Question about how bookies make money - please respond

[GFootsXtreme]

I think I get the general concept of bookies trying to balance action and take their cut of the winners.

But often I hear about bookies who have lopsided or sometimes very lopsided games. Knowing that bookies seem to make money year after year, my question is where does the money really come from?

Does a bookie really make most of his money from taking 10% of winning plays? It seems very often that bookies make a huge win on some games, while also occasionally losing big.

Where do the profits come from exactly? Curious, please respond if you know as I do not know any bookies well enough to get the straight scoop.

[d107]

Here is a good article concerning bookies profit

"Laying over-round, Backing under-round or Dutching"

What is a bookie? Many people ask this question and it was indeed one of the first "puzzles" I solved when looking at betting exchanges. Curiously I found no explanations anywhere on the internet or in bookshops. So here is an explanation....

The art of making a book is to 'balance' it so that a profit is made no matter what the outcome. Bookmakers make money by offering odds that are different to the real probabilities in the underlying event. Traditionally all Bookmakers offer prices that are overround. By overround we mean that they offer prices for punters to back which exceed the total probability in an event.

For example:-

If we were offering prices for the toss of a coin we know the probability of a head or tail is 50%. Excluding complex variations we know the probability of a head or tail being tossed is 100%. There are no other outcomes to this event.

If we are a Bookmaker and want to make money on this event we simply offer up 100% probability at a price higher than 100%. If we offered up a book of 105% we would simply lay heads or tails at 52.5%. This is the equivilant of laying heads and tails at 1.90 (Digital odds). Therefore the punter would back either event at 1.90 and we would guarantee a profit as long as both side of out bet was matched. If both sides of the bet was not matched we would end up paying out a liability on one side and not cover the bet on the other. However as long as our overround is big enough the good and bad days will average each other out over time and in the long term we would make money.

Example:-

Our bookmaker decides to accept betting on an event where there are only two outcomes. He decides to choose the the Oxford and Cambridge boat race.

The bookmaker might open his book by offering odds of 2-1 on Cambridge and 6-4 against Oxford. By a simple calculation (Two divided by three, the sum of the odds (2+1=3)) we can see that 2-1 on represents a probability of 66.67% and 6-4 against represents 40% (Four over ten).

The probabilities add up to 106.67% The excess of 6.67 over 100 percent is known as the over-round. In short he has sold odds of 106.67% but the outcome can only ever be 100%. There is a 100% chance that one horse or the other will win. (We are talking simplistically here). The bookmaker, if he can take bets in the proportion of the probabilities, say £66.67 on Cambridge and £40 on Oxford, will pay out £100 whichever wins on £106.67 taken, a percentage profit to him of 6.25%.

In practice, of course, the bookmaker will need to adjust his odds in accordance with supply and demand. More money for Oxford than the estimated probability indicates will cause him to shorten the odds against Oxford and lengthen those for Cambridge. The same principle works on the stock market when market makers buy and sell shares on their books at different bid and offer prices.

His final book might look like this :-


Cambridge Oxford
£50 @ 2-1 on £40 @ 6-4
£42 @ 4-6 on £32 @ 5-4
£50 @ 4-5 on £30 @ Evens

In this example, he began by seriously under-estimating the fancy for Oxford, and has been forced to reduce his odds from 6-4 to evens, at the same time offering better odds for Cambridge. Before adjusting his odds he stood to pay out £100 on Oxford, having taken only £90 in stakes. The odds offered on a horse race with many runners are calculated and adjusted in the same way. The over-round usually increases with the size of the field.

I have found a useful Java applet that will "frame" a market for you. If you enter the odds and the amount you wish to be over or under round this applet will work out the market prices for you. You can find this applet here.

Bookmakers can not win against Betting exchanges

A bookmaker's over round is only a theoretical over round as most of the money they receive is placed on favourites. If a heavy odds on (Less than 2.00 digital odds) favourite loses the bookmakers can rub there hands. However, if a favourite wins then the bookmakers are likely to be out of pocket. Over time we know the odds are created fairly accurately. Therefore if you are a bookmaker you will have periods where lots of favourites win and you will be out of pocket and other times when none win and you start planning the cruise to the Bahamas. Overtime though you will win.

However because of the lack of a balanced book and the likely hood of good and bad runs against your bank balance bookmakers need a wider over round. By doing this they ensure that if there is a bad run they will not go out of business. Because a lot of large bookmakers are listed companies with shareholders they are expected to report a steady earnings stream. If bookmakers changed there odds and reduced the over round to the sort of prices available on Betfair their profit margins would be killed. Also because they can not ensure a balanced book they could have a very bad run against them which could cost them a lot of money at best and at worst, if they didn't limit there exposure, there business. A lot of smaller bookmakers have gone this way.

