As more sports fans download sports betting apps to learn what this sports betting thing is all about, a question is bound to pop up.
How do the sportsbooks make their money? With fans betting on both sides of a game, how can a FanDuel or DraftKings be sure to make money to stay in business?
How the Odds Work for Sportsbooks and the Customer
A sportsbook like BetMGM or PointsBet or FanDuel accepts bets on sporting events and makes money by collecting a commission, also known as the “vig” or “juice”, on the bets placed.
Here’s a simplified example of how a sportsbook might make money:
Let’s say that a sportsbook is accepting bets on a football game between the New England Patriots and the Dallas Cowboys. The sportsbook sets the point spread for the game at New England -7, meaning that the Patriots are favored to win by 7 points. They also set the odds for the game at -110, meaning that a bettor must wager $110 to win $100.
Now, let’s say that the sportsbook takes in $100,000 in bets on this game. Of these bets, $50,000 are placed on the Patriots to cover the spread and $50,000 are placed on the Cowboys to beat the spread. If the Patriots win the game by more than 7 points, then the sportsbook would pay out $50,000 to the bettors who wagered on the Patriots, and collect $50,000 from the bettors who wagered on the Cowboys.
However, because the sportsbook set the odds at -110, they would collect an additional $4,545 in commission from the losing bets ($50,000 x 0.091). This means that even if the sportsbook pays out the full amount to the winning bettors, they would still make a profit of $4,545 on this game.
Of course, in reality, the sportsbook would adjust the odds and point spread based on a variety of factors, including the betting patterns of their customers and the perceived strengths of the teams involved. Nonetheless, the basic principle of making money through the commission on bets remains the same.
The Type of Bets Sportsbooks Make the Most Money On
Sportsbooks make the most money on bets that have a low probability of occurring, also known as long-shot bets. This is because long-shot bets typically offer higher odds and payouts, which means that the sportsbook can collect a higher commission on these bets.
For example, in a football game between two evenly-matched teams, the sportsbook may set the point spread at just a few points, and the odds may be relatively even on both sides. In this scenario, the sportsbook may not make as much money on each individual bet, since the payouts would be relatively small.
However, if a bettor places a long-shot bet on a specific player to score the first touchdown of the game, and that player is not a likely candidate, the odds and payouts would be much higher. This means that even if the sportsbook has to pay out the full amount on this bet, they would still collect a higher commission on the other bets placed.
Additionally, sportsbooks can also make money on parlays, which are bets that combine multiple individual bets into a single wager. Parlays typically offer higher odds and payouts than individual bets, but the chances of winning are lower. This means that even if the sportsbook pays out on some parlays, they can still make a profit on the overall volume of bets placed.
Ultimately, sportsbooks rely on a combination of factors to make money, including careful management of odds and point spreads, effective risk management, and strong customer engagement and retention strategies.