In the sports betting industry, bookmakers are influential stakeholders. These companies are the steward of a growing sports betting and lottery market estimated at $194.63 bn as of 2021, an improvement from previous year’s $73 bn. With more licensed bookmakers, whether it is the best betting site in Australia, or one of the top European or US sportsbooks, more online bookies will take bets, offering sports fans and punters plenty of ways to play.
But have you ever wondered what goes on the sidelines? How do bookmakers work and make money? In this article, we’ll cover the business side of bookmaking, how odds work, and the different strategies sportsbooks use to draw bettors.
What is a Bookmaker?
A bookmaker or ‘bookie’ facilitates gambling, often in sporting events. Bookmakers set odds, accept and place bets, and pay out the winnings. Their business model revolves around the betting odds that they offer. It’s arguably the most crucial resource in the operations of the business.
Bookies don’t usually make money by placing wagers in this business. Instead, they charge a transaction fee on the punters’ bets called the ‘vigorish’ or ‘vig’ for short. In addition, some bookmakers may lend money to punters, who can be both individuals or organisations.
Let’s take a coin toss as an example. The outcome is either tails or heads, offering the bettor a 50/50 chance of winning. Let’s say one bettor wagers on heads and the other on tails. No matter the result, the bookie pays out $100, leaving no surplus for the house.
We know that it’s a lousy business plan.
The bookmaker lowers the payout to $90. It’s equivalent to offering the bettor 1.90 odds instead of 2.00. Since both bettors wager $100, the bookmaker collects a profit of $10 regardless. We call this the bookmaker’s margin, vigorish or juice.
So the challenge for bookmakers is to ensure that incomings exceed outgoings. The bookmakers adjust the odds so there’s an even number of bettors wagering on a win or loss. For the top online bookies to keep doing business, they need to offer bets that allow them to earn each time the user makes a selection. In short, bookmakers don’t just set the betting odds based on probabilities; they incorporate a market to ensure a profit in every betting transaction.
And for the bettors, the challenge is picking the winners with returns greater than the bookmaker’s margin.
How Bookmakers Calculate the Odds
Understanding how bookmakers work involves looking at how they calculate the betting odds. Odds tell you about the probability of an event or outcome happening. Returning to our coin toss example, the odds of landing heads are 50/50 or ½.
However, setting the odds for sports betting can be tricky. Operators don’t just set the prices by tossing a coin! Since bookies take bets on sporting fixtures where outcomes are difficult to predict, they need to plan, analyse, and work hard to set the correct betting odds. As such, some bookies hire a team of odds compilers to set prices.
For example, a horse racing odds compiler team may link work with their contacts, including form experts and gallop watchers in different stables. Once they have reviewed the data, they convert it into each runner winning percentage changes and provide ‘tissue prices.’ The tissue prices are the first draft of odds for a specific event. These are just initial betting odds, and they don’t last long as wagers enter the market, and the operator will adjust accordingly to reflect their margins. Remember: the betting tissue is the probability of an outcome in odds before adding the operator’s margins.
A savvy bookmaker updates the betting odds in real-time to reflect the change in form and their updated margins!
How Much is the Bookmaker’s Fee or Margin?
There are no hard and fast rules on the fees or margins of bookmakers. However, some betting sites charge an average margin of 10%. There are instances where the ‘vig’ or margin is higher, especially for high-profile bets, such as a tight line on semis of the World Cup or the Super Bowl.
Betting margins vary wildly across sportsbooks, so the challenge for bettors is to calculate it correctly to have a better ROI.
Is It Always a Win-Win Scenario for Bookmakers?
In online casinos, we know that the house always wins. Is this also the case with bookmakers, with their margins?
Betting sites often lose, but they ensure it is not a habit. A series of wins can impact the operator’s bank account in this business. For example, in 1996, Frankie Dettori achieved the ‘Magnificent 7’. One lucky bettor earned £500,000 and cost bookmakers millions.
As such, many bookmakers put limits on accounts or make restrictions on bets. For example, operators may restrict accounts on ‘bad each way races,’ early prices, abusing, or only betting on promotions.
In addition, some of the top betting sites reserve the right to close players’ accounts. Some reasons for closing accounts include bonus abuse, ‘winning too much, using multiple accounts, and other suspicious activities.
Running a bookmaking business isn’t easy. In addition to the regulatory requirements and need for legal compliance, operators need to run a betting site that accommodates the needs and requirements of bettors. The heart of its operations includes setting odds, identifying margins, and monitoring customers’ accounts. As a regulated business, bookmakers aren’t just offering betting opportunities and earning from margins. Bookmakers must think of the welfare of their customers by protecting their money and information and by promoting Responsible Gambling at all times.