There has been a lot of publicity about betting exchanges, a lot of it negative, the big bookmakers and people with seeking to protect the current status quo and there interests have been waging a war against the betting exchanges. Here is a typical example: -

"British Horseracing Board chairman Peter Savill agrees that globally racing faces a mounting crisis with the spread of on-line exchanges. 'Betting exchanges have suddenly enfranchised 30 million plus people in Britain to make money out of horses losing a race. When you add to that figure every other person in the world with the desire to make money out of horses in Britain losing races - including, possibly, illegal Far East bookmakers and even organised crime - you have to wonder whether the decision [to allow franchises] was reached after appropriate research.' "

This is simply a stupid and crazy statement, so obvioulsy a red herring to support the failing case of people who oppose exchanges. If you wanted to lose money on horses you have been able to do this for decades. You could approach somebody to the lay the horse. If no one will you lay the horse you simply back all other horses other than the one you want to win in direct proportion to the odds available. If your horse loses you will win on any of the others. Not strictly laying but a modfied form and exactly the same result is ensure as laying. Indeed people have done this for decades so this accusation that exchanges increase the level of corruption in the sport is a null argument. In fact exchanges probably help as they provide a clear audit trail. If you have a wedge of cash on the course that is not possible to trace but placed through an exchange you have a near perfect audit trail.

[d107]

or a very simple version of the same thing


How do Bookmakers make money?

Basically a bookie takes money from customers, pays out winners and keeps the money of losers. Its a quite a simple concept. This simple explanation doesn’t explain how a Bookmaker can make money in the long run.

When a Bookmaker sets the odds, he builds what is known as an over round in to the odds. This over round is sometimes known as juice. For example, in the American presidential election, say McCain vs Obama, there are two candidates. For simplicity, both have an equal chance of winning. Fair odds would be even money, so place £10 on Obama and Obama wins, you win £10 and get your £10 back.

A bookmaker would not offer even money. They might offer 5/6 (1.83) on each. So your £10 would only return £8.30 plus your stake. The book value is 109% in this example. You can see that if the bookmaker has an equal amount of money on both candidates, the bookie will win regardless of the outcome. Say, for example, they took at £1000 on McCain and £1000 on Obama, they would take a £1000 in losing money but only have to pay out £830, making a profit of £170 regardless.

Bookies set the odds based roughly on probability but also the weight of the money expected on each side. Bookies try and make as balanced book as possible. Bookies with imbalanced books run the risk of losing money if the results go the wrong way. Football is notorious for having imbalanced books and bookies do lose money if successions of favourites win. They do tend to clean up when the favourites lose though. With the advantage of the over round its pretty hard to fail to make money being a bookmaker.

However, you do get the odd bookmaker going bust if a lot of bets go against them. Premierbet was a fairly large British Bookmaker that went under in September 2007 after a series of bets went against them. With the advent of Betfair though, its unlikely that even the most mathematically challenged bookmaker can lose money as all they have to do is lay the liability off in to the market.

[Dr. Jack]

I deleted that post. The guy is asking a serious question. Some of you need to learn when it's appropriate and when not.

[GFootsXtreme]

thanks jack and d107. i don't mind whatever anyone posts to be honest...the jokers that make smart-ass comments are most likely the ones that talk big and also lose big imo

It's 100% clear to me the idea of long-term winnings with balanced action. I just don't believe though, that on most games a small-time bookie has balanced action. Yes, he could buy off action with another book somewhere, but that doesn't make him the same return.

My underlying theory/question is that there are some opportunities that make bookies so much money that it makes up for any possible losses...i.e. a playoff game or big event where everybody bets one side and the bookies clean up.

Curious to see if any bookies or people in-the-know can share their own personal experiences

[Romanowski]

why are you focusing on small time bookies to learn anything in your example...forget that

focus on how a large volume book works, to benefit you and learn how to become more profitable as a gambler

is that not the objective of your question?

to simplify an answer, most time books have semi balanced action and their goal is to keep it balanced and collect vig...

however a smart book, namely pinnacle, do not boot winners, like most books would

they profile their clients, and keep the winners (and losers of course) playing...

by knowing the "winning" side, by taking the action...they can also themselves, take a position

and by taking a position then obviously they arent looking for only balanced action on that particular event

so in short, it depends on the event, but yes most definitely a book can take a position on a side

[Seanie Mac]

they make money because 90% of people who bet on sports do not finish above even just during football season let alone the whole year, and roughly 5% of people who bet on sports view forums.

