How Do Sportsbooks Make Money? And why you need to know.

The online betting industry is exploding in America and across the world. As bettors, we don’t necessarily need to know the ins and outs of every sportsbook we play on (unless you’re also investing in them). However, understanding how a sportsbooks operates, specifically how a sportsbook turns a profit, can be helpful in improving our knowledge-base as bettors and can even help us make more informed decisions and better bets in the long run. 

Bookmaking itself has been around for ages, but now that regulation has been added, understanding how this once-underground business continues to make money (while now having to pay taxes and abide by government regulations) is important.

Why bettors can benefit from getting a better understanding of how sportsbooks operate:

1. Understanding how sportsbooks get their edge can make you a savvier bettor, and help you recognize potentially mispriced lines.
2. Knowing what you're up against when betting is important. Sportsbooks make a large majority of their profits off of certain kinds of bets, and knowing the different products will help you make better-informed decisions.
3. Things like bonus bets, boosts, and deposit bonuses can help create edges for customers. Understanding the terms and conditions behind these offers and how to best take advantage can increase profitability. 

How do sportsbooks make money?

Sportsbooks make money by charging something called a vig (vigorish). The vig can also be referred to as “juice” or “the hold.” Simply put, the vig is a charge or fee a sportsbook attaches to each bet they offer on their site. When a customer places a bet, the vig is already pre-built into the odds. 

If a book balances action on both sides of the bet, the vig ensures that the sportsbook will make a profit (after paying out winning tickets), regardless of which side comes out as the winner. 

What is the vig or vigorish in sportsbetting?

The vig (short for vigorish), is the edge that the sportsbooks get when posting each line. To put it bluntly, the vig is the tax or fee that a sportsbook is charging every bettor for placing a bet. 

When a sportsbook posts a line, such as Kansas City +2.5 (-110) vs. San Francisco -2.5 (-110), the vig is built into the line. If we add up the implied probabilities of these two lines (52.38% each), we see that it adds up to 104.76%. Since the total is more than 100%, the extra percentage we see is the amount of vig or advantage that the sportsbook has built into the odds and is essentially charging us for making the bet.

A better way to think about it is like this: If a sportsbook were to collect 500K in bets from both sides of this game (500K on KC and 500K on SF), regardless of which side wins, they would only end up paying out $454,545.45.

That leaves the sportsbook with $45,454.55 in profit. Most sportsbooks would likely be happy to have balanced action on both sides for every bet they take, but that’s often not the case, and not necessarily always their end goal, either. There will be times when the public overwhelmingly prefers one side over the other, and if the sportsbook disagrees with their assessment, they’re often comfortable taking lopsided action and more risk. 

This opens them to having to pay out more (and potentially losing money on booking the bet) but also leaves them open to big profits when they are right. 

Ultimately, when they think their edge is small, or there is no obvious correct side (or when the dollar amounts are just so big that having lopsided action creates too big a liability), their goal is to get as balanced action as possible to ensure a profit. 

Why do sportsbooks charge vig?

Simply put, the vig provides sportsbooks with an edge, and the ability to guarantee themselves a profit if they employ solid bookmaking techniques (setting sharp lines, balancing action, etc.). Sportsbooks are the ones taking the action and have the biggest liabilities in the sports betting industry. As a result, they are also allowed to charge a fee or vig for that reason. 

What percentage of vig does a sportsbook take?

As we mentioned above, a typical sportsbook line on an against-the-spread bet tends to hover around -110 (for both sides). If we add up the implied probabilities (as we did above) of these two lines (52.38% each), we see that it adds up to 104.76%. 

That means that a typical vig for a sportsbook tends to hover around 4.76% (many people often just round up to 4.8%). As a sports bettor, knowing how much vig you are being charged (per bet) is an important part of being a long-term winning bettor. Some books will charge more than this standard 4.76-4.8% and some may charge less. When you line shop for the best odds and can identify the difference in vig, you can increase your overall profitability. 

We mentioned one way to calculate vig above (using the Fantasy Life betting calculator), but you can also figure out the vig by adding up the total amount of bets and dividing the sportsbook's cut (vig) by the amount they paid out.

