Thursday, April 2, 2009

How Do Sportsbooks Make Money And How Does This Affect The Line? Part I

Many people, especially experienced sports bettors, know the answer to this question. But, for some people it may be hard to understand. But, it's really not that complicated and once you understand how a sportsbook works it will also help you to understand why a line may move on a particular sporting event.

The first thing you must understand is THE VIG. The vig, short for vigorish, is the sportsbook's commission and it is usually set at around 10%. It is also commonly called "the juice." If you have ever placed a bet before, you probably noticed that you had to risk more than you could win (assuming you placed a straight bet, which is what we are discussing here). Usually, you will have to risk $110 on a bet in order to win $100. If this is the case, it will be designated as -110. Whenever you see a minus sign, the number after it (in this example 110) represents the amount you would have to risk to win $100. That ten dollar difference is the vig.

So, let's say that you place a bet like the one described above. Let's say you risked $110, you won the bet and now you are $100 richer. Good job. Now, let's say there's someone else who places a wager on the same event, except he puts his $110 on the other team. Of course, he loses. He just lost $110. So, now pretend you are the sportsbook. Between both of these bets, you just made yourself $10. One guy won $100 and another guy lost $110. Now pretend that one thousand people bet and win and one thousand people bet the other way and lose. If you are the sportsbook, you just made $10,000 ($10 * 1000).

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Once you understand this, you understand that the main goal for any sportsbook is to have 50% of all bettors betting one way and the other half betting another. If this is the case, the sportsbook can't lose.

Now, let's look at how this may affect a point spread. Let's say there is a game between Oakland and Dallas. Let's say the line opens up at Dallas -11. Well, there may be many people out there who think that Dallas will win by more than 11. So, let's say that 75% of the money on this game is for the Cowboys (initially). If that is the case, the line will start to move. It will go up to 11.5, then 12, then 13. It will continue to get higher and higher until the percentages get as close as possible to 50. If a sportsbook doesn't adjust the line and allows for 75% of the money to be for one side, essentially, the sportsbook is gambling. Generally, a sportsbook does not want to gamble. They merely want to sit back, take bets and collect on the vig.

Sometimes a sportsbook has no choice but to gamble. If well more than half of the money happen to be on one side of a particular event, sometimes there is nothing the sportsbook can do to adjust it. Still, when you look at all of the events that a sportsbook accepts wagers on, the vig on the 50/50 games far outweighs their potential losses for the few lopsided events. Also, don't forget that when a sportsbook gambles, they may win.

So, now you know that when a line moves it is likely due to an uneven amount of money being placed on a particular team. In our next blog, we will discuss how you can take advantage of this knowledge.

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