If you’ve ever wondered how bookies work, how they set their odds and why bookmaking has been such a profitable business for hundreds of years, you’re about to find out. We’ll also tell you how different types of bookie vary in their approach to making money and the role technology will play in the future across the online betting industry.
Understanding the Basics - What Is a Bookie?
The history of sports betting goes as far back as ancient Egypt. Back then, chariot racing was all the rage and, gradually, people started betting on the outcome of these races. The need for mediators for betting was needed and, thus, the first bookies stepped into the scene, people who gathered wagers and set the betting odds.
In the modern age, though, we bet either in betting shops or via betting sites. There are regulations, rules, and governing bodies to oversee new betting sites that started appearing with the internet boom.
Though there were significant differences between land-based bookmakers and online betting sites, which we’ll discuss in due course, the actual role of the fixed-odds bookie remained largely the same.
So, what do bookies do? They price up markets and offer odds on all the different runners in an event, such as a football match or a horse race, based on what they perceive to be the implied probability of each of those runners winning the event. Or doing something else within the event, like a footballer scoring a goal or a cricketer scoring a century.
In the process, they also insert a house edge into their odds, which, as we’ll see in a minute, is key to them consistently turning over a profit in the long run.
Once those markets are set, punters are free to place bets at the available odds on whichever selections they wish.
The Role of a Bookie in Sports Betting
The description above of a bookie in sports betting applies to most bookmakers and their sportsbooks. They offer different types of betting and provide bettors with multiple opportunities to wager on their favourite sports.
These are their roles in various types of betting:
Who Are Fixed Odds Bookmakers?
The key characteristics of a fixed-odds bookmaker are:
- a) the odds are non-negotiable; customers either want to bet at those odds, or they don’t
- b) at the time a customer places a bet, they know exactly how much they’re risking (the bookmaker holds the stake until the outcome of the bet is known) and how much they’ll win if the bet goes on to win.
So unlike with some of the other types of sports betting explained below, this is a real battle between bookie and punter.
The Role of Betting Exchanges
Rather than pricing up markets themselves (the traditional way), betting exchanges just create the markets and load the names of the runners into the markets. It is then up to customers to either ‘play bookmaker’ and lay odds themselves, or ‘play punter’ and back the odds the way they would with a sportsbook.
Betting exchanges act as a ‘middleman’ between punters, introducing them to each other and providing the website and technology for them to place bets with each other. They hold customers’ money on both sides of the bet until the outcome is known, at which point winners are paid out their profits, with the exchange taking a commission.
How Do Spread Betting Bookmakers Operate?
With spread betting, the house doesn’t set odds as such but rather it sets ‘spreads’. For example, it may decide that there will be between 20-21 games played in a tennis match. Customers can decide if they want to ‘buy’ - bet there will be more than 21 games - or ‘sell’ – bet there will be less than 20 games.
Customers need to decide how much they want to stake per unit (in this case, each game), and the more right they are, the more they’ll win; however, the more wrong they are, the more they’ll lose. A key characteristic of spread betting is that at the time you place the bet, you don’t know how much you could win or lose.
Tote Betting Bookmakers
Tote betting, or pools betting, is somewhat similar to a betting exchange in that the Tote bookmakers provide the facility for customers to place bets but neither set odds nor face liability on any market.
Instead, if it was a horse race (the most common and popular type of pools betting) punters decide which horse they think will win and how much they want to stake on it.
Once everyone has placed their bets and the result is known, the Tote will work out how much each customer who chose the winning horse is set to win.
This form of betting is also based on the laws of supply and demand, so how much you win will depend on the size of the prize pool as a whole, how popular the selection was (the less popular, the more you’re set to win) and the size of your stake.
The Bookmakers Job - How Do Bookies Make Money?
Because of how different types of betting work in contrasting ways, different types of bookies make their money in very different ways.
Fixed Odds Bookmakers
We’ll look at how fixed-odds bookies set their odds in a second, but the key thing to realise here is that their odds have a house edge inserted into them.
The simplest possible form of bet is that on the outcome of a coin toss, which is a real sports wager when it comes to cricket matches. In normal circumstances, a ‘fair’ bet would be for both India and Australia to have odds of 2.0 (evens) that they’ll win the toss. After all, a coin toss is the ultimate 50/50 chance, as per the laws of probability.
But bookies don’t set fair odds as such. Instead, they’ll probably offer odds of 10/11 on each outcome, with the implied probability being 104.8% rather than 100%. That 4.8% is the house edge and means that punters are being paid out slightly less than they should be.
Theoretically, if the same amount of money was wagered on both India and Australia to win the toss, they’d make 4.8 units of profit for every 100 units staked on the market. Hence the expression ‘you’ll never meet a poor bookie’.
A big horse race say the Cheltenham Festival illustrates two more important points about how bookies work and how they make money.
The first is that they are permanently updating their odds based on the weight of money. If punters are constantly backing the favourite, their odds on the favourite will shorten because bookies are afraid that if the favourite goes on to win, they will have to pay out far more than what they get to keep in losing bets.
In the process, they’ll also lengthen the odds on outsiders to attract more business on them. The reverse could also be true. If money isn’t coming in for the early favourite, they may have to shorten the odds on other horses being backed in and lengthen the odds on the favourite.
This is called ‘balancing the book’.
It's true that in some cases, bookies will have a far bigger liability on favourites than outsiders so will be delighted when an outsider wins because they’ll have to pay out far less on the outsider than what they’d pay out on the favourite.
