How Bookmakers Make Money

To be a successful pay per head bookie you have to understand how bookmakers make money in the first place.  It is only then that you can begin to build a profitable operation. 

Bookies make money by charging vigorish as an independent bookmaker

The main way in which PayPerHead bookie agents profit is by ensuring the odds are literally in their favor.  This is done by including vigorish, also called “vig” or “juice.”  The vig is built into the odds which bookmakers use and is designed to aid in overall profits. 

Basically, the vig is the built-in commission that bookies charge for taking bets.  A good way to explain juice is by using the example of a simple coin toss. 

A coin toss has but two possible outcomes, each having an equal 50% chance of happening.  If you, as a bookmaker, were offering what the industry refers to as “true odds” on a coin toss, you would set the odds even.  Also known as +100 on the moneyline or 1/1 in the fractional format.  A bet of $100 at even odds would win you $200, for a net profit of $100. 

Now, let’s say you have 100 players who are all wagering $100 on a single toss of a coin.  If half of the bettors picked heads and the other half tails, you would be guaranteed to make zero profit. The money you would make off of losing bets would be exactly enough to pay out your winners.  Being in the business of making money, this is not an ideal scenario, to say the least.

Avoiding this is the exact reason why juice is built into the odds.  This guarantees, theoretically, that you will make money regardless of the outcome.  When a book determines a game to have equal outcomes, the odds will generally be set at -110 instead of +100. 

Sticking with our coin toss example, the odds set for each heads or tails would still both be the same but set at -110.  This creates a situation where a winning bet of $100 would return a total of 190.91 or 90.91 in profit.  If you have 100 players betting on the coin toss now, the outcome will be much more favorable for you.   You will be taking in $10,000 in bets but only have to pay out $9,545.50, leaving you with a profit of $454.50.

As you can see, this seemingly slight change in odds has made a huge difference in your bottom line. Now you, the bookmaker, are guaranteed a profit no matter the outcome of the event your players are making wagers on.  This built-in profit margin is the vig and would usually be represented by an integer based on the percent of total wagers received.  In this case, the vig is right around 4.5%.

Obviously, this is an oversimplified example but should do the trick in illustrating how bookies use vig to give them an advantage.  Now things get a little dicier when you talking about sports betting and not a flip of a coin.  The reason for this is the outcomes of sporting events are rarely, if ever, likely to be equal.  There are usually more than just two outcomes in many betting markets and you will not see equal money being wagered on each of the possible outcomes.

For those reasons, making money as an independent sportsbook owner is rarely as straightforward. There are other techniques that are often used to ensure you are turning a consistent profit.  This is where the odds compilers take over.

Using odds compilers as a Bookmaker

And odds compiler is basically exactly what it sounds like, they compile odds so you don’t have to.  They set odds for your sportsbook so you don’t have to.  Also known as traders or line managers, their role is essential to any bookmaking operation.  The odds set by them determines how much you are likely to make on any given event.  This act of setting odds for games is also known as pricing the market.

The overall goal is to ensure the odds are set accurately and reflect what chance a particular outcome might have. Additionally, the compiler must take into account your build in profit margin or the vig.  Determining the correct odds for the likelihood of an outcome is a process that requires combing over statistics along with a deep knowledge of sports betting in general. 

A compiler, therefore, needs to have knowledge of the event along with pricing markets.  A basic understanding of statistical principles is also a big plus, so get to studying if you are lacking knowledge in that department. 

Let’s take a look at a real-world example of how a compiler would price up a market.  We will use a hypothetical tennis game between Serena Williams and Sloane Stephens.  These two are rather close in ability, so the compiler will have a number of factors to take into account.  Things such as current form, playing surface and head to head records would all need to be taken into account. 

Based on these factors, and likely many more, a compiler might come to the conclusion that Serena has a 60% chance of winning the match, which leaves Sloane a 40% shot at victory.  The odds which line up with these changes would be (-149.25) on the moneyline for Williams and (+150) for Stephens.  This doesn’t factor in the juice but would be considered “true odds” at this point. 

In general, a compiler would be working with a target margin.  These margins will vary based on a number of reasons, but for the sake of this example, our desired margin will be 5%.  Based on this, a compiler would reduce the odds for both Williams and Stephens by 5%, leaving odds at -169.49 and +138.00 respectively. 

A bookie’s margin is determined by adding the reciprocal of odds for every possible outcome and converting them into a percentage.  In this match, there are but two possible outcomes, therefore our equation would be :

Margin = (1/1.59) + (1/2.38) = 1.05 = 105%

Using the odds in decimal form, you can see how the compiler has achieved a target margin of exactly 5%.  Now that we’ve gotten or margins set, we have one final step and that is making sure your sportsbook is balanced. 

Maintaining balance as a PayPerHead Bookie

When a bookmaker is able to maintain a balanced book in a certain market they stand to make the same amount of profit no matter what the outcome of the game is.  On the flip side, an imbalanced book is a boom or bust operation where one outcome could bring a huge payday while the other will see a massive hit to your bankroll.  A bookie should be leaning more toward having a balanced book for reasons that will soon become obvious.  This is what the above-mentioned compilers are aiming for. 

Keeping with the same tennis match from above, a balanced book would look something like this.

Say you take a total of $10,000 in bets on this match with 60% of that money going on Williams at -169.49 and 40% on Stephens at +138.0. 

So a win by Williams would require you to pay out $9,540, good for a $460 profit while a win by Stephens would net you $480 after paying your clients out $9,520.   As you can see, when a book is balanced properly, profits are almost guaranteed.  No matter who wins this match, you stand to make roughly $500, which is right in line with our target 5% margin. 

On the flip side, say you take the same match with the same odds but the action at your sportsbook is 50/50 on the moneyline.  In this situation, $5,000 will be bet on each player.  If Williams wins in this situation you will profit over $2,000, but if Stephens wins you stand to lose $1,900 in one fell swoop.  Despite the 50/50 distribution, in this scenario, the bookmaker is operating an imbalanced book.  Meaning they will profit with one outcome and lose money with the other.  This is the type of situation you want to avoid at all costs.

It is because of this that you see odds on sports in constant flux.  Compilers work diligently to continually adjust them in order to ensure your book is balanced.  Using again the above match, a compiler would increase odds on Serena Williams to encourage more wagers to be made on her to win.  Or reduce the odds on Stephens to make betting on her less attractive.  Heck, you could even do both. 

These adjustments are no guarantee that your book will be balanced, but it certainly helps.  This is why the volume of bets is such an important number for bookmakers to pay attention to.  A good rule of thumb is that the more money coming in also means that your book has a better chance of being a balance.  It is very rare to get your markets totally balanced down the middle, your goal should be only to try and keep it close. 

It should be evident at this point how you as a PayPerHead bookmaker can give yourself a mathematical advantage over your clients.  These tips will help you to not only maximize your winnings but also limit your chance at taking a big loss.   

While you can still get beaten on a given event, these opportunities will be limited. 

Sports betting is not like casino games where the odds are always stacked against the player and in favor of the venue.  In sports betting, the mathematical advantage is not foolproof.  Ergo, those advantages are not the only reason why you make money as a bookie.  Quite frankly, a lot of your profits will come from players just placing more bad bets than good ones. Read more now about how to be a bookie and also check out our FAQ page.  

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