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How do betting companies make money?

Learn how you can increase profits when betting companies make money from each of your bets.

Published on
Updated on 22 September 2018

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Money makes the world go around…In industrial republics we all need money and most of us want to have much more of it!

Even in countries with little access to modern goods and services, there is still a form of trade or barter that requires a value exchange. So, money in whatever form is a necessity.

So, if money is so important. Why do bookmakers give money away and how do they make money if they pay out so much!

What do betting companies do to get more money?

It’s easy to know how we make money by betting or laying different selections with bookmakers or betting exchanges, but it’s sometimes not so easy to understand how betting companies and other entities within the betting market make money.

Let’s break down the different companies within the betting market:

* Bookmakers and Sportsbooks

* Betting Exchanges

Bookmakers and Sportsbooks

Bookmakers and Sportsbooks price the odds on the sporting event (i.e. their book on that event) and ensure the odds produce a profit margin for themselves. This margin is retained to ensure the bookmaker and sportsbooks can continue running their services and satisfy shareholder, etc.

All of this is fine, but we should be able to trust our bookmakers and the more we place bets against different selections, the more experienced we become to recognise inaccurate prices that may exist within the bookmakers’ odds.

Bookmakers and Sportsbooks reduce the profit provided to the bettor by simply adjusting the odds and therefore the suggested probability of the outcome. This movement of the odds can be affected by money placed on the event, the need for the bookmaker to retain a larger profit or offering a greater profit to entice the betting public to wager on one side of the event.

How do bookmakers make money?

The money is made by adjusting the odds to ensure the book provides a certain outcome for the bookmaker.

This is a simple way to describe it, but if we consider a two-outcome event, such as fair coin toss, we would be looking at a 50%-50% chance of the coin landing on heads or tails.

However, if for some reason the bookmaker wanted to ensure a profit on the coin toss, they may adjust the odds to favour one side…55%-50%, which would naturally draw more money towards the favourite.

The bookmaker aims to retain a profit on the event, so long as they’re able to balance the amount of money placed on both sides of the bet.

The sports betting public tend to back the favourite more than the underdog, so the reduced odds and the bookmakers’ implied probability will naturally draw more bets to that selection. Therefore, the home win within traditional 1X2 bets usually have odds much lower than the true odds and true probability of the outcome.

So, if the bookmaker drew 100 bets of 1 unit each on the bet above, they would retain and pay out the following:

Heads at 55% Probability = 1 / 0.55 = 1.82 decimal odds

Tails at 50% Probability = 1 / 0.5 = 2.0 decimal odds

Bets placed = 100 bets at 1 unit each, which are proportionally split across the two selections above:

So, 55 bets placed against Heads and 50 bets placed against Tails.

On a Heads win

Bookmaker Pays out: 55 bets x 1 unit x 1.82 = 45.10 for a heads win (plus return original 50 stake)

Bookmaker retains: 50 bets x 1 unit = 50 for tails loss

Bookmaker profit margin: 50 – 45.10 = 4.90 units

On a Tails win

Bookmaker Pays out: 50 bets x 1 unit x 2.0 = 50 for a tails win (plus return original 50 stake)

Bookmaker retains: 55 bets x 1 unit = 50 for heads loss

Bookmaker profit margin: 50 – 50 = 0 units

So, the bookmaker stands to break-even with a Tails win, but will profit with a Heads win. If you equate Heads to Home Win and Tails to Draw/Away Win, you can see that the most likely outcome will ensure the bookmaker profits handsomely from each of the bets.

How can you make money against bookmakers and sportsbooks?

When we place a bet against a bookmaker for a probable selection our profits are very rarely based on the true outcome of the event. Therefore, we’re not receiving as much money as we should receive from bookmakers.

It’s not necessarily a negative for bookmakers to retain a profit, as they’re running a popular and much needed service, but all the same it’s better for you to be careful where you place your money as some bookmakers and sportsbooks have higher profit margins than others.

Check your odds using odds comparison services and make sure that you’re betting on a suitable outcome within an event. Real betting information and data will help with this, so always try to find value and verify your expected value of your bet before risking your money.

Betting Exchanges

We now know that bookmakers and sportsbooks retain a profit, but what about the Betting Exchange?

Betting Exchanges are market makers and run platforms which allow each of us to act like a bookmaker, we can set odds and accept odds on different sporting events.

The ability for each of us to decide the odds that we’re willing to accept and decide if we’re going to:

* Back (i.e. cash wagered on the event to occurring, such as a home win)

* Lay (i.e. cash wagered on the event not occurring or team does not win at home)

The ability to bet on both sides and offer odds for other people is the major difference between bookmakers and betting exchanges. Offering odds to other bettors allows the betting public to act like a bookmaker and try to retain a profit within each event.

So, in theory you could offer odds to others that retain a certain profit and helps you to make more money over the long-term. This is more difficult now than in the early days of betting exchanges are there are lots of people acting in a similar fashion, which makes this process more difficult over the long-term.

So, that covers is, but what about the betting exchange itself?

Betting Exchanges run the websites and apps, so they need to make a profit, or it wouldn’t be possible for them to run their services.

Profit comes by charging you and me a commission on each of our winning bets. So, we don’t have to worry too much if we lose a bet, but we may have to think about more if we win a bet. Sometimes the 5% or 6% commission charged on top of a win would reduce the overall profitability of the bet and artificially reduce the odds.

5% or 6% may not sounds like much, but it’s really reducing your odds by the same amount. This reduction in odds can seriously damage your betting plans, so make sure you’re not just checking out the headline odds number, but also doing your calculations in the background to ensure that the commission-reduced-odds are in line with what you need for long-term profitability.

How can you make money on betting exchanges?

It’s certainly not impossible for you to retain profits on both sides, but there are lots of people acting like ‘bookies’ on betting exchanges, so you will have to disguise your activities from the public.

The same approach applies for bookmakers, if you can make sense of an event and know more information about the likelihood of an outcome you can ensure the odds that you offer are more realistic and you can set your odds favourably.

Good Luck!

Tags: Bookmakers

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