As online sportsbooks continue to grow popular, new bookmakers are cropping up every day. But sports betting sites are businesses at the end of the day. So, the most common question people ask is how do these platforms make money? And, is it legal?
For starters, sports betting is legal in most parts of the world. If you’re unsure about the local regulations, a quick Google search should clear the confusion. Now, to answer your first question, bookmakers make money by retaining a part of the losing wager as commission. Let’s delve a little deeper for a clearer picture.
How are Bookmakers Making Money?
Bookmakers primarily make money in four ways.
- By setting the betting prices
- By specifying and altering the bet lines
- By balancing the book
- By counting on bettor emotion and lack of knowledge
The most common technique that bookmakers use to mint money is the overround, which is nothing more than a commission. Bookies include this margin in every bet to make a profit irrespective of the result. For instance, let’s take a look at a simple 1×2 football bet.
Let’s assume team A (1) win odds is 12/5, draw odds is 11/5 and team B (2) win odds is 7/5. These odds correlate to 29.41%, 31.25% and 41.67%, respectively. However, you may realise that these percentages add to 102.33%. The extra 2.33% here is the overrounded margin and it represents the bookmaker’s profit.
Odds compilers are essentially a group of traders that determine the wagering amount a bookmaker can accept and how much money they can make. This is commonly called pricing the market. The primary goal is to predict the likeliness of a favourable result while retaining a profit margin.
Compilers must be familiar with the sport that they’re pricing the market for. Therefore, they usually specialise in just one or two sports. Compilers must also have a solid understanding of several statistical and mathematical principles. Bookmakers simply follow the odds specified by compilers.
Balancing the Book
A bookmaker with balanced books makes the same amount of money irrespective of the results. While this limits profits, it eliminates losses, which is the ultimate goal. An imbalanced book could result in a loss as it affects revenue. This is why bookmakers rely on compilers to balance the book.
Since the odds fluctuate with time, the compilers are responsible for fine-tuning the calculations to keep the books balanced. But there are no guarantees that adjusting the odds will perfectly balance the book. What’s interesting is that sometimes compilers want an unbalanced book if they’re confident about getting favourable results. This maximises the bookies’ profits but has a fair share of risks.
It’s clear that bookmakers have a mathematical advantage on every bet. That’s how they make money and it’s perfectly legal. And while they might not make a substantial sum on every market, the odds are slightly tilted in their favour.