Example of how to calculate the vig on a sports bet:

• Assume -110 odds, where one side takes in $500,000 in action (Team 1), and another side takes in $500,000 in action (Team 2).
• That’s a total of 1M in wagers.
• The winning bettor would receive $954,545 (original wager of $500,000 plus $454,545 in profit).
• The sportsbook’s cut is $45,454.
• When we divide the sportsbook's cut by how much the sportsbook paid out, it equals the vig: 45,454/954,545 = .0477, or 4.77%.

How do sports betting companies create balanced action?

When sportsbooks are taking a lot of bigger bets on one side of a game or wager, and the handle becomes lopsided, that is often an indicator for sportsbooks that one side is sharper than the other. In these cases, bookmakers will often choose to adjust the odds on a bet to induce action on the side with less handle.  

For example, if a sportsbook takes $75,000 in handle (total money wagered) on Kansas City +2.5 and they only get $25,000 in handle on San Francisco -2.5, the sportsbook might (if they think there is no edge in having outsized action on Kansas City) move the line below 2.5 to 1.5 or 1.0 to induce more action on San Francisco. By lowering the line they make the 49ers' side more attractive (the 49ers would move from -2.5 to -1.5) and will hopefully induce some bigger wagers on the 49ers to balance their books. 

Feb 11, 2024; Paradise, Nevada, USA; Kansas City Chiefs quarterback Patrick Mahomes (15) against the San Francisco 49ers during Super Bowl LVIII at Allegiant Stadium. Mandatory Credit: Mark J. Rebilas-USA TODAY Sports

On top of moving handicaps against the spread bets, sportsbooks will also adjust odds in moneyline bets, or move totals in over/under or prop bets. So if Patrick Mahomes’s passing total opened at 249.5 yards and a sportsbook was taking a lot of action on the over, they could simultaneously lower the odds for the over (say from -110 to -125) and also raise the total (say from 249.5 to 252.5) to induce more action on the under. 

Why do sportsbooks move betting lines?

Sportsbooks move betting lines for a variety of reasons. Sometimes a line will open that will induce lopsided action on one side, indicating that the opening line was not very sharp. Other times, they will simply move a line so they can better balance action to reduce potential liabilities. 

Additionally, as more information becomes available (injury or lineup news), sportsbooks can and will adjust lines to reflect this new reality.

 How do betting odds work?

• Point spread betting: These are most commonly used in football and basketball betting, but they exist in other sports as well. Essentially, point spreads look to level the playing field by requiring the favorite to win by a certain number of points.
• Moneyline betting: The moneyline works in a far different way than the point spread, but the concept is similar. Instead of having to win by a certain number, the price that you have to pay is far different for the favorite and the underdog. Essentially, the payouts that you can receive on the favorite are far lower than the potential payouts when betting the underdog.
• Prop betting: Instead of betting on the outcome of a given game, a player prop allows bettors to wager on whether or not a specific player will go over or under a certain threshold in a particular category in that game.

What is the role of odds compilers?

An odds compiler is another name for a sportsbook trader. An odds compiler’s main job is to set the odds at a sportsbook that are both competitive AND ensure that the sportsbook can make a profit.  

The odds that an odds compiler sets generally aim to reflect the overall percentage of a certain outcome coming to fruition—this is also known as the implied probability associated with the odds of a side or bet. 

You can calculate implied probability by using an odds calculator to show what percentage of chance the current odds give to any side or event. 

What are the best sports betting sites?

BetMGM

BetMGM is one of the industry leaders and is currently legal, as of February 2024, in AZ, CO, D.C., IL, IN, IA, LA, MA, MD, MI, MS, NJ, NV, NY, OH, PA, TN, VA, WV, & WY. BetMGM is also legal in Ontario (Canada). 

BetMGM offers a solid online betting app and a variety of different welcome bonuses.

You can get $150 in bonus bets by signing up for BetMGM below with promo code FANTASYLIFE with an initial $5 bet:

DraftKings

DraftKings is still the leader in daily fantasy sports and now has transitioned to also becoming one of the largest online gambling sites in the USA. They are legal in Pennsylvania, New Jersey, Indiana, West Virginia, Illinois, Virginia, Tennessee, Iowa, New York, Michigan, Ohio, Arizona, New Hampshire, Connecticut, Colorado, and Wyoming.

Additionally, DraftKings is legal in the following countries: Canada  (Ontario only), United Kingdom, Germany, Austria, Ireland, and Malta.

