Although it may not seem like it, sportsbooks are a business just like any other. What is maybe less clear is how exactly sportsbooks make money. Sports betting can be a complicated industry, so let’s see exactly how sportsbooks make money.
How do sports betting companies make money?
Sportsbooks make money by charging “vig” or vigorish. This is essentially the fee a sportsbook adds to every bet. In order for bookmakers to make money, they need to, in aggregate, have roughly the same amount of money on each side of each bet.
For example, most point spreads have standard odds of -110 on each side. The point spread is designed to be a fair expectation of how much a given team is favored to win by. So if there were no vig on these bets, the “true” odds would be +100 or Even odds. However, since sportsbooks need to make money, they make the odds slightly worse on each side to turn a profit.
For your standard -110 odds, we can calculate using the vig calculator that it equates to a ~4.76% hold for the sportsbook. That means if equal amounts of money were wagered on each side of a given bet, the sportsbook could expect to make ~4.76% of the total handle on that bet.
Let’s walk through a specific example:
The Golden State Warriors (+4) are underdogs at the Boston Celtics (-4). The odds on each of these bets are -110:
If $100K was wagered on the Golden State Warriors point spread and $100K was wagered on the Boston Celtics point spread, then Draftkings Sportsbook would make ~4.76% on this game no matter the outcome. This would equate to $9,250 profit for Draftkings Sportsbook ($200K total handle X 4.76% hold).
What happens if the money isn’t balanced at a sportsbook?
If the money at a sportsbook favors one side over the other, then the sportsbook opens themselves up to larger potential wins or losses. For example, if there was $150K wagered on the Golden State Warriors at +4 and only $50K wagered on the Boston Celtics at -4, then the sportsbook would need the Boston Celtics to cover the spread in order to profit on this bet.
If in fact the Golden State Warriors covered the spread, then the bookmaker would need to payout a total of ~$286K to winning bettors, while only taking in $200K. That would result in roughly a -$86K loss on this game.
If the Boston Celtics covered the spread, then the bookmaker would need to payout a total of ~$95K to winning bettors. Since the sportsbook had a total handle of $200K, then they would profit +$105K in this scenario.
As you can see, having a roughly equal amount of money on each side greatly reduces the volatility in profit for the sportsbook. If the lines are assumed to be mostly efficient, sportsbooks can expect the variance to even out over time and roughly settle at their average vig they set across their bet offerings.
You will often see news stories of how sportsbooks fared given the results of games. High volume events like an NFL regular season can have a large influence on sportsbook profitability given the amount of handle NFL games attract.
Why would sportsbooks let the money be unbalanced?
Sportsbooks are often left with unbalanced money on each side of a bet due to how sports betting odds are set. Often times sportsbooks simply copy the lines of market making books. They do this to ensure they have the “best” line, however the money distribution at their sportsbook might not necessarily match that of the market making sportsbook.
For example, of Circa Sportsbook is a market making sportsbook and taking a large volume of bets, then they will have the best information on which way to move the lines based on how the money is coming in. If FanDuel Sportsbook is taking a smaller amount of volume on the same game, they may be incentivized to simply copy the lines that Circa Sportsbook is setting, knowing that they will have the best information on what the line should be. In this example, FanDuel Sportsbook may be exposed to uneven money on each side despite having the same line as Circa.
