Understanding What a Bookmaker Does and How They Make Money
We hope you’re sitting down, because you’re probably not going to believe what we’re about to tell you. Well, here it goes; a long, long time ago, there once was a time when sports betting existed without bookmakers. Yes, it’s true. When people first started betting on sports, they just made wagers with other individuals. Bettors would agree on the terms of a wager between themselves, and then settle up once the relevant event was over. Although this would occasionally cause a dispute, this process still worked well most the time.
Of course, people still bet this way today. People often make sports wagers with friends, colleagues or family members. Most sports betting these days is done more formally though, with a recognized bookmaker. It’s been this way for hundreds of years, and it’s unlikely to change any time soon.
The term bookmaker was not actually used until the 19th century. The role had existed for a long time by then though, and bookmaking had already become an integral part of sports betting. All over the world there were individuals, groups and organizations who were willing to accept wagers from anyone wishing to bet on a sporting event.
Over the years, the sports betting industry has grown significantly. It’s been estimated that the global sports betting market is now worth up to $3 trillion if including illegal gambling. The legal and regulated market is worth billions of dollars on its own, so that figure is not too hard to believe.
Regardless of what the actual numbers are, it’s safe to say that the sports betting industry is HUGE. There are literally thousands of bookmaking operations in existence. Some of these operations are small, and just take wagers from a select number of private clients. Some of them are massive operations though, servicing millions of customers on a global scale. The role of a bookmaker is fundamentally the same regardless of the size of the operation.
Actually, the role of the very first bookmakers and the role of bookmakers today is not too different either. The most significant change is a result of the internet. Many bookmakers operate online now, running betting sites where their customers can place wagers without any human interaction.
The basics are still very similar though. Online bookmakers still open betting markets on sports events, offering odds on the various potential outcomes. They still take wagers from their customers, and pay out the winners. There are just a few extra things that are expected of them now.
In this article we take a look at the role of the modern online bookmaker in more detail. We focus primarily on the way they set their odds and lines, as this is something we need to understand. We then look at some of the additional aspects of their role, such as processing payments and advertising their websites.
How Bookmakers Set Odds & Lines In Order to Make Money
Most bookmaking firms hire a team of odds compilers. They are responsible for setting the odds and lines, and are known for being extremely intelligent. Although they do use advanced software to help them, they still have to know a lot about the sports that they cover, and it would be helpful if they were mathematically inclined too.
Odds compilers are influenced by several factors as they price their opening odds and lines. Below we have listed the four most important factors.
- Their own outlook
- Profit margin
- Likely betting activity
- Competitor’s odds and lines
We’ll now explore these factors one by one, and see how each one affects what the odds compilers do.
Their own outlook
Since odds compilers are very knowledgeable, they take their own opinions on what’s likely to happen very seriously. Their outlook typically forms the starting point for the odds and lines that they set. They’ll look at all the possible outcomes, and determine the probability of each one happening.
When pricing up a market for the winner of a tennis match, for example, the process is relatively simple. There are only two possible outcomes here. Either one player wins or the other one does. So the compilers just need to make a judgement about the relative chances of each player winning. If the two players were almost evenly matched, they might make the following judgement.
- Player A – 55% chance of winning
- Player B – 45% chance of winning
In this case, the odds for each player winning are going to be fairly close together. The odds on Player A will be slightly lower, because he’s considered more likely to win. We’ll talk more about how the compilers calculate the precise odds later.
If one of the players was significantly better than the other, they might make the following judgement.
- Player A – 85% chance of winning
- Player B – 15% chance of winning
In this case, the odds for each player winning are going to be very different. The odds on Player A will be much lower, because he’s considered extremely likely to win. Player B is clearly a longshot, so the odds on him winning will be quite high.
The process gets a little more complicated when there are more than two possible outcomes. In a soccer game, for example, there are three possible outcomes. Team A can win, Team B can win, or the game can end in a draw. So an odds compiler might make the following judgement for a game.
- 45% chance of Team A winning
- 20% chance of Team B winning
- 35% chance of a draw
Here they’re making Team A the favorite to win. A draw is the next most likely outcome, with Team B winning the least likely outcome.
For some markets, there are lots of possible outcomes. Take the winner of a golf tournament for example. There could be dozens of players entering a tournament, and each one has to be assigned their own chance of winning.
