Ch. 6 - Market Making
Market making is a fundamental concept in sports betting that involves setting and adjusting odds for different events. It’s a crucial aspect of how sportsbooks operate and understand their own profitability. Often confused with a bookmaker, a market maker is specifically involved in managing the odds and risk associated with bets, whereas a bookmaker is the broader term for anyone offering bets, including those who may not actively adjust odds.
Some sportsbooks may be a market maker for some sports but copy the odds for others. Sportsbet in Australia is a good example, where they might be the leading market maker for Australian Rules Football (AFL)—adjusting the odds to reflect market bets—but simply copy the odds for Korean League of Legends (LOL) or Major League Baseball (MLB) from a parent company feeding them data or by following the general market trends of known overseas market makers.
What is Market Making?
Market making refers to the process by which sportsbooks set and adjust odds to ensure they remain profitable, regardless of the event’s outcome. Sportsbooks, or "market makers," offer odds on various outcomes and continuously adjust these odds based on factors like betting patterns, injuries, and other relevant information.
Example:
Imagine a sportsbook offers odds on an AFL match between the Melbourne Demons and the Sydney Swans. Initially, they might set the odds at $1.90 for both teams to ensure balanced betting. If a lot of money starts coming in on the Melbourne Demons, the sportsbook may adjust the odds for the Demons to $1.85 and the Swans to $2.05 to encourage more bets on the Swans and reduce their potential liability.
How Market Making Affects You
Understanding how market making works can help you identify when odds are more favourable, leading to better betting decisions.
For instance, if you notice the odds on a particular event shifting in a way that seems inconsistent with available information, it could indicate the sportsbook is adjusting its lines to manage risk.
One notable example is the Trump vs Biden election in 2020. Over 90% of polls leading up to voting day indicated Biden would win. However, since this was a large event attracting unsophisticated bettors, the market moved differently than the available analysis suggested.
Sports Bettor’s Dream Example:
On election day, Biden's odds rose to $1.70, while reliable polling indicated he had a 90% chance of winning.
Using EV, this situation could be evaluated as:
EV Calculation:
EV = (0.9 × $0.70) – (0.1 × $1.00)
EV = $0.63 – $0.10
Positive EV: The result is $0.53, meaning for every dollar bet on Biden, you could expect an average profit of 53 cents in the long run. This indicates the odds of $1.70 undervalued Biden’s 90% chance of winning, making it a profitable bet. The true odds for a 90% probability should have been closer to $1.11.
Strategies for Betting with Market Makers
Shop Around:
Different sportsbooks may have varying odds for the same event. Compare odds across platforms to find the best value for your bets.Follow Line Movements:
Pay attention to how odds change leading up to an event. Significant shifts may indicate insider knowledge or heavy betting volume on one side.Understand the Vig:
The vig, or vigorish, is the bookmaker’s built-in commission. For example, in a 50/50 matchup:Bookmaker A offers odds of $1.85
Bookmaker B offers odds of $1.95
The second bookmaker’s vig is lower, likely making their odds more competitive.
Bet Responsibly:
Even with favourable odds, bet within your means. Market makers ensure sportsbook profitability, but it doesn’t guarantee you’ll win every bet.
Example of Line Movement:
For a Premier League football match between Liverpool FC and Manchester City:
Opening odds: $2.10 for Liverpool and $3.50 for Manchester City
As bets pour in on Liverpool, the odds shift to $1.95 for Liverpool and $3.80 for Manchester City
Betting early may yield better odds, while late betting can provide insights into how the market is reacting.
Lesson Summary
Market making is a key component of sports betting, helping sportsbooks manage risk and ensure profitability. By understanding how market makers set and adjust odds, you can make more informed decisions and potentially find better value in your bets.
In the next chapter, we’ll explore various sportsbook business models and how they influence betting odds and strategies.
