these chances are Djokovic at 1.67 and Murray at 2.50. These

odds don’t include any vig, which would also need to be

considered.

Generally speaking, compilers have a target margin. This may

vary quite significantly for any number of reasons, but let’s

assume in this case that the compiler wants around a 5% margin.

They would reduce the odds for each player by 5%, giving 1.59

for Djokovic and 2.38 for Murray.

A bookmaker’s margin can be calculated by adding the

reciprocal of the odds for all possible outcomes and converting

it to a percentage. In this case, there are two possible

outcomes, and the following equation would be used.

As you can see, the compiler has achieved the target of a 5%

margin. However, the job doesn’t end there. Compilers also have

to try and make sure that a bookmaker has a balanced book.

## Creating a Balanced Book

When a bookmaker has a balanced book on a particular market,

he stands to make approximately the same amount of money

regardless of the outcome. With an imbalanced book, the outcome

would affect how much is made, and it could even result in a loss. A

balanced book is usually the preference, for obvious reasons,

and is what odds compilers typically aim for.

Continuing with the above tennis match example, a balanced

book would look something like this.

As you can see, based on $10,000 in total bets, the bookmaker

stands to make roughly $500 regardless of the outcome. This is

the target 5% margin. Let’s look at what would happen if that

$10,000 in total bets was spread evenly on both players.

In this scenario, the bookmaker has an imbalanced book. He

will make a profit if Djokovic wins, but will lose money if

Murray wins. It’s usually a scenario to try and avoid.

This is why you see odds on sports events fluctuate over

time. Odds compilers will continually adjust them to make sure

their book is balanced. For example, in the above scenario, they

could increase the odds on Djokovic to encourage more bets on

his winning, or they could reduce the odds on Murray to

discourage further bets on his winning. They could even do both.

There’s no guarantee that adjusting the odds will always

create a balanced book, but it usually helps. This is one reason

why the volume of bets is so important to bookmakers. As a

general rule, more money coming in means they are more likely to

get the balance right. It’s actually quite rare to get markets

perfectly balanced; the goal is simply to get as close as possible.

It’s worth noting that sometimes odds compilers will actually

want an imbalanced book. If they have confidence in a particular

outcome, they will try to create a situation where they stand to

make the most profit if it happens. If they are very confident

that Djokovic could win the match against Murray, for example,

they might decide to push the odds out on Murray to get more

action on that side of the book.

## Summary

It should now be clear why bookmakers have a mathematical

advantage over their customers. They don’t always win money on

every single market they price up, but this advantage does help

to ensure they win money in the long run.

The advantage can be beaten, however. It’s not like casino

games where the odds are always stacked against you no matter

what you do. That being said, the mathematical advantage isn’t

the only reason why bookmakers make money. Their success also

comes down to the simple fact that most bettors place more bad

than good bets.

To avoid being one of those bettors, you need to understand

what actually makes for a good bet. Contrary to what many

believe, a good bet isn’t simply betting on what you think

might happen. Although this approach can be successful if you

are accurate often enough in predicting the outcome of sports

events, but the reality is that most people are not.

For the best chance of making money on sports betting, you

need to be skilled in identifying betting opportunities that

represent good value. This is the real key to consistent profits

and something we explain more about in the next article.