Ch. 7 - Sportsbook Business Models

Understanding sportsbook business models is crucial for any bettor who wants to gain an edge in the market. Sportsbooks, or betting sites, operate differently, but they all share the common goal of making a profit. Knowing how these businesses make money can help you navigate the betting landscape more effectively and avoid common pitfalls.

How Sportsbooks Make Money

Sportsbooks primarily make money through the margin built into the odds they offer, also known as the vig or juice. This margin ensures that, over time, the sportsbook will make a profit regardless of the outcome of the bets.

Example:
Consider an NFL game between the Kansas City Chiefs and the Buffalo Bills. The sportsbook offers odds of $1.90 for each team to win. In a perfect world, with no vig or commission, the odds for a 50/50 chance would be $2.00. By setting the odds at $1.90, the sportsbook creates a built-in profit margin.

Types of Sportsbooks

Here’s a comparison of sportsbook business models:

ModelHow They OperateRevenue SourceBetting VarietyExamplesTraditional BookmakersSet odds and take bets directlyVig (commission on bets)Fixed odds across various marketsBet365, William Hill, LadbrokesBetting ExchangesAllow users to bet against each otherFee/commission on matched betsDynamic odds based on user activityBetfair, Smarkets, BetdaqBetting PoolsCollect bets into a pool and pay out based on pool oddsFees on pool entry and withdrawalsLimited to pool marketsThe Pools, DraftKings, SuperTote

1. Traditional Bookmakers

Traditional bookmakers set their own odds and accept bets directly. They profit from the vig and manage their risk by balancing their books.

Examples:

• Bet365: One of the largest and most well-known sportsbooks, offering a wide range of betting markets while managing their own odds and risk.

• William Hill: A prominent sportsbook offering fixed odds and profiting through vig.

• Ladbrokes: Known for their diverse betting options, Ladbrokes operates under a traditional bookmaker model.

Key Feature:
Fixed odds across various sports and events.

2. Exchange Platforms

Betting exchanges allow users to bet against each other. The platform itself does not set the odds but instead takes a commission on winning bets.

Examples:

• Betfair: A leading betting exchange, offering potentially better odds due to the absence of vig. However, liquidity can be an issue for larger wagers.

• Smarkets: A popular betting exchange that charges lower commissions but may have limited liquidity in niche markets.

• Betdaq: Similar to Betfair, Betdaq provides a platform for users to bet against each other, with commissions on winnings.

Key Feature:
Dynamic odds based on user activity, with no vig built into the odds.

3. Betting Pools

In betting pools, bettors contribute to a collective pool of money. Winnings are distributed based on the proportion of correct predictions, and the operator takes a commission from the total pool.

Examples:

• The Pools: Popular in the UK, offering various pool-based betting options.

• DraftKings: While primarily a traditional sportsbook, DraftKings also offers pool betting for certain sports.

• SuperTote: Specialises in pool betting for diverse sporting events.

Key Feature:
Limited to pool markets, with payouts based on the total pool size and outcomes.

The Impact of Sportsbook Models on Bettors

Understanding sportsbook business models can significantly impact your betting strategy. Betting exchanges often provide better odds due to the absence of vig, but liquidity issues may limit your ability to place large bets.

Example:
Imagine a Super Bowl matchup between the Philadelphia Eagles and the San Francisco 49ers. A betting exchange offers odds of $3.00 for the Eagles to win, compared to $2.80 from a traditional bookmaker. The difference lies in the vig-free pricing of the exchange. However, if the exchange lacks sufficient liquidity, you might be unable to place a large wager.

Lesson Summary

By understanding the different sportsbook business models and how they generate profit, you can make more informed decisions about where to place your bets. Each model has its advantages and disadvantages:

• Traditional bookmakers offer consistent fixed odds but include a vig.

• Betting exchanges often provide better odds but may face liquidity challenges.

• Betting pools offer unique opportunities but are limited in market variety.

Next Chapter

Want to know how public sentiment can affect odds? In Chapter 8, we’ll dive into Public Money and explore how it influences betting markets.