How A Sportsbook Stays In Business
What if everyone puts their money on one team and that team ends up winning?
Couldn’t that bankrupt the sportsbook? Yes that scenario could bankrupt a sportsbook. But a sportsbook would never let the betting public put too much money on any one side of a bet.
The way sportsbooks stay in business and consistently make money is by splitting the total amount bet on an event evenly between both sides of the bet.
Cowboys +6 at Patriots -6 Total Score: 51.5
A sportsbook wants 50% of the bets to go on Dallas and 50% to go on the Patriots. The same is true for the total line. They want bets to be split 50/50, half on the under, half on the over.
With a little bit of math they can keep the odds forever in their own favor.
Cowboys +6 (-110) at Patriots -6 (-110) Over 51.5 (-115) Under 51.5 (-105)
You very rarely, if ever, get an even money bet. The -110 that’s now next to the lines, called the vig, represents the percentage of money you’ll receive back if you bet $100. At –110 you’ll receive $90 for every $100 that you bet. If it were +110 it would mean that you would receive $110 for every $100 that you bet.
Now imagine you and your friend have differing opinions of how this game will go. You think the Cowboys will win so you put a $100 bet on it. Your buddy thinks the opposite so he puts $100 down on the Patriots. The sportsbook has just collected $200 in bets. But will only have to pay out $190 to the winner. With zero risk on who wins the game the sportsbook has captured $10 from your combined bets.
This is the elegance of the sportsbook business model. Sit in the middle of bettors and facilitate betting but take no sides. By not taking sides they can assure a win for themselves. It’s a small win but at volume that $10 adds up very fast.¹
Keeping the bets split 50/50 is the whole key to this. It’s why betting lines move during the time leading up to an event.
When lines for an event first come out the sportsbook doesn’t know for sure that they got it right. They make a guess based on experience and algorithms. But what they’ll do is adjust the line, the vig, or both in the days leading up to the event to make sure money is as close to an even split as possible.
Let’s say that on Friday 40% of all bets are on the Cowboys to win, 60% is on the Patriots. The book will adjust the line accordingly, making one side more attractive than the other.
Friday’s new line…
Cowboys +6.5 at Patriots -6.5
This line change entices enough bettors to move the Cowboys to a 43% share of all bets. Still not good enough. On Saturday the book changes it again, making it a full touchdown difference…
Cowboys +7 at Patriots -7
It works, the Cowboys now edge up to 47% of the betting total. This is better but still not great for the sports book. The difference of 53% — 47% is a big deal to the sportsbook. It essentially means that the sportsbook will have to come up with money out of its own pocket if the Patriots cover the spread.
The Cowboys 47% cancels out 47% of the Patriots 53%. This leaves the sportsbook on the hook for 6% of the total bet amount. If $1mil was bet on this game the sportsbook would end up losing money.
Total wagers on the Patriots: $1,000,000 * 53% = $530,000
Total wagers on the Cowboys: $1,000,000 * 47% = $470,000
Total money owed if Patriots win: $530,000 * 0.9 = $477,000
Outcome for the sportsbook: $470,000 — $477,000 = -$7,000
To avoid this loss the sportsbook will now go to one of its two tools. Change the line or change the vig amount. When it’s getting close to game time you more frequently see the vig amount change instead of the line…
Cowboys +6 (-105) at Patriots -6 (-120)
Now the sportsbook is outright taking money off the table. They’ve increased the total vig² from -20 to -25 and have made it much less attractive to bet on the Patriots. This will force more people to the Cowboys side of the bet while also decreasing the amount of money any new Patriots bets will require to pay out. Assuming the same math from before — with the sportsbook being down $7000 — if the sportsbook takes in just $100,000 more in bets before the game kicks off, and the new bets are split 50/50, they’ll turn a profit on the game regardless of who wins…
Total wagers on the Patriots: $100,000 * 50% = $50,000
Total wagers on the Cowboys: $100,000 * 50% = $50,000
Total money owed if Patriots win: $50,000 * 0.8 = $40,000
Outcome for the sportsbook: $50,000 — $40,000 = $10,000
They were losing $7,000 on the previous $1mil in bets. But with just an additional $100,000 in bets before game time they’ve managed to turn a profit.
Total profit on the event: $10,000 — $7,000 = $3,000
When you’re looking at making a bet or playing any type of fantasy sports game it’s important to remember the sportsbook model. They don’t care what the score is or what the total is. They only care that bets are split on both sides. So when you hear someone say “Vegas thinks this is going to be a high-scoring game”, what it really means is that the general betting public thinks this will be a high-scoring game.
Cowboys +6.5 at Patriots -6.5
This line has nothing to do with probability of the outcome of the game. There is nothing that says the Cowboys have a 50% chance of covering the spread. Only that about 50% of people are willing to bet the Cowboys and about 50% are willing to bet the Patriots.
The truth of this is summed up in one chart. Looking back at every regular NFL season game from 2002–2017 the point spread has only decided the betting outcome of a game 13.6% of the time.
For every 5 games out of 6 the point spread is completely irrelevant to whether a bettor wins or loses money on an NFL game.
Think of betting lines as crowd-sourced opinions on what the outcome of a game might be. They are not a brilliant number generated by a smoky backroom process in the dark and hallowed halls of Caesar’s sportsbook. “Vegas” means gamblers, not the sportsbook. Sportsbooks don’t gamble.
If we take a look at the total profit of Nevada sportsbooks you can see that the vig percentage is reflected by their profit margin which is about 7%.
²It was -110 and -110, -220. Now it’s -105 and -120, -225.</p