How Do Sportsbooks Make A Profit?

Sports gambling is becoming legal at a rapid rate across the United States. What was once something that often had to hide in the shadows is now one of the fastest emerging industries across the country.

As it continues to become more normalized, we can expect sports betting to grow even more. If you’re considering taking part, you may be curious how the industry works. For instance, where does your money go?

To understand how sports gambling works, you must understand the concept of the sportsbook. This is the entity that accepts your money and then pays out winning bets. On the other hand, if your bet loses, it will keep the money that you wagered.

But how do these companies make a profit? It seems as if running a sportsbook might be a risky business because of the chance that they need to pay out large amounts of money. Sportsbooks have developed a business model to minimize the risk of that happening, with the aim of making a profit no matter what happens.

Besides sportsbooks, betting exchanges are another option for bettors. These work slightly differently than your normal sportsbooks, as they exist on a gambler-against-gambler platform. How do these companies make money and which one is a better option for you and your money?

Understanding sports betting vig

Sportsbooks need to make sure that no matter the outcome of any game they still make a profit. To do this, they need to ensure that they are not going to be liable to pay out more money in winnings than they took in as wagers.

The way that sportsbooks try to ensure this is through the vigorish. Vigorish is important to understand for gamblers at all levels. This is because it helps you figure out where exactly your money is going and how the returns work.

Whenever you go to a sportsbook to make a bet, you will see odds for the options. These odds let you calculate your potential returns and should guide your decision-making when it comes to betting.

Every set of odds equals an implied probability. For example, American odds of +100 have an implied probability of a 50% chance of that outcome occurring. Thus when a sportsbook sets its odds, theoretically it determines the probability of each outcome occurring. After finding that, it can translate the probability into odds it offers the public.

This means we can think of all the odds that you see from sportsbooks as implied probabilities. However, to make money, the sportsbook applies a vigorish to all its offerings. This is a fee that the sportsbook applies to try to ensure a profit no matter what happens. Let’s take a look at an example so we can better understand.

Let’s say that the Chicago Bulls are playing the Dallas Mavericks. The sportsbook has determined that with a spread of Bulls -3, there is a 50% chance the Bulls cover the spread.

Theoretically, the odds should be +100 for each side so that any bet returns the original stake plus the same amount in winnings. However, if this were to occur, the sportsbook might be stuck in a bad situation if the public decided to favor one side. This could lead to the sportsbook having to pay out too much money and having to take a loss.

To combat this, the book applies the vigorish. Instead of offering odds at +100 for each selection, it will typically move them to -110. Imagine two gamblers each bet on either side on the new odds of -110 for $11 each. When one selection wins, the sportsbook can pay out $20 from the $22 it took in and keep the $2 for itself.

This basic concept of the vigorish repeated on a much bigger scale is how sportsbooks make money. By weakening the odds, the books aim to always be able to pay out the winnings while keeping some profit.

Line movement and risk management

We’ve already discussed how the vigorish is the moneymaker for sportsbooks and how they manipulate the odds to ensure profit. However, there’s another aspect of sports betting that is important to understand, and that is the movement of the odds.

While it’s true that the odds can reflect probabilities, to limit their liability, sportsbooks must move the odds to reflect something else. That something is the preference of sports bettors.

If the majority of money comes in on one side, this will force the sportsbook to move the odds to make the other side more attractive. It wants to encourage equal gambling on each side, and thus the odds will move to encourage the bets to get closer to this equal number.

One exception to this is sometimes when a professional sports bettor makes a large bet. If the sportsbook knows that this is a bet from someone it considers a strong bettor, it may value that bet more and attempt to shield its liability from that outcome more. This concept is sometimes referred to as “sharp money.”

Understanding that the odds moving means that more money is coming in on a specific side is a key concept to know. When you see large swings in the odds, you can see where the public is. This can sometimes be good information to know and can be a part of your decision-making process.

Brief history of the sports betting industry

Sports betting has been going on for a long time in some shape or form. Bookmakers existed during the 17th century in Great Britain. Members of the upper class would use them to gamble on horse races.

The development of these races and the gambling on them led to more regulated races. Bookmakers started to improve their systems and developed many of the techniques that we see today, such as the use of odds.

In the late 19th and early 20th centuries, gambling started to spread to other sports. In Europe, soccer was a main option. On the United States side of things, sports gambling was almost universally outlawed across the country.

Just because it was outlawed in the US, though, did not mean that sports gambling did not happen. It was pushed into the margins and continued to exist. This helped lead to the involvement of criminal organizations in the sports gambling world. The mafia was one of these organizations that took a prominent role in sports gambling, and these two ideas remain linked in many people’s minds.

Near the end of the 20th century, attitudes toward sports betting began to soften. People began to be more receptive to the idea of legal sports gambling.

Just before the beginning of the 21st century, online sports gambling websites began to pop up, marking a large development for the sports betting industry. Online gambling is still a growing and developing portion of the industry. We now reach the present time, with sports betting rapidly gaining legal status across the country. Every year, more and more states allow sports gambling inside their borders, and as we move forward this trend seems likely to continue.

Is sports betting a legitimate business?

