How Bookmakers Make Money?

How much do bookies make per year?

Most of us have heard some sort of variation on the expression, ‘You never meet a poor bookie.’ It is one of those supposedly eternal truths that bookmaking is a route to guaranteed wealth. While that is not entirely factual, as with most urban legends, there is an element of truth to it. Successful bookmakers do make big profits.

So if you’re wondering how bookmakers make money, read on. In this article we’ll try and answer the question ‘how do bookies make money?’ as well as give you some solid knowledge about the methods they use to guarantee a profit. There is nothing magical about bookies, though, and astute punters can still make money from betting.

How do Bookies Make Money? Key Points

  • Bookies always look to ‘balance their books’
  • They do this by setting odds appropriately
  • They look to minimise the risk to themselves as much as possible
  • The ‘margin’ is an important concept to understand

How Bookmakers Make Money: 5 Important Lessons

In this next section we’ll take a closer look at how bookmakers make money. The most important thing to understand about the whole process is that bookies will set odds that will guarantee them a profit whatever the outcome of a sporting event. This is called ‘balancing the book’, and we’ll look at it in much more detail here.

Heads or Tails?

When it comes to understanding the principles behind setting odds, the toss of a coin is a good example to use to help explain things. When a coin is tossed, there are two possible outcomes – heads or tails. Each has a 50% chance of occurring. This would give each outcome decimal odds of 2.00. If a bookie was taking bets on this ‘contest’, they would need to take an equal amount of money in bets on each outcome to balance their book.

So let’s say that they take £100 in bets on both outcomes. If the coin lands on heads then they pay out £100 to those bettors who backed heads. This is offset by the £100 they took in bets on tails. That means that they have broken even. Breaking even does not mean making a profit, though. So just to break even the bookie has to rely on people betting in equal numbers on the outcomes.

Obviously, this is unlikely to ever happen. People will bet on the outcomes that they think are likely and that they think will bring them some profit, not in equal numbers on two outcomes. This is where setting odds with a ‘margin’ to guarantee a profit comes in. We’ll look at how this works in the next section.

Balancing the Book by Setting the Odds

So bookies guarantee themselves a profit by their use of a ‘margin’. We’ll start by telling you exactly what a margin is. It’s actually very simple. In the example of the coin toss above, the bookie would need to take in more than £200 to ensure that they made money on the bets. They could not therefore make any profit at all if they did not adjust the odds from 2.00 to something more profitable for them.

You may notice that some bookmakers actually offer odds on the toss of a coin. They will take bets on markets for the toss of the coin that takes place ahead of football and cricket matches, for example. If you look at these markets at a bookie’s website, you will usually see the odds given as 1.91 rather than 2.00. This is not an accurate reflection of how likely each team is to win the toss, but rather odds that include the bookmaker’s margin.

The bookie overestimates the probability of an event to give them an edge. In this case, the percentage edge they have given to themselves is 2.38%. You double this to give the profit margin. This means that if the bookie took £100 on each possible outcome of the toss of a coin, the payout on the winning bets would be 1.91×100=£191. As you can see, as the bookie took a total of £200 in bets, they have guaranteed themselves a decent profit. This is a key lesson in how bookmakers make money.

Win, Draw, Win – 1X2 Bets

We can further explore this concept by looking at an example of a 1X2 bet on a football match. This is a very common and simple type of betting; you can our 1X2 betting guide here if you’re curious to learn about this method in depth, but we’ll keep it simple for the now: in a 1X2 bet, you bet on three possible outcomes – home win, draw or away win.

In our example, Rangers are priced at odds of 2.35 to beat Aberdeen at home, with the draw at odds of 3.30 and an Aberdeen win priced at 3.40. This gives implied probabilities for each outcome, respectively, of 42.55%, 30.30% and 29.41%. If you add these figures together the sum is 102.26%. This means that the bookie has given itself a margin of 2.26%, and guaranteed a profit whatever the outcome of the game. Whether Ranges beat Aberdeen or not has become irrelevant to the bookies’ chances of making money.

This example allows you to see how bookmakers make money. While 2.26% might not seem very much, you have to remember that the bookies take thousands of bets each day. If you’re adding that sort of margin to each bet, how bookmakers make money soon becomes apparent.

Compounding

Of course, bookies are not happy with just those relatively modest profits, and who can blame them? They are in the game to make money, after all, not just provide services to punters like you! In order to boost their profits further, bookies offer combined bets like accumulators. You can read about our accumulator betting guide and our combined betting guide to find out more about how accas can work in greater detail, but it is a useful way of boosting your potential winnings by betting on several outcomes at once. It is particularly popular with punters who like to bet on team sports like football.

If a bookie has a 2.26% profit margin on one of the 1X2 bets that we have used as examples above, then, obviously, that margin will be added to by each of the bets on your accumulator betting coupon. The more bets on your coupon, the more margin that the bookmaker will be collecting. Combined bets such as accumulators are a big part of how bookmakers make money. This should not discourage you from using them as a type of betting, though, as they are a particularly useful way of betting on favourites.

Spotting Value and Using a Betting Exchange

Now that you know how bookies set odds, it makes the process of spotting good value odds more simple for you. Obviously, to spot good value odds the first thing you need is expert sporting knowledge. Without expert sporting knowledge you will not be able to spot good bets, however much betting maths you’ve swallowed or formulae you use to calculate value.

You need to combine that sporting knowledge with the information that we have given you about margins to spot good value odds. You should also make use of betting exchanges, as these give you the opportunity to place lay bets where you think you have spotted value in the market. Lay bets are where you bet against an even occurring rather than betting because you think it will happen. We discuss betting exchanges elsewhere on this website, and we strongly suggest that you take a look at our articles on the subject.

Now that you have a good idea how bookmakers make money you should be able to use betting exchanges to boost your betting profits. There is nothing magical or secret about being able to do this. To spot good value is simply about expert sporting knowledge combined with a good understanding of betting margins and value.

Check Out Betting.co.uk’s Other Guides

Now that you know a bit more about how bookmakers make money, you might want to broaden your knowledge with some of Betting.co.uk’s other guides. We have a bookmaker complaints guide, in case things go wrong, and also a how to read betting odds guide. You can find a host of top betting tips too for each week’s big football matches, and plenty of other useful stuff that punters need to know. Make sure you bookmark Betting.co.uk!

Conclusion

As you can see from the above, there is nothing secret or complex about how bookmakers make money. It is a simple case of them using mathematics to ensure that whatever the outcome of sporting events, they will always make a profit. Once you know this, you can use your sporting knowledge to spot good value on the markets. If you want to make sure that you benefit from spotting good value, you can use a betting exchange to help guarantee your own chances of winning.

How much do bookies make per year? Well, we’ll leave you to research that for yourself. Suffice to say that now you know the principles behind their profits, you’ll understand just where the saying ‘you never meet a poor bookie’ came from.

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