How Bookmakers Make Money

Making consistent profits from sports betting requires you to understand how bookmakers actually work. They take your bets, hence they are your enemy in your quest for sports betting success.

Bookmakers operate at a margin

Bookies are no different than any other business. When you start a business venture, your goal is to sell your products or services at a higher price than the total costs and fees you’ve accumulated. The difference is your profit margin.

Similarly, bookmakers aim towards a profit margin, which is also known as their commission or The Juice. They are not a charity – they are in this business to take your money and make a profit.

The bookmakers’ goal is to make money from each sports event regardless of the outcome. Let’s see what exactly they do to achieve this.

Here’s an obvious example

The probabilities which team in a football match will take the initial kick-off are even at 50% each. This implies fair odds of 1 / 0.5 = 2.00 for each team. However, a bookmaker will never give you even odds of 2.00 for both teams. They won’t make money from such a market. Anticipating an even distribution of 100 bets on both teams to kick off first:

50 bets will win at odds of 2.00 => $50 loss for the bookmaker

50 bets will lose at odds of 2.00 => $50 profit for the bookmaker

As you can see this is meaningless to the bookies. It is an equivalent of you buying a commodity for $50 and selling it for $50 which only results in a waste of time.

Because of that, for an event with two outcomes with identical probability like this kick-off example, bookmakers will usually offer you odds between 1.90 and 1.95. Assuming odds of 1.90, and an even distribution of 100 bets on both teams to kick off first:

50 bets will win at odds of 1.90 => $45 loss for the bookmaker

50 bets will lose at odds of 1.90 => $50 profit for the bookmaker

In this case the bookie has made a $5 profit. Every bookmaker plans to make a profit from each market irrespective of which selection is the winning one.

How the margin is calculated

To compute at what margin a specific bookmaker provides you the opportunity to make sports bets, you have to convert all possible outcomes’ odds as implied probabilities, sum them up and then multiply the sum by 100. The implied probability of an event happening is calculated by dividing 1 by the odds.

Using the example above:

Implied Probability = 1 / 1.90 = 0.526

Bookmaker Margin = (0.526 + 0.526) * 100 = 105.2

Bookmakers aim towards a profit margin, which is also known as their commission. They are not a charity – they are in this business to take your money and make a profit.
The juice each operator takes from any given sport, league or game can be easily calculated – Image by Bruno Glätsch from Pixabay

This number is usually referred to as a percentage, meaning the bookmaker margin is 105.2%.

A 100% market represents fair odds, meaning odds of 2.00 for an event like the first kick-off in a football match. When the market is below 100%, there is value for you, whereas when it’s above 100%, the bookmakers are taking their commission and making money. In almost all markets, with a very few exceptions, the market is above 100%. The exact number above 100 is the actual margin (commission / juice) the bookmaker takes – in our example this is 5.2%.

Balancing the book and managing liability

The margin a bookmaker takes usually varies between different sports, different leagues within the same sport, and even different markets within the same game. A bookie may plan to extract 5% profit margin from English Premier League games, 7% profit margin from Spanish La Liga games, and 10% profit margin on less popular leagues from Asia, Africa and Eastern Europe. Likewise, the margin on the 1X2 market in a football game may be 7%, while the one on the correct score market in the same game usually is 15% or more.

Setting the margin at which a bookmaker wishes to operate is just the first step for them. According to that predetermined margin, the odds are established in such a way where, regardless of the outcome, the bookmaker will always win provided that there is an even distribution of total stakes on all outcomes.

However, a perfectly even distribution is very rarely achievable. When one selection attracts a high volume of bets, bookmakers adjust the odds in order to balance their book and manage their liability. If they leave the situation unattended, they will lose a lot of money if that selection is the winning one.

To tackle that, they lower the odds of that selection, and simultaneously increase the odds of the opposite selection as a means to attract more betting attention to that opposite selection. What usually happens then is that the proportion of bets placed on the opposite selection increases due to the higher odds. When the distribution is close to even again, the odds are adjusted again and are close to their initial figures.

What does all that mean for you?

The margin each bookmaker takes is a critical factor when choosing whether to bet there. Using the formula above, you are able to calculate the commission each bookie takes from each sport, league and market. Do you prefer tennis set betting? Compare the margin your shortlisted bookies take from this market and bet at the one that takes a lower commission. Maybe you fancy NBA bets? Simply do the same quick calculation. Pick a few games and compare the margin. Knowing exactly how much each bookmaker is aiming to extract as a profit from the market is priceless information for you.

As mentioned, bookmakers have different margin across specific sports, leagues and games. Betting at the best odds on the market for any sports event is the most important reason why you should bet at multiple bookmakers.

Bookies don’t know in advance the outcome of a sports event, but they are constantly balancing their book based on the incoming bets. When the odds are adjusted according to their current liability per outcome, this presents you with nice opportunities for value bets, which are the way to make money in sports betting. Your ultimate goal is to find selections which are priced higher than they should be.

It may seem rather unimportant whether the odds a bookmaker offers for a selection are 1.95 or 1.97. It’s not – it represents the most important thing for them – their margin. Consistently betting at bookies which operate at a lower margin will bring you much more profit in the long run.