Other markets are more complicated still. Football point spread markets are a good example of this. The odds compilers don’t just have to think about which team is the most likely to win, they have to think about how many points the favorite is likely to win by. Football totals lines are another good example too. Here the compilers have to think about how many points are likely to be scored in total in a game.
If you’re not familiar with how point spread and total wagers work, please see our article that explains the different types of sports wagers.
Once the odds compilers have made their initial judgments about the possible outcomes, they then need to factor in their profit margin.
The main reason why it’s so hard to make money from sports betting is the simple fact that the bookmakers build a profit margin into their odds and lines. This means we effectively pay them a commission each time we place a wager. This commission is known as the vigorish (vig) or the overround. It’s also commonly referred to as the bookmaker’s juice, and it’s essentially how the bookmakers make money.
To demonstrate how the odds compilers build in this profit margin, let’s go back to tennis. To keep things simple, we’ll assume that the compilers have given the two players in an upcoming game the exact same chance of winning. So Player A has a 50% chance of winning, and Player B has a 50% chance of winning. With no profit margin, the (decimal) odds for such a game would be as follows.
- Player A – 2.00
- Player B – 2.00
For those of you not familiar with decimal odds, 2.00 is the equivalent of even money. So it’s the same as 1/1 in fractional odds or +100 in American/moneyline odds.
These odds seem pretty “fair.” If there’s a 50% chance of something happen, then we SHOULD be getting even money odds. Bookmakers aren’t in business to give us fair odds though, they’re in business to make money. So the compilers would actually set the odds at something like this.
- Player A – 1.91
- Player B – 1.91
If we wagered $10 on Player A, we’d stand to win $9.10. If someone else wagered $10 on Player B, they’d stand to win the same amount. One of us would lose of course, while the other one would win. The bookmaker would keep the $10 from the loser, and pay $19.10 (including the initial stake) to the winner. Their profit would therefore be $.90. Even though they took the exact same money on two equally likely outcomes, they’ve come out ahead. This is WHY they build in a profit margin, and WHY they make money.
Please note that to actually gain from this profit margin a bookmaker has to have what’s known as a balanced book. A balanced book is when they’re liable to pay out roughly the same amount regardless of the outcome. This is the ideal scenario for a bookmaker; a balanced book means they’re guaranteed to make a profit regardless of the outcome of an event. We’ll talk about balanced books later, when we discuss why odds compilers have to make adjustments to their odds and lines.
Having built a profit margin into the odds, the next step for the compilers is to consider the likely betting activity of their customers.
Likely betting activity
Odds compilers will frequently have a clear idea about which way their customers are likely to bet on any given market. They factor this in to their odds and lines, in order to maximize their potential profit and/or reduce their exposure to risk.
If they’re expecting a lot of their customers to back a favorite, for example, then they’ll reduce the odds on that favorite. They know that they’ll still take plenty of wagers on the selection, so making the odds a little lower will probably save them money. The lower the odds, the less they’ll have to pay out if the favorite does win.
The compilers pay particular attention to likely betting activity when setting point spreads and totals. If they expect that the general betting public are going to be firmly behind a favorite, then they’ll probably increase the spread by half a point or more. If they expect that the general betting public are going to be firmly behind the over (and they usually are), then they’ll probably increase the totals line by a couple of points.
The fact that bookmakers factor in likely betting activity is the reason why it’s important for us to consider public opinion when making our selections. If we EXPECT the public to be firmly behind a favorite, then we should see if backing the underdog offers any value. We won’t always find value here, but it’s still worth checking in to.
Competitor’s odds and lines
The advent of online betting has changed people’s betting habits in many ways. One especially noticeable change is the number of different bookmakers that people use. Back in the day, most bettors would use one, maybe two, bookmakers for all their betting activity. That’s not the case anymore. Although some bettors are still very loyal to a specific bookmaker, many bettors will go wherever they can get the best deal. By having accounts at a few different betting sites, this is very easy to do.
The modern-day sports bettor is far more price sensitive than they used to be. More and more bettors are learning that comparing odds and lines can be very beneficial, and the betting sites are fully aware of this. They realize that in order to attract the most customers, they’re going to have to offer competitive odds. So the compilers have to consider what other bookmakers and betting sites are offering when they set their own odds and lines.
This is why the differences between the odds and lines at different sites are usually minimal. Although they are big enough to make shopping around worthwhile, we rarely see any major discrepancies in what’s available.
