How Do Sportsbooks Make Money?
There is no doubt that the sports betting industry is booming. In the year 2017, the global sports betting market was worth around $104.31 billion. And thanks to the recent legalizations and digitization, the industry has witnessed new heights. These are the key reasons why several small businesses, entrepreneurs as well as established business owners are investing in the business through sports betting websites and sports betting apps to be a part of the action. No wonder, almost every month, new sportsbooks are emerging online. After all, sports betting businesses are reaping big bucks.
Key Terminologies of Sports Betting
But before we jump in and take a deeper dive to answer the question of how do betting sites make money, there are a few terms we must go through. Let’s take a look at them.
- Bookie: Person who accepts bets from bettors.
- Stake: The total amount placed in the bet.
- Odds Compiler: The person who decides the initial odds.
- Bettor/Punter: The person who places wagers.
- Wager: A bet is also known as a wager.
- Off the Board: The game for which a bookie or a bookmaker no longer accepts bets.
Readers of this blog also read
How Do Betting Sites Make Money
Several betting websites are making millions of dollars every year. Several betting companies are expanding their offerings to generate greater revenues. Several sports betting websites are witnessing new heights in business within a few years. So what’s their secret? How do bookmakers make money?
When it comes to making money, sports betting websites rely on two things.
Both of these factors decide the fate of the sports betting business. Let’s take a closer look at them.
When it comes to making money, sports betting websites rely on two things.
- Vigorish
- Strategies
Both of these factors decide the fate of the sports betting business. Let’s take a closer look at them.
What is Vigorish?
Vigorish is another word for “winning” in Russia. In online gambling or sports betting, there are several names for the same. Juice, under juice, cut, margin, take, house edge, as well as vig, are some of the other names. Bettors use betting websites to place wagers. They use them to earn extra money. And for providing the services, betting sites charge them in the form of vigorish.
The vigorish majorly depends on the odds. Betting companies adjust the odds of betting to ensure they get their cut, no matter what the outcome is. The calculation of vigorish comprises mathematics. The mathematics that heavily involves probability. Every outcome comes with a certain probability and the sum of the probabilities of various outcomes should be 1.
But that’s never the case. The sum of odds that are provided by the bookmakers is usually more than 1. Why? Because the excess probability is the vigorish that converts into the bookmaker’s margin (also known as over-round). The vigorish can range from 2% and can go over 20%. The real-time odds are adjusted to ensure the bookmaker gets the cut for their service.
Vigorish can be calculated in a simple two outcome event with an easy formula.
V=100& (1-(p*q)/(p+q))
In the above formula, V is vigorish, and p and q are the decimal payouts.
Vigorish heavily depends on the odds. And there are several factors that influence it. The behavior of bettors for the provided odds, the behavior of professional bettors (also known as sharps), the win percentage, etc are the factors that need to be considered for calculating the vigorish.
The vigorish majorly depends on the odds. Betting companies adjust the odds of betting to ensure they get their cut, no matter what the outcome is. The calculation of vigorish comprises mathematics. The mathematics that heavily involves probability. Every outcome comes with a certain probability and the sum of the probabilities of various outcomes should be 1.
But that’s never the case. The sum of odds that are provided by the bookmakers is usually more than 1. Why? Because the excess probability is the vigorish that converts into the bookmaker’s margin (also known as over-round). The vigorish can range from 2% and can go over 20%. The real-time odds are adjusted to ensure the bookmaker gets the cut for their service.
Vigorish can be calculated in a simple two outcome event with an easy formula.
V=100& (1-(p*q)/(p+q))
In the above formula, V is vigorish, and p and q are the decimal payouts.
Vigorish heavily depends on the odds. And there are several factors that influence it. The behavior of bettors for the provided odds, the behavior of professional bettors (also known as sharps), the win percentage, etc are the factors that need to be considered for calculating the vigorish.
Want to Know more about Vigorish?
Want to Know How Your Sports Betting Business Can Generate Millions?
Alternative Ways in Which Sportsbooks Make Money
Let’s discuss some other prominent ways in which sportsbooks make money.
