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How Most Bookmakers Make Money

One of the fundamental and appealing aspect of betting is that there is always a possibility of making profits consistently. One needs to know what he is doing and apply the right strategies while betting. The process of becoming a successful better not only requires a deeper understanding of odds bookmakers operate. In most instances, bettors end up losing money over time. There are many reasons why this is often true, one being the fact that bookmakers use techniques to ensure that they are always at an advantage. Successful betting is all about overcoming this advantage. Bookies are essentially your opponents and therefore you have to learn how to beat them. Before this can be achieved, you also have to understand exactly how they are make their money.

Let’s now look at how bookies make money:

Basic principle of bookmarking

The basic principle of bookmarking is pretty obvious and straightforward. A bookmaker takes in money every time they lay a bet to a customer and also pay out money whenever their customers wins a bet. The idea is usually taking in more money than they pay out which is the art of bookmarking. Although they have no control over the outcome of the sports events, they control how much they stand to lose or win in any particular result. They normally set the odds for all the wagers they lay out which ultimately enables them to make sure they make a profit.

Changing vigorish/overround

This is the main technique that bookies use to put the odds in their own favor. This is also known as margin, juice or the overround. It is normally built into the odds that are set by bookmakers to help them make profits. It is essentially the commission charged for laying the bets. Let’s use the tossing of a coin to best explain vigorish.

The toss of a coin has 2 possible outcomes which are equally likely. There is a 50% chance of tails and 50% chance of heads. If bookmakers were to offer true odds of the coin toss, they would have offered even money. This is 2.00 in decimal odds, 1/1 in fractional odds and +100 in money line odds. Under this a successful $10 bet at even money will return $20 which represents a $10 profit plus the initial stake. Let’s take an example of 100 customers all betting on the coin toss with half the number betting on heads while the other half betting on tails. In this scenario the bookmaker will make no money. Since they are in the business to make money, the scenario is not obviously good for them. This is precisely the reason as to why they build in vig to the odds.

They can theoretically guarantee that they make money regardless of the outcome. When 2 outcomes are likely they set odds at 1.9091 or 10/11 in fractional. Using the coin toss example, the odds of tails and heads will still remain the same with a successful $10 returning a total of $19.09 ($10 stake plus $9.09 profit). When you take 100 customers; 50 betting on heads and 50 on tails, the odds make a very big difference and the bookmaker is guaranteed profits on every toss of the coin. The total amount they will pay out will be $954.50 against the $1000 they receive. Their build in profit of $45.50 is the vigorish.

Even though this s a simplified example, it serves to illustrate how bookies set odds to give them an advantage. Things get more complicated when it comes to sport events as the possible are not usually likely. For this reason, money making as a bookmaker is as straightforward as simply charging vig.

The role of odd compilers

Odds are set by odds compilers at bookmaking firms. The odds set usually determine the amount in wagers is likely to take in and the amount of money they are likely to make. There are various aspects involved in pricing up markets for sport events. The primary goal is usually to ensure the odds accurately reflect how likely any particular result might be while also ensuring a built in profit margin. The process of determining largely based on statistics but a certain amount of sports knowledge must also be applied. Compiler thus have to be knowledgeable; about the sports which they price.

Let take an example of how a compiler will price a market for a tennis match between Andy Murray and Novak Djokovic. Since they have close ability, the compiler will take a number of factors like current form and past meetings into consideration. Basing on this they might conclude that Djokovic has a 60% (1.67) chance of winning while Murray has 40% (2.50) chance of winning. Compiler normally target a minimum that varies significantly for a number of reasons. Let’s say they that they want a 5% margin. They will reduce the odds for each by 5% giving 2.38 for Murray and 1.59 for Djokovic. A bookmaker’s margin is calculated by adding the reciprocal of odds for all possible outcomes and then converting them into percentages.

MARGIN = (1/1.59) + (1/2.38) = 1.05= 105= 5% margin

The compiler has achieved the 5% target but the job is not done there so compiler have to try and make sure the bookmaker has a balanced book.

Creating a balanced book

When a bookmaker has a balanced book on any particular market, he stands a chance making approximately a similar amount of money regardless of the outcome. Taking the tennis match example, based on $10 000 total bets there will be a $ 9 540 payout if Djokovic wins (1.59 x 6 000) representing $ 460 profit while there will be a $9 520 payout if Murray wins (2.38 x 4 000) representing $ 480 bookmakers profit. This mean that the bookmaker will make roughly $ 500 regardless of the outcome. This is a 5% margin.

Odds on sport events usually fluctuate over time as compilers continually adjust them to make sure their books are balanced. For instance in the above example, they could increase odds on Djokovic so as to encourage more bets on his winning or even reduce the odds on Murray to discourage further bets on his winning.

There no guarantee that the process of adjusting odds will always create a balanced books but it usually helps in most circumstances. It is important to note that compiler can also want imbalanced books. For instance if they are very confident with Djokovic, they might decide to push the odds out on Murray so as to get more action on that side of the book.

Summary

It is very clear that bookmakers have a mathematical advantage over their customers. Although they do not win money always on every single bet, the advantage does help to ensure they win money in the long run. To avoid being one of those bettors who lose, you have to understand what actually makes a good bet. For the best chance of making money on sports betting, one has to be skilled in identifying betting opportunities which represent good value.

 

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