How Sportsbooks Make Money
Most gamblers have heard the term “the house always wins.” And in most cases, it’s pretty clear why the house wins. In blackjack, the dealer’s hole card is hidden, giving the casino the house edge of players being forced to make suboptimal moves since they can only guess the hand they are up against. In roulette, bets are paid out based on the 18 red and 18 black numbers on the board, but the occasional green “0” or “00” ensures that the casino will win in the long run. The list goes on and on for casino games found all around the world, but what makes sports betting profitable for sportsbooks is much less obvious.
After all, sports bettors are allowed to pick either side of any event offered. And unlike games of chance like craps or three-card poker that have clearly defined odds for any sequence of events occurring, sporting events have far too many variables to perfectly quantify and predict. So how do sportsbooks in Tennessee and around the country make their money?
Sportsbooks earn their money through vigorish
Every game that you bet on has a premium attached to it called the vigorish. The vigorish (also known as the “vig,” “juice” or “chalk”) is what a bookmaker charges a player to place a bet. Different bet types charge different amounts of vig.
Imagine that a Sunday game between the Houston Texans and the Tennessee Titans in Houston is being listed as a “pick ’em.” This means that neither side is favored to win the game. Both sides are essentially considered to be an even match. If you wanted to bet a friend of yours $100 that the Titans were going to win, the two of you would likely agree on an even-money wager. His $100 that the Texans will win vs. your $100 that the Titans will win.
This is an even and fair proposition for both sides on paper. But in the real world, it would be impossible to always find a friend willing to bet the opposite side of a game that you are interested in for the amount that you want to bet. That’s where professional sportsbooks come in.
A Tennessee sportsbook will take your betting action on any wager that can legally be placed in the state. But this service comes at the price of the vigorish. Instead of being offered as an even-money wager on both sides, a sportsbook will charge a fee on both sides. So this pick ’em line would be offered as Tennessee Titans PK (-110) vs. Houston Texans PK (-110).
So instead of betting on the Titans as a $100 to win $100 proposition, you would need to risk $110 to win $100 at a standard -110 price. Earning this vigorish on both sides allows sportsbooks to increase their profits on bets that they book and win and to lessen the blow of the losses on bets that they book and lose.
The national industry standard on betting lines when it comes to vigorish on evenly matched events like against-the-spread wagers in basketball and football is a “20 cent line.” This means that the betting line has been moved 20 cents, or 10 cents on each side, away from the projected “true odds” of the game. Looking at the example from above in which Houston is hosting Tennessee, the “true odds” for both sides would be +100 (bet $100 to win $100). But the vig has moved each side to -110 for a total of 20 cents away from the break-even point.
Moneyline wagers between two teams that are fairly evenly matched are also often priced in the 20-cent line range. For example, the Nashville Predators might be a listed as a -140 favorite at home against the Chicago Blackhawks at +120. The break-even point on this game would be Chicago +130 at Nashville -130, so the line is adjusted with juice on both sides to Chicago +120 at Nashville -140.
But not all juice is created equal. As games become more volatile for sportsbooks with obvious favorites that could generate too much betting action and big underdogs that could pay out huge sums on an upset, the juice gets raised up. Say that the Nashville Predators are a clear favorite at home against the lowly Detroit Red Wings. The “break-even” point on this game might be set by the sportsbook at around Detroit +270 at Nashville -270. But instead of only charging a 10 cents of vig on each side, a matchup with this much volatility might be set at Detroit +240 vs. Nashville -300.
These gaps in vigorish get even larger when the favorites are much bigger. In the early stages of a tennis tournament, it isn’t uncommon to see an elite player like Novak Djokovic going off at -10000 (bet $10,000 to win $100) and his unranked opponent paying only +2500 (bet $100 to win $2,500). Sportsbooks have to take measures to avoid booking too many bets on a clear favorite or too many speculative bets on a big underdog.
Another measure that sportsbooks can take to limit their risk on any given game is to move the line. Big jumps in a betting line are always obvious even to casual bettors when there is a significant change in the game like a starting quarterback getting injured or the team’s top scorer getting the night off. But much more subtle line movements of a half-point here and a few cents on the moneyline there are happening constantly throughout the week.
And the reason for this is that Tennessee sportsbooks are trying to balance out the action they are taking on both sides so as to limit their risk. Consider this hypothetical: the Tennessee Volunteers are +11 on the road against the Mississippi State Bulldogs. Imagine that the exact same amount of money is bet on both sides at a sportsbook: $110,000 to win $100,000 on Tennessee and $110,000 to win $100,000 on Mississippi State.
