How do sportsbooks work?

The main source of revenue for sportsbooks is the charging of a fee for every bet placed through their service. This fee is included in the odds offered and is commonly known as the bookmaker ‘margin’, ‘vig’, or ‘juice’. Below we can see how the bookmaker margin changes the odds.

Staking $100 would result in a profit of $150 ($250 payout) for the fair odds compared with a profit of $138 ($238 payout) for the odds with bookmaker margin.

The size of the global sports betting market was $122.9 billion AUD in 2022.

Looking at the largest sportsbooks in the UK, Australia and the USA, it can be seen that sportsbooks generate massive amounts of revenue. These numbers are achieved through the addition of a margin into the odds.

In the Sportsbet financial report we can see a 11.2% net revenue margin which we can approximately translate into the average margin present in Sportsbet's odds.

With sports betting it is possible to win multiple bets and in turn make a profit, but is this possible over the long term? The result of a sporting match is never certain (excluding match fixing), meaning that either team has a chance of winning. By betting on the odds that sportsbooks offer, you are getting a worse price than what the probability suggests. You may be profitable in the short term but not in the long term, as you aren't getting the fair value for your wins. You need an edge.

An edge turns the sportsbook's odds in our favour - giving us more value than what the probability suggests. One way to gain an edge is to have more information regarding a match than what the sportsbooks have; known as insider information. For the majority of people it is not possible to have more information than these billion dollar companies, meaning there's only one option. A mathematical edge.

Your friend or uncle claims to have a 'winning sports betting strategy' - they even have a picture of a winning bet to back it up! This may be the case… but can they show you their profit over 100 bets, or mathematically prove the strategy? In order to achieve long term profitability with sports betting, you must ensure every bet you are placing has an edge. But how can you do this?...