What Sports Bettors Need To Know About How Sportsbooks Set Odds

February 23, 2021by Christopher Gerlacher0
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What Sports Bettors Need To Know About How Sportsbooks Set Odds

What Sports Bettors Need To Know About How Sportsbooks Set Sportsbook Odds

Sportsbook odds seem to come from some nebulous nowhere. Who could come up with precise odds on a team winning or a player earning an MVP award at the end of the season? But sportsbook odds are calculated to accomplish three things:

  • Generate profit for the sportsbook.
  • Pay winners without going bankrupt.
  • Tempt bettors by offering better odds than competing sportsbooks.

It sounds complicated and it is. It’s a difficult balance to strike, and how sportsbooks strike it has important consequences for sports bettors.

Tug Of War

Every time you open a sportsbook, you’re looking at the result of a delicate tug of war. The two sides of the tug of war rope are:

  • Competitive bettor odds
  • Sportsbook profit

When oddsmakers set odds, they have to make a tradeoff between offering great odds and keeping expected profits on each line high. Oddsmakers have to make this compromise because sportsbooks have to collect enough money from bettors to pay winners. They can’t run out of money, whether they’re paying low winnings on a favorite or high winnings on an underdog. So, sportsbooks have to set odds that take winnings into account.

First oddsmakers will calculate the “real” probability of a team win or an over/under. Oddsmakers are experts in their sports, so they can harvest data and news to make informed decisions. After that, oddsmakers add the vig.

How The Vig Affects Your Winnings

The vig is the little slice of money sportsbooks take off each wager. However, sportsbooks don’t charge a commission on each bet. Instead, they calculate the true odds of a win, then skew the odds a little bit to clamp down on winnings. So, if the real odds of a Patriots win are -150, the odds bettors see will be closer to -165 or -170. If that bet wins, sportsbooks accept a little extra money and award a little less. That’s how sportsbooks make their money.

It’s also why sportsbook odds can change so dramatically during live games. When odds change, they change based not only on the game but also on how much money bettors are wagering. During the Super Bowl, the Buccaneers started out as underdogs. That was the result of hype surrounding the Chiefs. But by halftime, the odds flipped dramatically. BetMGM set Buccaneers odds at -500.

BetMGM didn’t suddenly decide the Buccaneers had an 83% chance of winning. There were just so many bets on a Buccaneers win that DraftKings had to make the winnings smaller. Otherwise, it would’ve run out of money. There’s no good time to not pay winners. But the Super Bowl is a particularly bad time to run out of cash. Everything they did during the game ensured they remained profitable.

So whenever you see odds at a sportsbook, the odds are not perfect probabilities. They have been skewed by sportsbook profits and bettor hype. (Hype is such an underrated detail that we wrote a whole article about not falling for it.) But there’s one important factor left: other sportsbooks.

How Sportsbooks Buy Customers

Sportsbooks opening in new markets often offer large bonuses of free bets and free credits. However, sportsbooks also compete with each other, and bonuses will only get them so far. Ultimately, sportsbooks will compete on their odds.

Each sportsbook finds its own way to balance great odds for bettors and high profits for themselves. Some sportsbooks will offer more generous underdog odds but offer worse odds on the favorite to compensate. Other sportsbooks will do the opposite. Others still will maximize profit at the expense of their bettors. (Although, sportsbooks that do that don’t rise to the top of the market. Bettors notice bad deals.)

However, there are variations on that model, too. One sportsbook company, SBK, runs theirs a little differently. The company that owns SBK has a betting exchange in the UK. SBK gets its odds from the UK betting exchange. Because SBK gets its odds from a betting exchange, its vig is lower than most of the market. So, it has competitive odds wherever it goes. It’s only in a few states now. But it has plans to expand, so bettors should keep an eye out for this quirky, competitive sportsbook.

Setting Sportsbook Odds In A Nutshell

Sportsbooks have a precarious tightrope to walk on. They can offer the best odds on the market, but that would eliminate their profits. Alternatively, they can maximize their profits on each line, but bettors will notice the bad odds.

Oddsmakers use a few tools to strike that balance. They predict the probability of a bet winning. They take current wagers and where they want new money to go into account. Then they decide where they want to set their odds in relation to their sportsbook’s profitability goals and various market pressures.

Sportsbooks can win many new bettors over with flashy promotions. (Like $1,000 promotions that most bettors couldn’t earn the full value of.) But odds are a sportsbook’s foundation. They can’t be ignored like bonus offers. Over time, bettors are going to figure out that some sportsbooks offer them better value for their money than others. For example, DraftKings tends to have competitive odds on the favorite to win. FanDuel often has better underdog odds. And SBK has a completely different business model altogether.

As you gain more sports betting experience, you’ll notice these trends in different sportsbooks. You’ll figure out which sportsbooks are taking more of your money and which ones offer good value. You’ll also discover how easily sportsbook odds are swayed by bettor hype. (Seriously, have we stressed that enough?) Because bets can be placed in advance, sportsbooks are constantly recalibrating odds to balance money on both sides of the line.

Remember, sportsbooks’ only two goals are to pay winners in full and profit. Understanding that will clarify how sportsbooks calculate their odds.

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