This scenario works out perfectly for the sportsbook. If Tennessee covers the spread, the sportsbook will pay out the Tennessee backers $100,000 from the money that the Mississippi State backers lost and will profit $10,000 thanks to the vig. And if Mississippi State covers the spread, the book will pay out Bulldogs backers with the Tennessee backers’ losses, once again earning a profit of $10,000. This is a totally risk-free proposition for the book as no matter who wins, it will make money.
Of course in the real world things almost never work out so smoothly. In a Tennessee sports betting market filled with Volunteers fans, the sportsbook might take 85% of its betting action on Tennessee +11 and suffer a big financial blow if the Volunteers cover.
To try to prevent this risk, a sportsbook taking a lot of money in on one side could move the line to try to entice action on the other side. For example, if Tennessee +11 is receiving heavy action on Tennessee, the book could move the line to +10.5. If the action keeps coming in on Tennessee, the line could be moved to +10. Perhaps by the time it reaches Tennessee +8.5 at Mississippi State -8.5, bettors won’t be able to pass up on the value of getting the Bulldogs at -8.5 at home. So as action starts coming in more heavily on Mississippi State, the sportsbook is able to lower its risk on a lopsided loss.
Most sports bettors don’t use proper bankroll management
The most common answer to the question “how do sportsbooks make money?” is by charging vigorish. But there is more to the equation than just chalk. There is a reason that sports betting is one of the very few forms of gambling that one can actually beat in the long run, and that’s handicapping.
If you bet on football or basketball games against the spread at -110 per side, your break-even point on straight bets is just 52.5% winners. If you pick 53% winners, you’ll actually turn a small profit:
53 wins x $100 = $5,300 in winnings.
47 losses x $110 = $5,170 in losses.
$5,300 in winnings – $5,170 in losses = $130 profit.
And in the process of booking that small profit, this hypothetical sports bettor probably had the chance to earn even more money with bonuses and promotions. So how achievable is a 53% win rate?
Handicapping and game selection can give you the edge
If you just pick sides at random, you should expect to win about 50% of your against-the-spread wagers. But you aren’t picking games at random. You have statistics, your sports knowledge, resources online and much more to make educated guesses with.
And best of all, you have total discretion over which games you bet on. If you don’t see a clear edge on one side or the other, you can skip that game and wait until the next day or the next week for better opportunities. Meanwhile, the sportsbook has to list odds on every game in every legal sport. A patient handicapper can surely find weak lines, especially when it comes to leagues and teams that get less attention than the NFL or the New York Yankees.
But very few sports bettors take advantage of this edge
If all sports bettors bet within their means with proper bankroll management, studied the games they wagered on, and had the discipline to pass on betting lines that didn’t give them an edge, the sports betting industry would not be anywhere near as profitable as it is today. But fortunately for sportsbooks, human beings are emotional creatures that regularly make mistakes.
Any gambler who has ever set foot in a casino knows how common hot streaks and cold streaks are. Over the course of 100,000 coin flips with a fair coin, you are very likely to see right around 50,000 coins land on heads and 50,000 coins land on tails. But over the course of just 10 flips, a swing of 8-2, 9-1, or even 10-0 isn’t all that uncommon. Regardless of whether you are an expert handicapper or a total beginner who just picks at random, you are going to face your share of hot and cold streaks.
Bettors who only put a small portion of their bankroll at risk can withstand a handful of losses. But bettors who put large chunks of their bankroll on games, regardless of how sure they are of the outcome, are destined to be crushed when a losing streak hits. And this problem is only compounded when frustration over a bad beat or a long losing streak prompts bettors to chase their losses.
We’ve all been there. On our way to a huge score only to be crushed at the last minute by an improbable pick-six that gives the other team a last-second backdoor cover. Now down on the day and with only Sunday Night Football remaining, we irrationally bet a huge amount on one side or the other in hopes of winning back the day’s losses. Sometimes it works, but on the days that it doesn’t, we find ourselves in an even more massive hole.
Fortunately, we can learn from our mistakes. Sportsbooks in Tennessee and around the country make their money by charging vigorish on both sides of the wagers that they offer and by being there to accept our bets when we are recklessly firing away at anything on the board. For bettors who just bet for recreational purposes, this isn’t a problem. Bet with your heart, shoot for the stars, and enjoy the highs and lows that come with rooting on your teams to victory.
But for bettors who want to be profitable in the long run, find your niche and stick to it. You already know what the vigorish is before you place your wager, so pick games that you believe have a high enough probability to win that you can afford to overcome the vig when you lose. If your calculations are correct more often than not, you could be one of the rare sports bettors who makes money alongside the sportsbook.