Introduction to Sportsbooks and Sports Betting
A lot of people new to Sports Betting ask me to explain to them the basics of handicapping. One of the most common questions I get is about "Sportsbooks" so I have decided to write a multi-part series about sports betting, sports investing, and how to make sports picks like a handicapper.
Sportsbooks operate by taking wagers. Wagers create income for them in a number of ways. Firstly, most sportsbooks offer a variety of wagers on everything from sports propositions to questions about celebrities and politicians. People can wager on the outcome of games, whether the coin toss before the game will be heads or tails, whether the 1st play will be a run (football), whether the total points of 2 teams will go over a given number or under, whether democrats or republicans will win in any election year, whether a given movie star couple will get divorced or stay together during a given time period. The types of wagers proposed by the sportsbooks are numerous, and the odds vary as well.
But basically any wager deemed a favorite, will have a number like - 110, -165, -300, etc. The negative means it is the favorite, and the number behind it means that is how much you have to bet to win $100. In sports like baseball where there is no spread, if a team is favored to win like the NY Yankees, -300 means betting on them, you must bet 300 to win 100. Conversely, a team like the Colorado Rockies might be an underdog (a team not subject to huge amounts of demand - mostly because they are struggling) may have a line like +250. Now, laying 100$ on the Rockies, pays back $250. This large payout will sway some bettors to take a $100 risk on the Rockies because of the large payout. The -300 Line on the Yankees will back off quite a few bettors who will not want to risk the farm to win a pea ($300 risked pays back $100). So demand evens. and the books will continue to adjust the line until game time, making subtle moves to even demand between both outcomes. once the wagering is close to even, you will notice that
-300 bettors who lay money on the Yankees win the $100 risked by Rockies bettors. If both sides are equal, and Yankees win, the Rockies losses payoff the Yankees winners, who get back their $300 risked plus $100 profit. The sportsbook breaks even.
Now if the Rockies win, they get back their $100 risked, plus $25o because the line was (+250). The $250 is paid for by the $300 lost by Yankee bettors, and the sports book keeps the other $50 which is what we call juice. Juice is the fee for betting. Sometimes the books break even. Sometimes they make the juice. $300 risked on Yankees plus $100 risked on Colorado = $400 in wagers, and $50 profit.
Divide that by 2, because sometimes the books win, and sometimes they break even. In this situation, given both ways the game can end, the books are averaging $25 profit per game for every $400 risked which is 1/16th or about 6% profit per game, based on whatever volume of business they do. Considering the billions of dollars in wagers, over and over again, you can see how taking wagers pays them big money IF they can split the demand properly between 2 teams.
Most people understand this is how the books work, and this is how they make money.
Some sports have spreads like NBA, and NFL, where betting on the Indianapolis Colts versus the Houston Texans means that there will be a line.
For example, Indianapolis as the favorite, again has a negative number - 14.5 lets say. They now have to win by over 14 points to cover the spread and pay their bettors. Houston Texans backers get 14.5 points positive, which means they can lose by 14 and still get paid. Because this spread splits the demand, the money doesn't have to split demand - so the money paid for the most part is even.
Indianapolis Colts - 14.5 pays (-110)
Texans +14.5 pays (-110)
Each bettor bets 110 to win 100, and if the wagers are even on both sides, the 110 lost by the losing team's backers pays the 100 profit to the winning teams backers. $10 is left as juice to the books meaning in this scenario $220 in wagers pays $10 in juice - the books make 1/22 of all the business volume taken if the books balance. That converts to between 4 and 5 percent profit guaranteed.
The sportsbooks goal is to balance their sides, make their juice, and keep customers happy and loyal, by paying ontime, and providing excellent customer service. Then the juice rolls in day after day. You can see that 4 to 8 % profits are small, but considering the huge number of business volume taken, the profits are unbelievable. A 3 hour sporting event can put thousands if not hundreds of thousands of dollars in the sportsbook's bank accounts. It can put Millions of dollars in all of the different sportsbooks accounts across the industry, when you consider the multitude of sportsbooks where people are betting. Not bad for a three hour sporting event, and yet it goes on day after day after day.
