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Betting Strategy: Why Bookmakers Make Money?

Betting Strategy: Why Bookmakers Make Money?

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Posted Wed, 13 Sep 2017 16:41:40 GMT    

Betting Strategy: Why Bookmakers Make Money?

As a beginner to sports betting, it’s not exactly essential to understand the intricacies of how bookmakers operate. However, it IS a good idea to understand how and why they make their profits. In very simple terms, they do this by taking more money in from losing wagers than they pay out in winnings for successful wagers.
The results of a sporting event is obviously outside of a bookmaker’s control. So how would they know if they’re going to make money or not? If most of their customers bet on the same team to win a game of basketball, and that team goes on to win the game, then this must mean they’re going to LOSE money. They would be forced to pay out more in winnings than they’ll receive in losing stakes. Right?
In theory, such a situation is entirely possible. It’s important to remember though; bookmakers are not generally risk takers. They run their businesses in a way that enables them to make money regardless of the outcome of sports events. Yes, they MIGHT lose money on the occasional event. That’s incredibly rare though. Most of the time they’re guaranteed to make a profit no whatever happens.
Why are bookmakers guaranteed to make money?
Because they’re the ones setting the odds.
This is essentially what gives the bookmakers the advantage over us customers. Setting the odds ultimately allows them to do what’s required to ensure they make a profit. First, they build a commission into those odds, so that we’re effectively paying a fee whenever we place a wager. They basically make the odds lower than they technically “should” be if they were to fairly represent the chances of a selection winning.
Let’s use a hypothetical example to demonstrate this. We’ll say there’s a boxing match coming up, and the two fighters have exactly the same chance of winning. The fair odds on each fighter would be even money. Odds of even money mean we double our money when we win, which is how it should be for a true 50/50 shot. Bookmakers wouldn’t give us even money odds on this fight though. Realistically, they’d offer something like this.
                                    Fighter A vs Fighter B
Fight Winner FIGHTER A 1.91    FIGHTER B 1.91
The odds are just slightly BELOW even money. If we placed a $100 wager at odds of 1.91, our potential payout would be $191. That represents a profit of $91, which is a little less than doubling our money. The small difference is basically the commission we’re being charged. This commission is known by several different terms, such as the margin, the vigorish (vig), the juice or the overround.
The bookmakers’ commission is one of the reasons why it’s so hard to win money from betting on sports. If we wagered on 50/50 shots all the time, we’d need to win MORE than half the time to make an overall profit. Assuming we were staking $100 each time, at odds of 1.91, we’d lose $100 for every losing wager. Since we’d only win $91 for every winning wager, we’d need to win roughly 55% of the time just to break even. This will be difficult, as we actually only have a 50% chance of being right.
Now, not everyone wagers on 50/50 shots all the time. In fact, very few people do. The same principle applies regardless though. Every time we place a wager, we’re effectively giving the bookmaker an instant advantage by accepting their odds. This is why it’s important to find value in the odds when making our selections. The concept of value is something that goes beyond what sports betting beginners NEED to know, but we recommend learning about this concept sooner rather than later.
Setting the odds also makes it easier for bookmakers to create balanced books. A book is balanced when they stand to pay out roughly the same amount of money on a specific market regardless of the actual result. Let’s use another hypothetical situation to illustrate why this is important for them. We’ll stick with boxing, but this time one fighter is heavily favored to beat the other. A bookmaker might offer the following market.
Fighter A vs Fighter B
Fight Winner FIGHTER A 1.20 FIGHTER B 4.50
The odds on Fighter A are quite low, because he’s the favorite and expected to win. The odds on Fighter B are much higher, because he’s the underdog and given only a small chance of winning.
If a bookmaker took exactly the same value of wagers on each fighter, they’d stand to LOSE money if the underdog won the fight. For example, let’s say they took a total of $20,000 in wagers made up of $10,000 on each fighter. If the favorite won, they’d have to pay out a total of $12,000 for an $8,000 profit. But if the underdog won, they’d have to pay out a total of $45,000. That’s a big loss of $25,000.
Although it’s possible for such a scenario to arise, it’s not very likely. For one thing, more people tend to back the favorite. So the chances of a bookmaker seeing the action spread evenly across both fighters for this fight would be very slim. If it DID happen though, they’d adjust their odds to attract more money for the favorite.
They’d make the odds for Fighter A higher and the odds for Fighter B lower. This would encourage people to back Fighter A, and discourage them from backing Fighter B. The bookmaker would probably then end up with a more balanced book, thus reducing their risk of potential losses.
Note that the bookmakers having an advantage over their customers does NOT mean it’s impossible to make money from betting on sports. It just means that it’s not an even playing field. The bookmakers’ advantage allows them to make profits from all their customers collectively, but it’s still possible for any individual to overcome their advantage and be a winner in the long run.
Successful sports betting requires a lot of hard work though, and much more knowledge than just the basics we’ve outlined on this page. This is why we suggest that you think about what you want to get out of sports betting before getting started.

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