As mentioned above, sports betting is becoming legal in various states across the country, and in these places, it’s a fully functioning industry. These states have set up laws to regulate sports betting. Sportsbooks must go through a lengthy process before they can open for business. There are regulations around the bets that they can offer to customers. This has resulted in some major companies taking up a large portion of the market share in many legal markets.

Because of this, you should feel 100% confident that all legal sportsbooks are running a legitimate business. There is no need to worry about losing any money you deposit into a legal sportsbook.

Illegal sportsbooks and bookies still exist in many states across America, both those that have legalized sports betting and those that have not. If you’ve ever heard of a friend gambling through “a guy,” chances are it’s an illegal operation that is using an offshore website. These illicit companies are not legitimate businesses and carry more risks than using a regulated sportsbook.

Some of the risks from using an illegal sportsbook are the fact that your money is not secure, and the book has no obligation to pay you. This means that the book could run off with your money at any time.

This security is often why people will opt to use a legal betting option. When you add in the fact that your dollars are then also helping to support your state, it’s a no-brainer to use a legal sportsbook over an illegal one. When it’s your money on the line, why take the risk that someone may run off with it?

What’s the difference between a sportsbook and betting exchange?

Betting exchanges are another gambling option. These allow you to wager on sports and offer some advantages and disadvantages compared to the classic sportsbook model.

Instead of a bettor against the sportsbook, betting exchanges pit bettor against bettor. This makes for some key differences between the two options. On a betting exchange, since the competition is between gamblers, it means that they can set their own odds.

If you decide to play the betting exchange, you will take one of two sides. If you want to bet that something will occur, you play the role of the gambler. This is known as backing a bet. On the other side, with a betting exchange, you can play the role of the bookmaker. This is known as laying a bet, and is a bet that something will not occur.

So as long as someone is willing to accept your odds, you can make the same bet with a higher potential return. Not only do you get the advantage of being able to set your odds, but there is little to no vigorish.

Instead of a vigorish, betting exchanges often take a small commission from a winning bet. While this can be frustrating to see some of your profit disappear, the difference is that you only need to pay it if you win.

The other advantages that a betting exchange offers come from it being a peer-to-peer system, with no sportsbook involved. This means that you are free from the policies that sportsbooks put in place that can lead to voided bets or other annoyances.

Wagering at a betting exchange does have some disadvantages, as well, though. One of the largest is the lack of promotions. If you are betting at a sportsbook, you will find plenty of promotional offers that usually include everything from risk-free bets to boosted odds. At a betting exchange, these types of promotions do not exist. Since these promotions can often help bettors, it’s a big disadvantage not having them at betting exchanges.

Another disadvantage is the fact that you need to find someone else willing to go against you. For example, at a sportsbook, you are free to gamble upon any available selection. At a betting exchange, if you can’t find someone willing to take the other side, then you are out of luck. If your betting exchange is not very large, this will limit what you can gamble on.

Overall, the major difference between betting exchanges and sportsbooks is the difference between wagering against other gamblers or against “the house.” There are advantages and disadvantages to both approaches, and depending on your gambling habits, you should find which one is right for you.

How much of a casino’s revenue comes from sports betting?

While sportsbook revenue continues to grow, it’s not yet a very large portion of casino revenues. Because it’s not yet legal in many places in the United States as well as around the world, other areas of the casino continue to be the real moneymakers.

The largest revenue area for casinos continues to be slots and other non-table games. With the continued advancement of online gambling, slot-style games have continued to grow at a rapid pace. However, as sports gambling continues to grow across the country and more people give it a try, we can expect sports gambling to start making up a larger portion of casino revenues.

Moving forward, casino revenues are going to be increasingly dependent on online gambling. This is the way of the future for the gambling industry, as it is for many industries. Sports betting is one of those areas of wagering that is well-suited to the internet and thus should continue to grow and make up a larger part of casino revenue in the future.

Sports betting revenue in the US

Wagering on sports continues to be a billion-dollar industry in the US, as well as one of the fastest growing industries in the country. Some estimates have sports betting revenue reaching $3 billion in 2021 alone. States with legal sports wagering have welcomed this money, as they take a portion. This is one of the major benefits of legal sports gambling. States can take the money that would have otherwise gone to illegal sportsbooks and use it to provide a variety of benefits.

Sports betting, while generating multiple billions in revenue at the moment, is going to continue to grow, and as it does, the revenue for states will grow with it. Because of the advancement of online gambling, revenue from sports betting could reach a projected $8 billion per year by 2025.

Final thoughts

The most important point to take away from all of this is the concept of vigorish and understanding how to read the odds from a sportsbook. Another concept that is important to grasp to make smarter bets is to understand how and why the odds move for certain selections. By watching the odds move, you can get a better idea of what options the public is on and use that information to make better decisions.

Sports betting is still in its infancy, yet it already has large and growing revenue numbers. As it matures, the revenue numbers are likely to continue to grow. The advancement of online gambling will likely play a large role in this.

Because online gambling is not legal across the country at the moment, illegal operations are going to continue to exist for the time being. However, as sports betting continues to become legal, we can expect more and more bettors to switch their business to these regulated outlets, creating a stronger industry and helping out everyone.