Strategic Sports Betting Odds
Sportsbooks generate revenue through strategically calculated odds that inherently favor them, ensuring profitability irrespective of the outcome. They also offer a variety of bet types, including moneylines, point spreads, and totals, each with specific odds designed to contribute to their overall earnings.
Betting Commission
Online betting platforms earn money by taking a commission on each bet. This commission, typically 5-10% of the bet amount in sports betting, changes depending on the odds and the betting option. This system provides the platforms with a regular income, no matter if the bet wins or loses.
Loyalty Programs & Subscriptions
Gambling sites frequently utilize subscription services or loyalty programs to foster repeat betting. These initiatives often provide benefits like free spins, cashback rewards, or special offers, motivating users to continue placing bets. These subscription-based models establish a consistent and reliable revenue stream for betting companies.
Strategies Used to Maximize Profits
In addition to vigorish, there are several other strategies that sports betting sites deploy to ensure they keep the business up and running and keep making the profits. Below are some of the strategies that are widely used by sports betting sides to boost their profits.
Balancing the Bets
One of the common strategies used by sportsbooks to maximize their profits is that of balancing. Online sports betting sites always aim to balance the game, that is, they ensure equal numbers of bets get placed on both sides. This is done to ensure they get their margin irrespective of which side wins the bet. But what about games in which there is no possibility of equal bet on both sides? In these cases, the odds get adjusted and payouts get smaller to ensure the sportsbook gets its cut.
Odd Adjustment
The odds are typically released by the main operator, but those odds are never used. To ensure the sportsbook gets the cut, the odds are changed several times. This is one of the reasons why bettors see varying odds on the website. Every sportsbook employees risk analysts or odds compilers who refine the odds based on several factors. These factors are referee, form of players, player injuries, form of the teams, the result of the past played matches, old records, the result of matches between the teams, home crowd advantage, and several more. At the initial level, betting limits are placed but as the odds get finalized on the basis of opinions of the public as well as professional bettors, the limits are removed. The opinion of the sharp bettors holds most value when it comes to shaping the odds, since they know ins and outs of the game.
Analysis of User Behaviour
How do betting sites make money? By analyzing user behavior. Several noob bettors often place bets on their favorites while sharp bettors who know the game and how betting works analyze all the odds. People often bet on their favorite teams as well as players and when these teams or players fail to perform, most money is made by the sportsbooks. This is one of the reasons why several sports betting sites have a favorite section which contains the most popular sports that are loved by people. In addition to this, several sportsbooks also make use of AI which analyses and understands user behavior and past choices and shows them the odds and bets preferred by them, irrespective of the chances of winning. This enables sportsbooks to push the bets that are in their favor. The biases and inclination of users towards their preferred bets enables sportsbooks to reap huge profits
Bet Capping
To mitigate substantial losses, especially in highly unpredictable events, bookmakers might significantly restrict the maximum allowable bet size.
Line Adjustment
Bookmakers initially set odds, known as the sports line. They then track how bets are distributed. If too many bets come in on one outcome, creating a risk, the bookmaker adjusts the line. This involves lowering the odds after sports betting odds calculation on the popular outcome to encourage bets on less popular options. They also monitor team conditions, weather, and rumors to inform these adjustments.
Hedging Strategies
Risk management in sportsbooks include some bookmakers to bet on opposing outcomes, especially when a majority of bettors favor a single team or athlete. Bookmakers also diversify their offerings by providing various betting options across different sports to limit their reliance on any one particular outcome.
High Stakes for Low Volatility
One of the most common bookmaker profit strategies is attracting high stake bettors. Online sportsbooks, while serving regular bettors, also draw high-stakes gamblers. Big bets can lead to large operator losses, so bookmakers use tactics like analyzing betting patterns, setting limits for big bettors, and partnering with other platforms to reduce risk.
How Profitable is the Sports Betting Business?
There was a time when betting was considered a fun activity. People used to place bets for a few bucks and it was all for the sake of entertainment only. There was also a time when people were intimidated by the idea of visiting bookies and sportsbooks to place bets.
But the times have changed. The growth of the online gambling industry has revolutionized the sports betting industry. Today, there are bettors who still place bets for entertainment and earning some extra cash while there are some, for whom online betting and gambling are a serious source of income.
