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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.
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 is expected to be more than $94billion. The current size of the online betting industry is estimated to be $46 billion, which means the industry will grow double in size.
Now let’s take a moment to take a look at some of the most 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.
But before we jump in and take a deeper dive to answer the question of how do betting sites make money, there are few terms we must go through. Let’s take a look at them.
In order to understand the article better, it’s important to get familiar with the following terms.
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.
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 are they making 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.
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.
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 needs to be considered for calculating the vigorish.
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.
1. 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.
2. 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.
3. 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
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