Now, odds compilers don’t simply set their odds and lines for a market and then sit back and watch the money come in. They have to adjust those odds and lines too.
Why Bookmakers Adjust the Odds & Lines
Odds compilers almost always need to make adjustments to their odds and lines between the time they release them and the time of the relevant event starting. These adjustments are usually for one or both of the following two reasons.
- A change in outlook
- The weight of money
We’ll now explain these two reasons in detail.
Change in outlook
We mentioned earlier how the initial odds and lines are influenced by what the compilers think is likely to happen. They’ll take a wide range of different factors into account when considering their outlook, to make sure that their views are as accurate as possible. However, a lot can change in the lead up to an event actually starting. It’s not uncommon for their outlook to change entirely.
For example, let’s say that they’d priced an upcoming tennis game as follows.
- Player A – 1.45
- Player B – 2.75
Player A is the favorite here, which means the odds compilers think this player is more likely to win. Player B is the underdog, but at odds of 2.75 the compilers are not exactly writing him off. He clearly has at least some realistic chance of winning the game.
Now, let’s say on the night before the game there’s a news report stating that Player A is suffering from a slight foot injury. After hearing that news, the odds compilers are likely to change their views on the outcome of the game. They’re going to figure that Player A is less likely to win than they previously thought, since this player will probably be affected by this injury. So, they might change the odds to something like this.
- Player A – 1.70
- Player B – 2.20
This kind of adjustment makes sense. There’s no way of knowing for sure how much Player A will be affected by his injury, and he may not be affected at all. But the injury has to be factored into the odds and lines, which is what has happened here. The odds on Player A winning have gone up, because he’s no longer considered as likely to win. Player B is now considered MORE likely to win, so his odds have come down accordingly.
Movements in the betting markets are commonly due to a change in outlook. We see them all the time, and if we’re up to date with the latest news then we usually know exactly WHY the odds and lines are moved. If we see unexplained movements, they are more likely to be because of weight of money.
Weight of money
We told you earlier that bookmakers strive to have balanced books. What this means is that, for each market they price up, they’ll try to create a situation where they stand to pay out roughly the same amount of money regardless of the outcome. This is another reason why they take the likely betting activity of their customers into account. They’ll try to predict what action they’ll see, and set the odds and lines in a way that SHOULD lead to a balanced book.
This doesn’t always work out though. Sports bettors are not THAT predictable. Sometimes the action will be different to what’s expected, and that can present a problem for the bookmakers. When this happens, the odds compilers have to make adjustments based on the weight of money coming in, to try to rebalance things.
Let’s use another example to explain this further. We’ll look at an upcoming soccer match between Tottenham Hotspur and Hull City. Tottenham are in very good form and playing well, while Hull City are near the bottom of the league and without a win for several games. A betting site has priced the market for this game as follows.
The odds here reflect the fact that Tottenham are very likely to win. However, they’re not so low that people aren’t going to bother to bet. The odds on Hull City are quite high, and some people might back them in the hope of a upset. The odds on the draw are reasonably attractive too, so some people will be tempted to back that.
It appears that the compilers have done a good job here. They’re likely to attract plenty of wagers on Tottenham, but also enough on Hull and the draw to create a balanced book.
However, let’s say this is the action they actually take in.
- Tottenham Hotspur: $30,000 at 1.60. Liability of $48,000
- Hull City: $3,000 at 7.00. Liability of $21,000
- Draw: $5,000 at 4.00. Liability of $20,000.
This is NOT an attractive book, because the bookmaker stands to pay out far more if Tottenham wins than if Hull City wins or the game is drawn. So they’re not going to want to take any more wagers on Tottenham at those odds, and they’re going to want to take more wagers on Hull and the draw. The compilers may choose to adjust the odds in this way.
What they’re hoping for here is that their customers stop betting on Tottenham because the odds are no longer attractive. They’re also hoping that some customers will see the higher odds on Hull winning and the draw, and think there’s some value to be had. This should encourage them to put some money down on either of those outcomes.
By taking more money in on Hull and the draw, but not on Tottenham, they should be able to balance their book and create a situation where they’re going to make a profit regardless of what the actual result of the game is. That’s almost always the goal, and that’s why we see so many movements in the betting markets even when there’s no obvious reason for them. It’s simply the compilers doing their job and trying to balance their books.
In some circumstances, movements in the betting markets can help you decide where you should be putting your money. If you can learn how to interpret these movements accurately, you may be able to identify some good betting opportunities. We explain some basic strategy based on market movements in our article on simple betting strategies that work.
