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Understanding sports betting odds: how sportsbooks work

As Ontario and perhaps other provinces look to open their markets to a host of sports betting providers, we wanted to write a short piece that explains betting odds to new players so that they can know if they are getting fair value.

As you research betting sites around the Internet, there is a lot of bad information & puffery out there.  A lot of paid partnerships have been struck so that the given sports content or "sportsbook review" site will write that a particular one of their listed Ontario betting sites site has the 'best odds of any traditional or non-traditional sportsbook' or some such non-sense.

We want to show you how to see through the lies and puffery in order to understand how sportsbooks work and why they set and change their betting odds, so that you can get good value for your betting dollar. 

 

How sportsbooks or betting sites make money: understanding bookmaking & odds margin

A lot of people have a fundamental misunderstanding of the sports betting business and what a sportsbook does to earn money.  In the end, the sportsbook or betting site is just a middle man between the players that are betting on all potential results for a given betting market on a given event. 

The bookmaker sets the odds and lines with the goal of balancing their potential liabilities, so that no matter the outcome of the event, they will be left with a small amount of revenue.  Once an event is complete, the bookmaker pays the winners from the stakes of those that lost their bets. 

The odds margin that is built into the betting odds helps to ensure that the bookmaker can remain revenue-positive on the event.  Odds margin is sometimes called the 'sportsbook hold'. High margins or a high hold inevitably result in lower odds for you the player.  Lower odds mean lower payouts if you win.

 

Odds margin: what constitutes good value?

Odds margin at a single betting site will actually vary across the hundreds of betting markets that are available within a given sporting event.  In general, the lowest margins will be in use on the most popular betting markets.  Since these are the high-volume betting markets, the sportsbooks can afford to integrate lower margins.

These markets are often the most visible ways that you may bet on any given event, like the point spread, the puckline, runline, moneyline (the winner of the event) or the over/under.  As a rule of thumb, competitive odds margins on these markets run in the 5% region.  For some sportsbooks and certain sports, you may find odds margins in the 3% to 4% range.  See an example of how odds margin actually relates to the odds as associated to typical 2-way handicap betting markets at right, or below if viewed from your mobile.

If you visit a sportsbook that has been touted as having the "best odds" and you actually see a lot of games at 1.90/1.90 or -110/-110 or lower, you know that their puffery is just that - meaningless noise.  Odds near 5% are bang-average in terms of reasonably competitive betting sites. 

If you find yourself looking at odds of 1.87/1.87 or -113/-113 or worse on the bulk of NFL, NHL, NBA or MLB handicap markets and you want to get decent value, simply back away from that betting site.  You can play at sites that offer far more competitive odds on 'the big four' leagues, which are the most popular by far for Canadian bettors.

 

Who cares if the odds margin is 4% or 6%, that's just a 2% difference, right?  No!  It's a 50% difference!

On this page we talk about the sportsbook hold, or odds margin on a given betting market being 3%, 4%, 5%, 6%, 7% and even higher.  When people talk about the difference between these figures as offered by competing sportsbook providers, readers can make the mistake of seeing negligible difference between the figures.

As you read this page, or various sportsbook review pages on our site that talk about the associated odds margins on offer, don't think that the difference between 4% and 6% margin is 2% and nearly meaningless.  A bookie that keeps 6% margin is keeping 50% more than a bookie that only keeps 4% margin.  Over time, this can end up being a big difference in your potential returns.  If you care about getting good value, this is how you need to frame the relative value on offer - not by the one or two per cent difference that you might perceive as you read.

 

Why might a given betting site have higher odds margins & thus lower odds

It depends on their approach to business.  You know those "bonuses" and "free bet" offers?  They come at a cost.  Oftentimes, if a company is heavy on new customer and existing customer promotions, they use higher odds margins to help offset these costs.  When a company decides not to offer new customer bonuses, or has ones that are fairly low in value, they will have more room to operate with lower odds margins, allowing you to take advantage of higher odds more often. 

In the end the decision will be yours, and there may be a lot of other aspects of a betting site that you want to consider, like finding a betting platform that you really enjoy using - as there are some very poor platforms out there. If we take this out of the equation, you may have to weigh up getting big value sportsbook bonus codes, versus the ability to get highly competitive odds. It may make more sense to go for a medium-sized sign-up offer if it means playing with more competitive odds in the long term.

 

2-way odds & associated margin

Odds Example Odds Margin
1.92/1.92 4.17%
1.90/1.90 5.26%
1.87/1.87 6.95%
1.85/1.85 8.11%

 

How to get the best odds: odds comparison

Given that betting sites are constantly adjusting their odds and lines to account for their own particular liabilities, you will never find a single regulated or locally licensed betting site that constantly has 'the best odds'.  So when you read on some third-party website that 'XYZ' sportsbook has 'the best odds', take it with a grain of salt - it's puffery. 

They likely have the exact same odds margins as most every other sportsbook: 5 to 6% on popular betting markets for top leagues, and higher odds margins (lower odds) for prop bets, less popular betting markets and for less popular leagues or events. 

In the end, the only way to know that you are getting the best odds for a particular event or for a particular parlay ticket of selected bets is to use an odds comparison site in advance of your given events. 

 

Example of a what a bookmaker is really doing to earn revenue: how much do sportsbooks make?

Let's use a point spread betting market as an example to demonstrate what a bookmaker is really doing to earn revenue and provide its service.  To keep things really simple, we'll use a popular 2-way betting market, like a point spread or an over/under market as the odds on either potential result are often the exact same odds figure.  

The sportsbook will usually change the point spread line itself, or shift the odds in order to encourage bets on one result and discourage bets on the other, as they continue to accept wagers and balance their liabilities.  To keep things simple, we'll keep our example static where the odds do not move. 

Let's say that the total amount bet (or the handle) on this game's handicap market is $2,000.  This means that since the odds are about equal on both potential outcomes, the bookmaker would be aiming to have $1,000 in bets on the Home side and $1,000 in bets on the Visitor side. 

Typically competitive bookmaker odds on a simple point spread might be 1.90/1.90 or -110/-110.  If this is the case, we know that the winners of the bet will be entitled to a return of their stake money $1,000, plus the profit of $900 ($1,000 X 1.90) which equals $1,900.  This leaves the sportsbook with $100 left as revenue. 

$100 in revenue divided by a total handle of $2,000 is 1/20 or 5%.  This 5% figure represents the fundamental amount that most sportsbooks tend to integrate into their odds on the most popular leagues and betting markets (the odds margin).  This is how sportsbooks earn money.  Remember though, this is revenue, not profit.

The sportsbook company has to pay their people, pay for equipment, servers, office space, product testing and regulatory license fees.  Then after all that is paid, they still need to share what's left with the government that licensed them.  So that $100 or 5%, ends up shrinking to an even smaller amount.  So when you hear about a given province having a 'handle' of billions of dollars, remember, this is just the amount of money that is flowing through the bookmaker as the 'middle man' that facilitates the bets.  Assuming that there is a reasonable tax rate, the actual profit to the company on this 'handle' will only be a few per cent of that amount at most.