What Is a Sportsbook? (And How Does Such a Business Make Money?)
A sportsbook is the same thing as a “bookmaker” or “bookie.” It’s a company or individual who accepts bets from individual sports bettors. Most of these kinds of bets are on whether a team (or individual) is going to win a specific sporting event.
Books accept bets on either side of a sporting event. They’re able to afford this because of the difference between what a bettor has to wager and what a bettor wins. Most bets at most books require a bettor to wager $110 to win $100, although some require $120 to win $100. (And some discount books only require $105 to win $100.)
Those numbers, by the way, are ratios. You don’t have to wager $110. You could bet $55 or $11—you’d just see winnings of $50 or $10 for those bets. It’s the ratio that’s important, rather than the specific amount.
Bookmaking in the United States is tightly regulated by the government. Most states don’t have legal sports betting, although that’s likely to change based on http://hot-casino.com/blog/delaware-becomes-first-state-to-usher-legalized-sports-betting/recent Supreme Court rulings. But the Federal Wire Act outlaws using any kind of wired device (like a telephone or an internet connection) to place sports bets, even with legal books.
Plenty of online companies are willing to accept sports bets from United States customers, though. These books are located offshore and contend that they’re doing business in their country, where such activity is legal and regulated.
This post takes a closer look at the sportsbook business and how it makes a profit from its customers.
What Kinds of Bets Do Sportsbooks Handle?
Most sportsbooks accept wagers on most major sporting events, especially college and professional events. Some online bookmakers expand the kinds of bets they offer to other, non-sporting events, like the results of political elections and/or the Oscars. The action that these books accept varies from book to book.
The most popular sports bets that bookmakers handle include:
Of course, in the United States, it’s hard to imagine two sports getting more action than football and basketball. But in other countries, what we call soccer is called football, and it’s the most popular sport to bet on.
Also, when I use the term “racing,” I mean both horse races and car races. NASCAR betting is hugely popular in the United States.
But you’re not limited to betting on just those sports. Depending on which book you’re doing business with, you can also bet on smaller and more unusual events, including billiards, bowling, and darts.
No matter what sport you’re placing a bet on, the sportsbook has figured out a way to make it profitable for them and unprofitable for you—unless you’re exceptional.
This next section covers how they do that:
How Sportsbooks Make Their Money
Bookmakers are like any other business. They exist to generate a profit.
But you can’t make money if you’re willing to take bets on both sides of the game, can you?
You’d think, if you didn’t know better, that books make their money from being on the right side of the games. That’s not the case.
The profit comes from what the bookmaker asks you to wager when you place your bet.
Most bookmakers ask you to bet $110 to win $100. (The amounts can change, but the ratio is the same. For example, you could bet $55 to win $50, or $22 to win $20, or $11 to win $10.)
If they get an equal amount of money on either side of the contest, they’re guaranteed a profit.
Here’s how that math works:
100 people bet on a football game, and 50 of them take the home team. The other 50 take the away team. Assume that the average bet size for each of them on each side is $110.
The bookmaker collects $110 X 100 people, or $11,000.
The winners get their initial $110 back, so 50 X $110 is $5500.
The winners also win $100 each. That’s another $5000.
That’s $10,500 in payouts, but since they collected $11,000, they make $500 profit—no matter which team loses.
That extra $10 you’re risking on the bet?
That’s called “the vig” or “the juice.”
That’s what gives the book its positive expectation. It’s comparable to the rake in poker, or the house edge on a casino game.
Bookmakers are good at handicapping teams in such a way that a bet on either side has a 50% chance to win. They’re also good at handicapping teams in such a way that both sides see roughly the same amount of action.
Of course, not all bets use that $110 to win $100 ratio. In some books, the ratio is even worse for the player–$120 to win $100. Others discount the juice and only ask you to bet $105 to win $100.
And in some contests, the book doesn’t handicap the teams at all. They just create a money line, where a bet on the favorite wins much less money, while a bet on the underdog wins much more money. When they do this, they set the payout odds in such a way that they’re still going to make a profit regardless of which side wins.
This business model is ingenious, and it’s also hugely profitable. Large bookmakers deal with hundreds of thousands of dollars per game. In the case of NFL football, that’s 15 or 16 games per week.
