Bookmaking has grown in the last decade. There are many websites where you could place your bet. They are also present in arenas and stadiums, especially now that many countries are legalizing sports betting. However, few people know how bookmakers make money. Today, you will learn how bookmakers gain profits despite seemingly being on the losing end of a betting bargain.
The Bookmaking Margin
When you hear the word “margin,” it refers to the bookmaker’s profit margin for a particular event. What punters do not realize is that this is a hidden cost that they are paying for. To a bettor, lower margins are better.
A slight difference in the margins means big profits to a bookmaker. If a bookmaker like GGBet repeats making money from a small margin, the profit has a compounding effect.
Here is an example of how to calculate the margin:
- LA Lakers – 2.35
- San Antonio Spurs – 1.64
If a person wagered $100 on Lakers and won, his prize is $100 x 2.35 = $235. Deduct the $100 bet, and his profit is $135. The same principle applies to Spurs.
Here is the formula to get the margin of the bookmaker:
- 1 / 2.35 = 0.425531915
- 1 / 1.64 = 0.609756098
- 0.425531915 + 0.609756098 = 1.035288012
- 1.035288012 * 100 = 103.53%
In this case, the profit margin is 3.5% because that is the excess of 100%. This formula works under the assumption that the wagers on both sides are equal. Of course, this does not happen all the time. However, if repeated several times in different games, the bookmaker will make a profit.
The Bookmaking Juice or Vig
The word “vig” comes from “vigorish.” It is also known as the “juice” or “cut”. It is essentially the profit margin of the bookmaker. Some people call it the house edge. The vig is nothing more than the “fee” that the bookmaker is taking from your bet. It is the bettor’s payment from the bookmaker for facilitating the bet.
The vig is a concept where the bookmaker is managing his risks. By calculating the vig, the bookmaker can guarantee that the game will produce a profit no matter the outcome.
As a general rule, bookmakers do not want to have a preference between the fighting teams. For example, they do not have a choice between the Lakers or the Spurs. They want to make sure that they will produce profits no matter the outcome. To do this, they need to offset the betting amounts and winning potential for every possible outcome. This offset is easy to do in a single-outcome event where only two teams are competing.
There is no standard for the vig. The typical practice is to get between 2% and 5% as a profit margin. Typically, the vig is something you see in positive/negative odds. Let us use this example:
LA Lakers: +350
San Antonio Spurs: -460
The vig formula is simply the difference between the probabilities of winning of these two teams. To get that number, you have to do the math of probabilities for each.
Here is for San Antonio Spurs as for negative odds:
- Odds/(Odds + 100) X 100 = Probability
- 460 / (460 + 100) X 100
- (460 / 560) x 100
- 0.821428571 x 100 = 82.14%
The probability of winning of Spurs is 82.14%.
Now, let us do probability for the Lakers for positive odds:
- 100/(Odds + 100) X 100 = Probability
- 100 / (350+100) X 100
- 100 / 450 = 0.222222222
- 0.222222222 X 100 = 22.22%
The probability of Lakers winning is 22.22%.
Now, if we add 22.22% and 82.14%, we get 104.36%. The difference between 104.36% and 100% is 4.36%. Therefore, 4.36% is the vig in this bookmaking line.
The vig, juice and house edge all refer to the same thing – the profit margin. The same principle applies to football betting.
How to Calculate the Bookmaker’s Profit?
Now, what if more people placed a wager on the favorite rather than the underdog? How will the bookmaker make money?
The trick here is to control the bets. Most bookmakers have what is called an over-under line. The goal here is to make sure that there is a balance between the number of bets for Lakers and the number of bets for Spurs. As much as possible, the total money wagered must be as close to equal on both sides. To do this, the typical odds that the bookmaker will use is -110.
Here is an example:
- Lakers: +350
- Spurs: -460
If you add these two, (+350) + (-460), you get -110. In this odd, a bettor has to wager $110 to win $100.
If there is an imbalance, the bookmaker will move the line. What this means is that they will adjust the odds for the team where no one is betting. They are incentivizing the odds for this team so that people will bet more on this side. This concept applies if the bookmaking is about points OVER and UNDER, not on who wins.
Let us say that a total bet for Lakers is $110,000. The same goes for Spurs. The total bets the bookmaker took is $220,000. If the Spurs wins UNDER, it takes a bet of $110 to win $100.
Since the total bet for Spurs is $110,000, the bookmaker has to return $110 000 to the bettors, plus $100,000 as a prize. From the total $220,000 collected, there is still $10,000 left. That money left is the vig of the bookmaker.
Published on Holr Magazine