If you’ve ever made a single bet on a sport (or even just watched a sport), chances are you’ve asked yourself this question:

How do bookmakers set their odds?

If you’re curious about how these mysterious sportsbooks always seem to maintain their edge over gamblers, read this ultimate guide to learn everything you need to know.

The History of Odds Making

When sports betting first started gaining popularity in the United States, the industry was dominated by Las Vegas sportsbooks and “backroom” bookmakers.

Bettors would call in their bets over the phone, and the odds of games and matches would change as the weight of the money changed between the favorite and the underdog.

To balance out all of the bets that had the chance to cost them money, they would lay bets on every single outcome that gamblers could bet on. This way, they always guaranteed themselves a profit.

(And yes, these were all recorded in an actual book.)

To create this book, probabilities would be assigned to every outcome of the event, which always added back up to 100%. Then to make a profit, the bookmaker would add a 5-10% “vig” to each bet. This meant that as long as the bookie balanced all of the bets, they could guarantee a profit.

Soon, bigger betting companies started using odds compilers (people who set the odds for events) while others kept following the weight of the money. Power ratings were also established to compare the relative strength between teams and players, which made it easier to set prices. 

How Do Bookmakers Set Their Odds Today?

So how do sportsbooks make odds today? In modern times, technology has improved drastically. Bookmakers now employ odds compilers and data analysts to help form their markets.

Nowadays, odds compiling is more about crunching numbers and accessing huge databases of information to set the market. These odds compilers will analyze tons of information and angles to come up with the probability of every outcome. The vig is then added to the end price, which helps set the bookie’s price.

They’ll look at factors such as prior form, home-court advantage, historical precedents, statistics, expert opinions, and more. 

This can be as simple as comparing a team’s last game’s results to the other team’s current form. They would then run those numbers through certain mathematical models and quickly set betting odds in real-time.

For example, let’s pretend there’s a match between two football teams. To create a statistical model, you could count how often the home team won at home in the last 20 games, and how often the away team lost away in the last 20 games. 

If you’re wondering how oddsmakers are able to create odds on the fly for live betting, that’s how. This means you can bet on games that have already started while the odds change throughout the game.

Nowadays, most big gambling platforms outsource their odds compiling. These specialist companies compile bookmakers odds for different markets and sportsbooks, which is why you see different odds for different betting sites. 

It’s up to you to find the best odds.

Why Do Odds Change Before Events?

Sportsbooks are constantly changing the odds in real time based on the weight of the money that is being moved around.

For example, if an underdog is suddenly getting lots of money, the platform can move quickly to reduce the odds and protect its margin. On the other hand, if the favorite continues to attract more money, they can increase the odds on the underdog to even it out.

Smart bookmakers nowadays have several analysts looking into every market to help them set their odds. They need to find information in quickly to adjust their odds, such as key injuries, weather, and real-time sports situations. 

On the other end of the spectrum, savvy gamblers use live betting on in-play markets to try to get an edge over bookies. They can place wagers on certain situations before oddsmakers have adjusted their odds.

For example, maybe you notice a basketball player has been moving stiffly down the floor in a tight game, but no injury has been announced yet. The bettor can move quickly to make a bet before the odds have been reduced.

How Do Bookmakers Make Money?

Of course, like any other job, the aim of the bookie is to make a profit. The better they can calculate the odds, the more profit they can make. There are several bookmaking strategies that they can utilize to make a profit.

Whenever the bookie prices up a game or match, they will always create a built-in advantage over the bettor. This is called a vig (or vigorish). This is how bookies balance all wagers so they can make a profit, no matter what the result is. This is shown as a percentage of all bets. 

Another term you should understand is the overround. The overround is the total book over 100% that they have covered.

Here’s an example from the NBA:

The Los Angeles Lakers are playing against the Indiana Pacers. The oddsmakers will analyze several factors, such as form, home advantage, and injuries, and create the “implied probability” of each outcome.

Lakers win: 70%

Pacers win: 30%

This adds up to 100% — the total implied probability. 

However, let’s say that the Lakers are on a 7-game winning streak and the bookie predicts that most of the money will go on the favorite. Then they can adjust the moneyline to reflect that:

Lakers to win at odds of -333 (implied probability of 76.92%)

Pacers to win at odds of +190 (implied probability of 34.48%)

76.92% + 34.48% = a total implied probability of 111.4%

The extra 11.4% over 100 is known as the overround. By adjusting the margin, they can guarantee that they will gain a profit from this market.

Do Parlays Help the Bookie?

Yes, parlay betting adds a further advantage to the oddsmakers. Parlays are combinations of bets where each “leg” of the parlay must happen for you to win the bet.

Although it can result in a higher payout for the bettor, the overround continues to add up for each leg of the parlay. For example, if the overround is 110% for one leg and there are five legs in total, that adds up to a 150% overround, which is great for the bookmaker.

More Betting Options = More Level Playing Field

Ever since the federal legalization of sports betting in 2018, more and more legal sportsbooks have arrived on the market. This helps level the playing field for bettors because most sportsbooks will simply follow the money.

If most books have a price of $50, a sportsbook won’t just expose itself at $100. 

More and more states are legalizing betting, which means there’s still plenty of room for more betting platforms. This means more betting opportunities, as well as more standardized odds across the market.

Frequently Asked Questions About Bookmaking

There are several questions about online bookmaking. Here are some of the most commonly asked ones:

Can Anyone Become a Bookmaker?

Yes, anyone can become an online bookmaker today. It helps if you have a deep understanding of sports, sports betting, and a knack for numbers and accounting.

Who Regulates the Online Gambling Industry?

Currently, there’s no single organization responsible for regulating the online betting industry. Regulation happens on the local level in different online gambling jurisdictions. They have the power to give betting licenses and set rules for how these betting platforms operate.

What Happens if There’s a Mistake In the Odds or Lines?

Betting platforms will inevitably make a mistake from time to time. It usually happens because of an error from an odds compiler or an inputting error. Usually, these get noticed and corrected quickly, but sometimes bettors will get their money down first. 

If the mistake was an error of judgment, sites will typically honor the bet that was placed. If it was any other type of error, usually that wager will be voided.

What Is Exchange Betting?

Exchange betting is a system that eliminates bookmakers from the equation altogether. On betting exchanges, two bettors agree to the terms of a wager on their own. Essentially, one bettor “backs” the terms of a bet (kind of playing the role of a bookie) while the other person “lays” the bet and says that it will lose.

Where Can I Get the Best Odds and Lines?

No one betting platform consistently has the best odds and lines for every market. After you gain some experience, it’s important to shop around on different platforms to ensure you’re getting the best value in the markets that you’re participating in.

Comparing the odds and lines of different websites is crucial to making sure you’re getting the best profit from your wagers at all times. 

Key Takeaways

That’s all you need to know about the question:

“How do bookmakers set their odds?”

After reading through the article, it can seem daunting going up against the sportsbooks with their armies of analysts and oddsmakers. 

But there are tried and true strategies to make your own winning picks consistently. You can use analytics to figure out future outcomes of sports and learn how to beat the bookies on a regular basis.

Enroll in our free betting class and start making winning picks today!

Access my free content and join exclusive, private email circle for strategic advice, personal stories, and expert tips.

No spam. Betting value only.