That $500 profit starts to add up fast.
Of course, bookmakers need to be well capitalized. In the short term, anything can happen. They’re not guaranteed an equal amount of action on each side. In those cases, they might need funds to compensate.
Over time, the law of large numbers sees to it that the book stays profitable, though.
Are Sportsbooks Legal?
The legality of sportsbooks varies based on the jurisdiction that you’re talking about. In the United States, for example, sportsbooks are illegal almost everywhere in the country. A recent Supreme Court decision is catalyzing change in that area.
The underground sports betting industry, though, is tremendous. If you’ve spent much time at a local bar, you’ve probably met multiple customers of local bookies. They have a reputation for being part of organized crime, and maybe some of them are, but some of them are just guys who figured out the math behind the business and started taking bets.
Many local bookies use offshore sportsbooks to even out the action on either side of the betting, in order to reduce their risk when the action gets lopsided.
The Wire Act makes it illegal to take sports bets over the phone or the internet, but it’s a rare local bookie that gets prosecuted for this. I’ve never seen any reports of a bookie’s customer getting arrested or prosecuted for placing a bet.
Of course, in other, more enlightened countries, bookmaking is completely legal and regulated. The UK is an example of a country with this kind of attitude.
The advantages of legal and regulated bookmaking are obvious. For one thing, legal, regulated businesses pay taxes. For another, consumer protections exist for customers of legal, regulated businesses.
The amount of tax money the United States is leaving on the table because of the current legal status of sports betting is staggering. In fact, enormous amounts of money fly offshore every day because of customers using online sportsbooks. That money could be kept in the United States economy if sports betting were legal and regulated.
What’s the Difference between a Traditional Bookmaking Operation and a “Betting Exchange?”
A betting exchange is similar to a bookmaker, but the differences are significant enough that they have another name and business model. It’s more of a marketplace model, where customers can buy and sell either side of the action.
This is more or less what a traditional bookmaker does, but with a betting exchange, the customers set the odds themselves. The betting exchange doesn’t care about how good or bad the bets are, because they charge a small commission to the winning side of each bet.
The biggest example of a betting exchange is Betfair. You can both back and lay bets there. With a traditional bookmaker, you can only back a bet.
Here’s what that means:
When you bet with a bookmaker, you bet that something will happen. The bookmaker wins if it doesn’t happen. That’s backing a bet.
With a betting exchange, you can play the part of the bookmaker and bet that something won’t happen. That’s laying a bet.
All you have to do is find another customer who’s willing to take the other side of the bet at the odds you like.
This creates opportunities for trading and arbitrage that would be almost impossible when dealing with bookmakers. Smart bettors can find plenty of opportunities to take advantage of inequities in the marketplace of a betting exchange and guarantee themselves a profit.
Some traditional sportsbooks criticize betting exchanges for stimulating corruption in sports. It’s easier to rig an event to not happen than it is to rig an event to happen. And traditional books like Ladbrokes and William Hill suggest that giving individuals that opportunity to profit will result in more events being fixed.
How Betting Lines Work
The most common types of sports bets are:
- Spread bets
- Moneyline bets
- Prop bets
Spread bets are bets on a team to win by a certain number of points, or for a team to cover a certain number of points if they lose. The books use handicappers to predict the outcomes of the games. Based on this handicapping, they set a point spread.
A favorite must win by a minimum number of points for a bet to win. An underdog can win even if the team loses. All they must do is cover the point spread.
The spread is set up to do 2 things:
- Create a roughly 50/50 chance of winning
- To stimulate roughly the same amount of action on either side of the bet
A moneyline bet, on the other hand, doesn’t take a point spread into account. Instead, the amount you win is adjusted by the likelihood that a team will win or lose. If you bet on an underdog, you’ll win more money if they win. (They’re expected to lose.) If you bet on a favorite, you’ll win less money than you’ve risked. (They’re expected to win.)
The amounts are determined by how big a disparity there is between the teams. You might bet $100 on a favorite but only win $20 if they win the game. Or you might bet $100 on an underdog and win $150 if they win the game.
Totals are also called “over/under” bets. These bets pay off if the total scores for the 2 teams are over or under the predicted total. The handicapper sets these totals in the same way they calculate the point spread. They want to create a 50/50 chance of winning, but more importantly, they want to get equal amounts of action on both sides of the contest.