You can sign up for DraftKings below and get up to $1,000 in No Sweat Bets when you place your first bet of $5 or more:

FanDuel

FanDuel is another operator that is well-known for its large daily fantasy sports offerings. 

FanDuel sportsbook is currently one of the largest and most expansive sportsbooks in the USA and is legal in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Wyoming.

Sign up for FanDuel below and place your first bet of $5 or more to get up to $150 in bonus bets!

Caesars

Like BetMGM, Caesars is known for its resorts, hotels, and big Las Vegas presence. 

They have also expanded into the online betting arena, and currently the Caesars online betting app is available in Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Virginia, Washington D.C., West Virginia, and Wyoming.

Your first bet with Caesars is on the house (up to $1,000) when you sign up for a new account below!

bet365

The online giant bet365 is a well-known UK-based bookmaker that is slowly expanding into the USA. They offer great software and a variety of different betting options. The bet365 online sports betting app is now available in Arizona, Colorado, Iowa, Kentucky, New Jersey, Ohio, and Virginia.

You can get $365 in bonus bets when you sign up below and place your first bet of just $1!

FAQs

What percentage are sports betting profits?

Sportsbooks profit by charging vig (vigorish) on every bet they offer. The vig for most bets tends to fall in the 4.5% to 4.8% range. Bookmaking in general is a low margin business but can be very profitable if proper bookmaking skills are being used (balanced action, sharp lines, etc.). 

What is the difference between a sportsbook and a betting exchange?

A sportsbook is a business that accepts wagers and pays out bets taken from customers or bettors. When you bet at a sportsbook, you are essentially betting “against the house” in that the business (or sportsbook) is the one either profiting (if you lose) or paying out (if you win). 

Feb 11, 2024; Paradise, Nevada, USA; San Francisco 49ers running back Christian McCaffrey (23) runs with the ball against Kansas City Chiefs safety Mike Edwards (21) during overtime of Super Bowl LVIII at Allegiant Stadium. Mandatory Credit: Kyle Terada-USA TODAY Sports

A betting exchange is different in the fact that they do not accept wagers but instead operate an exchange that allows players to bet against each other. Players at exchanges can often set the lines on wagers depending on who and how much they wager. 

Betting exchanges don’t profit by taking bets but instead usually gain revenue by charging a small fee on all wins. 

What is the difference between a sportsbook and a bookie?

Bookie is essentially slang for sportsbook. 

Just like a sportsbooks, a bookie accepts wagers from individual wagerers and will take action on either side of a bet. Since bookie is more of a slang word and a casual way to describe sportsbooks, the word can often be used to refer to illegal or underground bookmakers (vs. established sportsbooks that operate within and abide by government regulations). 

How big is the US sports betting industry?

The US sports betting industry has grown into a $10 billion a year industry. Goldman Sachs estimates that the sports betting industry will eventually peak around 45 billion dollars annually when the industry reaches full maturity. 

In 2023, Americans wagered a record $119.84 billion on sports betting. With more states coming online (legalizing sports betting) in the near future, this figure will likely continue to grow for several years. 

Can sports bettors make money betting on sports?

Yes. Bettors can consistently profit from sports betting, but they must beat the vig. That means that if a bettor were consistently betting games with a -110 line, they would have to win at least 53% of their bets to make a profit.

To beat the vig on a consistent basis, bettors need to be able to find lines that offer significant value off of what their real market price should be. So if a spread bet opens up at -2.5 (-110) and the bettor has the proper line for the matchup graded at 3.0 or 3.5, then making a bet on the favorite at -2.5 would be deemed a longterm +EV bet. It may also offer the bettor significant closing line value (CLV) as the market tends to move lines toward the most efficient number as the game approaches its start. 

Having a proper set of projections and understanding of the sports betting market in general can help identify when value exists on a line or bet. 

How much money do sportsbooks make?

How much money a sportsbook makes depends largely on their size and scope—along with their overall efficiency in bookmaking. 

DraftKings, one of the largest operators in the United States, recently raised its fiscal year 2024 revenue guidance to a range of $4.65 billion to $4.90 billion. 

Is sports betting legal?

Sports betting is now legal in 39 states (plus Puerto Rico and Washington, D.C.). However, online sports betting is still only legal in 30 states.