You might be interested to know that there was a time when bookmakers would regularly “take positions” when pricing up markets, rather than trying to create a balanced book. They would do this if they were confident that a particular result was likely to happen. They would REDUCE the odds on the outcome they thought most likely, and INCREASE the odds on all other possible outcomes.
When taking a position, a bookmaker is effectively gambling themselves. This doesn’t happen very often these days, as so many bookmakers are big companies. The influence of the accountants is far greater than before, and a balanced book is usually what they want to see. It’s much safer for them, as there’s little to no risk involved.
Some of the smaller bookmaking firms do still take positions though, so it’s something to be aware of. if you notice that one sight is offering odds that significantly vary from all other sites you’ve seen, then it’s safe to assume that they’ve taken a position. If you don’t agree with their position, you may be able to find some extra value in the odds that they’re offering.
What Else Does a Bookmaker Do?
A bookmaker’s role goes well beyond the setting and adjusting of odds and lines. There are LOTS of other things they have to do too. Here’s a list of some of the most important aspects of their role in the modern online sports betting industry.
- Payment processing
- Advertising & marketing
- Customer service & retention
- Technical maintenance & development
Dealing with payments used to be easy for bookmakers. Most bettors would bet in person, and in cash. Payouts were also made in cash. Some bettors would use debit cards or credit cards, and some would bet over the phone rather than in person. This was still relatively easy to deal with though.
Nowadays, bookmakers have to process payments over the internet. This is where things get a little more complicated. For one thing, most betting sites offer a wide variety of different payment options. They need to do this really, as it’s in their best interest to make it as easy as possible for their customers to deposit. Obviously, they must make it easy to withdraw too.
Processing payments can also be challenging from a legal perspective in some parts of the world. In the United States, for example, it’s illegal for banks and financial institutions to facilitate online gambling transactions. This makes it difficult for US friendly sports betting sites to handle deposits and withdrawals, although some of them do a very good job despite this.
Advertising & marketing
The online sports betting industry is EXTREMELY competitive. There are hundreds of betting sites to choose from, so bettors really have unlimited possibilities. It’s important for sites to get their brand exposed, so they have to spend a lot of money on advertising and marketing if they want to stand out from the rest.
Haven’t you noticed the banners and other advertisements for sports betting sites that appear on almost any site that involves sports? Some betting sites push their budgets even further, and sponsor sports events or sports teams. Betway, for example, sponsors the Premier League soccer team West Ham United.
Other betting sites advertise in newspapers and magazines, or on television. Some advertisements are more creative than others, but virtually all of them have one thing in common. They focus the attention to their sign up offers that tend to appeal to bettors and encourage them to try out their site.
Customer service & retention
Attracting new customers is only half the battle. Betting sites also have to work very hard to keep their EXISTING customers happy, as there are plenty of other options for these customers to try if they don’t like the service they get. This is why most of the leading sites offer excellent customer support that’s available right around the clock, and run loyalty programs that reward customers for their betting activity. They typically run all kinds of other promotions and special offers too.
Technical maintenance & development
Sports betting is a 24 hour a day business. Sports betting sites don’t “close,” and they need to make sure that their customers are able to place wagers whenever they want. They can’t allow technical problems to interfere with customer experience, so they have to maintain their websites to a very high standard. They also need to ensure that they’re constantly improving customer experience as much as possible, by developing their websites to be even better.
If there’s one thing that really helps to set a betting site apart from the rest, it’s innovation. Customers love to try new things, whether that’s new types of wager, new ways to bet or simply new promotions. Betting sites can and should use innovative ideas to stay ahead of their competition. This is exactly why the online sports betting industry is constantly evolving.
We’ve covered basically everything we wanted to, but there is one final point we’d like to make. Sports bettors typically consider bookmakers to be “the enemy,” but we don’t really see things that way. Do we enjoy trying to beat the bookmakers? Yes. Do we want to take as much money as we can from them? Yes. But do we hate them? Absolutely not.
Sure, they make it hard for us to win money. They have an inherent advantage because they set the odds and lines and build their profits into them. Can we resent them for that advantage though? We don’t think so. They’re commercial operations after all, and not offering some kind of public service. If they didn’t exist, then we wouldn’t be able to make money from sports betting! At least we have a CHANCE to beat them, which is much better than having no-one to bet with at all.