[GFootsXtreme]

See now what romo is posting is what i'm asking about, that is helpful. pinny does seem to know the outcomes better than the rest

seanie that is what i am asking...i'm not so sure they only make their vig, romo has one angle

[dave nz]

pinny has alot of sharp clients, as they are a gambling book, they bet on alot of the sharp clients action elsewhere. If you monitor the odds changing that is from a marked client placing a bet. Of course if you prefer not to be a marked client anywhere its pretty simple use someone eles's passport or drivers licence (has to be real so you can cashout) and use a proxy server, however if you bet large on not mainstream sports or familiar betting patterns it won't take long for them to mark you.
A high % of Bookmakers around the world are quite comical when it comes to sharp clients, once your account is marked you get very low limits and the odds nose dive upon placing a bet.


One thing you can add to the mix is something most Bookmakers are hush hush about and that is laying off.....eg. they have a losing result and balance things out by betting there losing result elsewhere. Virtually no gambling sites these days survive off sports betting alone. Most have all or some of the following which all have a higher % hold for the most part than sports betting.....casino games, horse racing, poker.

[GFootsXtreme]

dave maybe a stupid question but does a linesman sit and watch the wagers from those marked players and move the line himself or does a computer move the line automatically with the changes?

when you mention they lay off with a losing result...is that a situation where they have inbalanced action and move some of the inbalance elsewhere...or are you saying something different than that?

very interested in understanding this stuff as much as possible. thanks guys for your input, anything else you can share is welcome.

it seems obv that pinny is sharper than others, but understanding WHY and HOW is critical I think...

betting exchanges also...once i saw someone post that if you can get a better line than what is available at pinny or at matchbook that you should almost always take that line...any thoughts?

i.e. a betting exchange has Cincy +13 -105 and Florida -13 +101, that you should take for example Cincy +13.5 -105, or FLorida -11+101, if it were available elsewhere...love to hear if you guys think there's any validity to that

[dave nz]

Originally Posted by GFootsXtreme

dave maybe a stupid question but does a linesman sit and watch the wagers from those marked players and move the line himself or does a computer move the line automatically with the changes?

Computers

Originally Posted by GFootsXtreme

when you mention they lay off with a losing result...is that a situation where they have inbalanced action and move some of the inbalance elsewhere...or are you saying something different than that?

Yeah bet it elsewhere to balance it up, problem for them is other Bookmakers often don't want their action, so they may use a disguise.

[walk066]

One issue is you don't pay upfront for betting and when you get down and chase, you lose even more. Also most bookies will count an o/u as a loss if it hits on the number. Also people will tend to bet on their favorite teams no matter what.

[home dogs]

I booked for fours years of my life 2 years in college and 2 years post college, most of my gamblers were very bad and small bettors a100 player who on occasion would step out and bet 200 on a game, I made money every year, period I did not need to balance anything because I won from day one and most of the time mid way through the season guys quit. This year I thought I can try to book again I was very wrong my 100 bettors turn into 1000 bettors and I was one sided So I was unable to balance anything so I quit and gave it to a bigger book, so your answer is if you have alot of people who are SEPERATE from one another you will make money if you have a group of guys betting with you all on one side its feast or famine and your making a big gamble every week. Look at Belmont and GG they bet like bookies and look how succesful they are.....

[d107]

Originally Posted by walk066

One issue is you don't pay upfront for betting and when you get down and chase, you lose even more. Also most bookies will count an o/u as a loss if it hits on the number. Also people will tend to bet on their favorite teams no matter what.

[GFootsXtreme]

Originally Posted by home dogs

I booked for fours years of my life 2 years in college and 2 years post college, most of my gamblers were very bad and small bettors a100 player who on occasion would step out and bet 200 on a game, I made money every year, period I did not need to balance anything because I won from day one and most of the time mid way through the season guys quit. This year I thought I can try to book again I was very wrong my 100 bettors turn into 1000 bettors and I was one sided So I was unable to balance anything so I quit and gave it to a bigger book, so your answer is if you have alot of people who are SEPERATE from one another you will make money if you have a group of guys betting with you all on one side its feast or famine and your making a big gamble every week. Look at Belmont and GG they bet like bookies and look how succesful they are.....

HD thanks a lot for sharing this is the kind of post I find helpful, personal experience

It's interesting...in one regard yes if you have a relatively diverse group of bettors you get one-sided action that tends to make you $$$$. But if they all play the same side your variance is too big and you can go broke waiting for them to take the wrong sides bigtime. But your statement I highlighted above is what intrigues me and made me start this thread.

This all feeds into what I am trying to get a handle on. Romo, to answer you original Q, the reason I am asking for bookies/ex-bookies to share is because when talking with them, we truly know where their MONEY is at. With a big shop you guess, bookies can say "I need Cleveland" and we know they do.

Anybody else please feel free to share. I have been watching threads in a few other sites where bookies post what they "need", and it is impressive I would say for the bowls it won about 75% of the time this year.