How the bookmaker makes money balancing their book, part 1
Being a bookie sure can be fun and profitable. Mathematics, statistics, a good knowledge of sports and access to relevant market information helps the bookmaker rake in the euros. Our, and your job as a sports bettor is a tough one, we need to beat the bookie.
As industry insiders we can testify that bookmaker employees and owners of gaming operations also get excited seeing all the money coming into their shops every day. It can be quite a rush. If you check the financial pages you can see it has been quite a rush for the shareholders of the most successful listed bookmaker operations too.
How does the bookmaker make money?
This is a rather simple question with an even simpler answer to be honest; they make money on the volume of people that lose. Few people consistently beat sport for life changing sums of money. In most of our articles we indirectly or directly point this out. As your how to bet guide on the internet we want to teach you the basics and beyond. We therefore urge you to read it all. We believe you will be better off by doing so.
Balancing the book explained
First and foremost the sports book or bookie ideally wants balanced action. This can happen either by looking at each betting offer stand alone, or on the sheer volume of incoming bets to the bookmaker operation. In this article we will only debate the first option.
If the bettors are split fifty fifty on a evenly priced two outcome match up the sports book is making money, no matter what the outcome is. This is easy to calculate. Let’s say the Yankees are playing the Red Sox. The line stays about the same since it opened, right around -110 on both teams.
Now, let’s say ten thousand people decide to bet on this game. Half of them bet on the Yankees, and the remaining five thousand of them bet on the Red Sox. Furthermore; let us assume each and every person in the first group is betting $100 on the Sox. The other group is putting up $100 to win $91 on the Yankees.
Before the first pitch the sports book has $500,000 brought in on the Sox, and $500,000 on the Yankees. If Boston wins, they owe out $955,000 to the bettors. Subtract the stake of $500,000 and add the $500,000 won on the losing Yankees bet and you are left with a net win of $45000. Not bad is it?
Life at the bookmaker trading desk
This of course sounds all well and very easy. It really is not. Life at the trading desk can be very hectic. Bets come flying in rapid succession, and the money on each outcome is seldom perfectly matched. Information is flowing in from all angles, and you got to make sense of it all in Nano-seconds. You might have done one hell of a job balancing a game only to see a large bet by a whale or a group of professionals change the whole picture instantly. The words uttered in such situations are usually not of the pleasant type, let's just put it like that. Then again, as with much else in life; doing the best you can is often enough, and when you got as much statistics and information as most top sports books got you got more than a good start versus most of the participants in the betting field. Add to that the theoretical margin of three to ten percent that most serious bookies take out of each bet offer and you'll be fine over time.
One other reason for seeing less than optimally balanced books is that is that people usually favor the favorites when they bet. Just look at Premiership odds on mondays. When a big favorite is playing the odds on the favorite will more often than not go down without any new information backing it up. The price moves on money volume alone. Once in a while a good betting opportunity arises in such a situation, but that is material for another article and is outside the scope of this one.
The reasons for this obviously flawed betting strategy are something we discuss in our series on betting biases as well as a multitude of other articles. Go for it, read it!
How to bet, end note
Hopefully this article helps you better understand how the book makers make their money. It’s pretty easy to see how this industry continues to be a multi-billion dollar industry year after year. In the next article in this series we will show you how the bookmaker makes money on spreading risk over as many betting offers as possible.