Result? Punters from all over the world are now freely placing bets to earn cash. The recent relaxations and the permission to use the offshore gambling platforms from the government has also removed several boundaries.
According to Statista, by the end of the year 2024, the value of the global online gambling market was $86billion. It is projected to reach $120 billion by 2029, an increase from previous value. According to another report, the size of the online betting industry is estimated to be $77.18 billion by the end of 2025, which means the industry will grow double in size.
Now let’s take a moment to take a look at some of the extreme profit-generating businesses. In the year 2017, the market value of Ireland based Paddy Power Betfair sports betting company formed in the year 2016 was estimated to be around $10 Billion. In the same year, DraftKings in the United States alone generated more than $155 million.
Apart from these figures, according to legal sports reports the amount wagered in the United States alone was around $22,178,753,419 and the betting revenue generated was around $1,530,771,087. These figures clearly paint the picture of the bright future of the sports betting industry.
But one question always remains unresolved in every new investor’s mind. How do betting sites make money? Everyone knows how bettors make money but what about the sportsbooks? How do sportsbooks make money in millions and what strategies are they deploying to maximize their profits?
Hence to resolve all your queries, to help you understand how do sportsbooks sites make money, how they operate, and to help you uncover the secrets, we’ve written this article.
Want More Insights?
EXPLORE MORE BLOGS FROM VARIOUS CATEGORIES
Looking for Ways to Reap Big Bucks From the Sports Betting Industry?
Then GammaStack can help you. We at GammaStack specialize in building custom sports betting solutions that align with your business goals and accelerate your success. Our key offerings include —
- Custom Sports Betting Website Development
- Custom Sports Betting App Development
- White Label Sports Betting Software Development services
Equipped with 14+ years of experience and teams of skilled and proficient developers, we arm businesses with cleverly designed next-generation sportsbook solutions that keep them ahead in the game. Our sports betting solutions come equipped with all the tools and features crucial for rendering a splendid betting experience as well as boosting the engagement of the bettors.
Our sports betting solutions support several bet types, betting markets, esports betting, and modern betting avenues such as weather betting, celebrity betting, betting on politics, award ceremonies, and several more.
Want to know more about us, our offerings, and how our solutions can turbocharge your business? Contact us today!
FAQS on How Sportsbooks Make Money
Sports betting is one of the most thriving industries that has witnessed new heights in a very short period of time. By the end of 2029, the sports betting industry’s market volume is expected to grow immensely to $94.89 Billion! Several entrepreneurs are investing in custom betting solutions, and those who want to launch their solutions quickly, they are investing in white label sports betting solutions.
Custom sports betting solutions are built from ground up. It all starts with an idea, then comes roadmapping, blueprint creation, wireframing, design, development, integrations, QA testing, and finally, the deployment. But, in the case of white label solutions, they are ready made, which allows business owners to launch their solutions quickly, and make quick entry. Which one should you choose? It depends on your requirements, time constraints and budget.
Some of the popular trends include Blockchain integration, Online casino integration, AR/VR integration, etc.
Some of the most popular betting avenues include weather betting, political betting, virtual sports betting, weather betting etc.
The more popular sports you have, the more traffic your platform will attract. Hence,
Of course! Our custom sports betting software development services allow you to build your solutions based on your ideas.
While football is widely discussed, skilled sports bettors or sharp bettors often find basketball, particularly the NBA, to be the most profitable sport for them. As a sports betting operator, you have to keep in consideration both soft and sharp bettors as well as people with varied sports preferences. Thus, it is crucial to include all the sports based on these factors to earn more revenue.
In the highly competitive US sports betting landscape, boosted odds are a prevalent promotional tactic. Most leading online sportsbooks offer these odds boosts, frequently using them to draw attention to popular upcoming sporting events. Thus, players grab this opportunity to place their bets. In turn, the sportsbooks get their house edge, ultimately making money and boosting the sportsbook revenue model.
Sources
- https://www.marketwatch.com/story/firms-say-sports-betting-market-to-reach-8-billion-by-2025-2019-11-04
- https://www.legalsportsreport.com/sports-betting/revenue/
- https://www.statista.com/topics/1740/sports-betting/#dossierSummary__chapter5
- https://www.statista.com/outlook/amo/gambling/sports-betting/worldwide
