How does bookmaking work?

Question

We know that bookies take bets from gamblers, but how do they "know" the correct odds for an event to happen? If they don't lay the correct odds, then they would lose. What are some of the math theories involved in determining the odds of winning / losing. Lastly, how is risk tolerance (or spread) determined by the bookie?

Answer 1

First, let me correct a previous answer. The loser does not pay the vig, the winner does. When you lose, you lose 100% of your money. When you win, you are not paid a full payoff. The vig is deducted from your winnings.

I am not sure if you mean legal books, like those here in Vegas or your neighborhood bookmaker. Let me break it down for you.

First, your neighborhood bookmakers receives the lines from Vegas usually (or another source where he/she can wager at if required).

Second, legal books, like those here, set the lines to divide public perception. The lines are not a prediction. They are there to get half of the action on each side. Now, you are correct in assuming that sports books put more into it than simply developing a line.

If the line is not good with the public, the sports book could find themselves wagering on the outcome of the game. The sports books don't like being in this position. However, it's all about value. Let's say that you have action coming in on a game. Action on side one is $100,000. Action on side two is $30,000. Now what?

Well, the book is now in the situation of having an interest in the outcome of the event. However, the sports book is receiving value on its wager. To keep it simple (ignoring vigs), the sports book is in effect wagering $70,000 to win $100,000. That's not a bad deal. This example is for a typical football game (line play). Baseball would be more mathematical since it utilizes the money line solely.

I could go on, but let me assure you that legal sports books know what they are doing. As to your last question, the spread is developed by experienced linesmen who analyze the game at hand and public perception. Remember, the line is there to split public betting and not to foretell the outcome of an event.

Answer 2

The bookmaker tries to set the line so there are equal bets on each side. Then he/she makes the extra 5-10% that the loser pays to handle the transaction.

For example, take the Steelers +14. Give the bookie $110 to win $100. Someone else will take the Steelers -14. If the Steelers win by 15, then the loser effectively pays $110 to the bookie, $100 goes to the person who bet on the Steelers -14, and the $10 goes to the bookie.

You should be ready to open up shop!

Answer 3

the first answer was nice, but i believe most booksmakers now use elaborate computer statistical simulations/predictors to estimate the initial point spread. after that, the betting public drives all the lines, if a lot of people are betting on the favorite -8, the line will move to -8.5 or -9 to get more people to take the underdog, this works the other way as well, heavy betting on the underdog +8 will drive the line to +7.5, +7 and so on.

Answer 4

1