Proposition bets are bets you can make on any kind of random event during a game. This might be something as random as who’ll win the coin toss in a football game. Or it might have some element of skill, like a prop bet on who’s going to score the first touchdown in a game.
All of these available bets are called “betting lines.” They’re created by the mathematicians and statisticians working for the books using software and experience. This is the most important job at a sportsbook, and good handicappers can make or break a business.
Different sportsbooks have different handicappers, so it should be no surprise that the betting lines at one book can differ from the betting lines at another book. Shopping lines for the best opportunities is one way smart sports bettors profit from these companies.
How Sportsbooks Handle Bets on Different Sports
The kinds of bets available usually vary from sport to sport. For example, in contests like golf or auto racing, you bet on who’s going to win the race or the golf tournament. The payout is based on how likely it is for your pick to win.
These kinds of bets are straightforward enough. Each golf tournament participant or each driver has a payoff associated with him or her. For example, you might win 4 to 1 if Jeff Gordon wins a race. Or you might win 5 to 1 if Tiger Woods wins the golf tournament.
In addition to bets on the individuals participating, you can also place bets on “the field.” This is a bet that someone other than the individuals listed wins. This could be any number of people.
Bets on boxing and the MMA are similar, but of course, there’s only a single winner in any fight. These are moneyline bets. You pick a winner, and you get paid off based on the likelihood that you’re right.
Bets on games like baseball and soccer usually use a moneyline approach. You bet a certain amount of money, and the amount you can win depends on how well the team is favored (or how badly the oddsmakers think the team will lose.)
Sometimes baseball includes a run line, which is similar to a point spread, but the run line is always 1.5. It doesn’t change based on the relative strength of the teams. Further changes based on the strength of the teams are calculated into the moneyline.
The most popular way to bet on football, though, is spread betting. The point spread in football is so popular that major publications report on it, even though betting on NFL game is theoretically illegal in most parts of the United States.
And, of course, all these bets are set up so that the bookmaker can lay bets from both sides and guarantee a profit. Sometimes this is as simple as requiring you to wager $110 to win $100, but with moneyline bets, the vig is “baked into” the payout odds.
What Do Sportsbooks Do about “Sharps?”
A “sharp” is a skilled bettor—an “advantage gambler.” By shopping lines and doing a better job of handicapping games than the oddsmakers at the books, a sharp bettor makes a consistent profit by identifying and taking advantage of opportunities in the marketplace.
As with any advantage gambler, books don’t like dealing with them. You’ve probably seen movies or TV shows where casinos “backed off” card counters by telling them they were too skilled to be playing blackjack at their casino. Books sometimes do something similar.
When a sportsbook realizes they’re dealing with a sharp bettor, they’ll sometimes refuse to accept more action from that bettor. They might take a softer approach and limit the amount of action they’ll accept from such a bettor.
This has become such a problem for some professional sports bettors that they’re forced to employ multiple runners to place bets on their behalf to stay in action.
Even though books are supposed to be able to make a profit regardless of who bets on which side, large bets—especially at the last minute—can “unbalance” the action at the book. This can create negative expectation situations for the books.
And no gambling company wants to accept any kind of negative expectation situation. That’s not how they stay in business at all.
Sportsbooks, bookmakers, or bookies… they’re all the same thing. These companies provide a much-desired service for people who like to bet on the outcome of sporting events. In some respects, a sportsbook is much like a marketplace.
Newer sportsbook models (“betting exchanges”) are even more like marketplaces. You could almost think of them as being the equivalent of Wall Street, only for sporting events instead of companies.
If you take nothing else away from this post, know this:
Books make money by instituting small price inequities into the marketplace. One of the more obvious ways of doing this is asking you to risk $110 to win $100 on a 50/50 wager. To profit consistently at sports betting, you must win more than 53% of the time.
The legality of bookmaking in the United States is changing rapidly. At one time, the only legal place to bet on sports in the USA was in Las Vegas. But Delaware just legalized sports betting, and more states are sure to follow.
But for a lot of Americans, offshore books that operate online are the most convenient option to bet on sports. Neighborhood bookies probably aren’t going out of business anytime soon, either.