But it’s also true that similar to insurance companies, they lay off their liability with other bookies. This is to avoid a scenario where an unfavourable result for them results in a big payout, which if it was on a huge race like the Gold Cup, could seriously eat into their mid-term profits.
Betting Exchanges
You’ll remember that betting exchanges don’t set odds themselves, nor do they at any point risk their own money.
Instead, they take a commission on winning bets only. Let’s say Jack lays a bet at 2.0, and Jill backs it for 100 units. Jill wins the bet, so she’s 100 units up. The betting exchange will automatically keep a commission of Jill’s winnings- typically between 2% and 5% - as their cut for offering the betting service before paying Jill her winnings.
Jack, who lost his bet, doesn’t have to pay a commission as it wouldn’t make sense to lose a bet and then pay a commission on top of it.
Spread Betting
Here the house edge works in a slightly different way. Let’s go back to their spread on the tennis match that there will be 20-21 games. There could be over 21 games, and all the buyers make money. Or it could be that there are less than 20 games so it’s the sellers making money.
But if there are exactly 20 or 21 games in the match, both sellers and buyers lose because it’s neither more than 21 nor less than 20. And that’s how spread betting firms make their money.
How Do Bookies Set Odds
When bookmaking first started, odds were set with pen and paper, the bookies putting their expertise of the event and maths skills into practice to also include that all-important house edge into the odds.
These days, it’s a very different story.
Bookies use complex software based on algorithms to work out the correct odds on any event.
Let’s say they’re pricing up an over/under 2.5 goals market in Everton v Liverpool. The bookie ‘feeds’ all sorts of data into the software to work out the odds, such as:
- The average number of goals in Everton and Liverpool’s matches so far that season.
- The average number of goals in Everton v Liverpool games across the last 10 contests between them.
Once the software has thrown up the initial odds, the bookie may need to adjust them slightly. For example, if Liverpool’s star man Mo Salah is out injured, there is less chance of goals in the game than if he were playing.
This adjustment could be based on feeding extra info to the software, such as how Liverpool’s average goals per game is affected when Salah isn’t playing.
Or it could be a human adjusting the odds manually based on their expertise. These experts may also take other factors into consideration, such as the weather on the day or the formations the two teams are likely to play. And as we know, the bookies will continue to adjust those odds based on which of the two outcomes is being backed the most.
Traditional vs Online Bookies - How Technology Has Transformed the Bookmaker Industry
To an extent, placing bets with online bookmakers or land-based ones is a similar practice. However, there are some key differences between the two. These are their pros and cons, so you can decide for yourself what better suits you if you are new to sports betting.
Let's talk about land-based bookies first:
Pros:
- You don’t need to go through the process of providing personal details, passing a KYC (Know Your Customer) test and making an online deposit, though admittedly there are more customer checks in place at land-based bookies now than there used to be.
- You’re far less likely to be restricted at a land-based bookie than an online one.
- Some punters prefer to be paid in straight cash rather than having to make a withdrawal because, apart from anything else, a cash payout at a shop is instant rather than taking a few days, as happens with online bookies.
Cons:
- There are far fewer sports and markets available to bet on. This is partly due to the fact that it’s not practical to print out hundreds of paper coupons every day for every single possible bet the shop is laying; whereas online you can browse endless markets in seconds.
- You need to physically go to a betting shop rather than bet from your computer or smartphone.
Here are the things to consider about online betting sites:
Pros:
- Endless sports and markets to choose from.
- Welcome offers, free bets, Odds Boosts, and other bonuses that we so often discuss in our sportsbook reviews, make your money go further.
- Features such as live streaming, Cash Out and on-site stats improve your overall experience.
- Live betting is much easier online.
Cons:
- Greater scrutiny of your betting history could lead to you being limited in terms of the size of your bets, sports you can bet on, or even being able to place bets at all at that bookie.
- KYC checks can involve supplying lots of paperwork before you can make your first withdrawal.
- Online bookies may not accept you as a customer if you’re based in certain geographical locations. A land-based bookmaker should take your bet as long as you’re not a minor and can legally bet in the country.
The Future of Bookmaking - Trends to Watch
As with all things, the world of online betting has evolved over the last few years and will continue to do so. Here are a few ways that’s already happened, plus a few more ways in which it will continue to evolve.
Mobile Betting
In addition to just placing bets, punters can use their mobile browsers and betting apps to claim bonuses, watch events through live streaming and do a lot more; the number of things you can do related to your betting account on your phone will only keep on growing.
Crypto Betting
Betting with crypto gives customers even more anonymity and allows them to use different cryptocurrencies for betting if they already have them, in addition to traditional currencies.
Live Betting/Live Streaming
Sophisticated software enables bookmakers to provide extensive live betting options for some of the biggest events. This is facilitated by the software's ability to calculate odds for numerous markets in real-time automatically.
And bookies are happy to splash out on the rights to live stream some of the biggest events in the knowledge that the ability for punters to stream the biggest events for free in high-definition will wildly increase the turnover of their live betting markets.
As of yet, no bookie streams the likes of the Premier League or Champions League due to not having the rights, but that may change in the future.
AI
Just betting on live events, even if you have the streaming to accompany them, may not prove enough in the future in terms of customers’ demands for a truly immersive experience.
We’re not far away from a scenario where if you’re betting on a tennis match for example, AI will make you feel like you’re at the event itself with all the sounds and images you’d experience if you were physically there.
