A question that many novice sports bettors tend to ask is – how do sportsbooks make a profit? A sportsbook accomplishes this by accepting bets on any particular market and adjusting the odds in order to attract wagers in the optimal proportions to obtain a profit regardless of the outcome. By offering odds that are higher than the actual statistical probability of the event, the difference between the odds offered and the actual probability represents the sportsbook’s margin. Nowadays, with the wealth of sportsbooks, both online and physical, it’s important to determine which sportsbooks actually offer the best odds.
Definition Of Margin
The definition of a margin can be best explained via an analogy. If you and your friend are betting on a game of dice for $10 – if the roll is an even number, you win; if the roll is an odd number, your friend wins – the probability of either person winning if 50%, which corresponds exactly to the odds offered in this game (2.00 in decimal odds and +100 in American odds). This type of game is referred to in betting as a 100% market or book – there is no advantage to the bettor placing the wager nor is there an advantage to the side accepting the wager. However, if you and your friend were betting on the dice game via a sportsbook, the market percentage would exceed 100%. The percentage that exceeds 100% represents the price that the sportsbook charges for offering the event within their markets.
Calculating Winning Margin
When calculating the margin for an event, a game, or a match, the odds of all possible outcomes must be taken into consideration. The higher the margin (the amount that the market percentage exceeds 100%), the worse off the value is for the bettor. Over the long run, bettors placing numerous wagers will inevitably allow margins to take away from their potential profits.
For the most common games, a two-way market is present. The calculation to determine the margin for any two-way market is:
(1 / Decimal Odds of Team A) x 100 + (1 / Decimal Odds of Team B) x 100
As an example, the odds for the Boston Red Sox vs. New York Yankees is as follows:
Boston Red Sox 1.83 New York Yankees 2.15
The margin is calculated as:
(1 / 1.83) x 100 + (1 / 2.15) x 100 = 101.156% – 100% = 1.156%
Additionally, most sportsbooks also charge a significant amount of “juice” or “vig” for spreads since the payout for betting on the spread is not 1:1, 2.00, or +100. This is how the spreads would look for the Los Angeles Lakers vs. Golden State Warriors.
Los Angeles Lakers +18.5 Golden State Warriors -18.5
1.91 or -110 1.91 or -110
As a result, the margin is calculated as:
(1 / 1.91) x 100 + (1 / 1.91) x 100 = 104.712% – 100% = 4.712%
Comparing this margin to the margin previously calculated, it’s obvious that this margin is extremely unfavourable to bettors. Although the probability of winning when betting on either side of the spread should be equal to the probability of rolling an even or odd number in the aforementioned dice game, the implied odds of winning exceeds the actual odds of winning of 50%. However, you will find that some sportsbooks, such as Pinnacle, offer more favourable margins in two-way games or spreads. Pinnacle’s spreads pay out at 1.95 or -105, resulting in a margin of 2.564% – much better than the 4.712% margin.