How do Sportsbooks Work?

There is a general misconception that gamblers are “playing” against the bookies. In actuality, a gambler is playing against the betting public. Sportsbooks are simple the middlemen in between all the various gamblers. Let’s break down why:

A smart bookie sets up their operation to make a profit regardless of who wins the fight. Essentially, their profit is the “spread” or “vig” that is built into their lines. If they have too much action on a given fighter or outcome, that means that they mis-priced their lines. (Spread here should not be misconstrued with “spread” in other sports betting like football. In those sports, the spread is the amount a team has to win by. It is a method of handicapping those sports and providing an additional type of wager to gamblers, and it doesn’t apply to MMA gambling.)

There is only one thing a bookie can do when they mis-price their line and start getting too much action on one side of a bet. We see it all the time. They move the lines. This has two main purposes: First, it makes the side getting most of the action less desirable to the betting public, and thus elicits less bets. Second, it makes the side with less action more desirable to the betting public, and thus elicits more bets.

Moving lines is a sensitive tool in a sportsbook arsenal. Much like moving both hot and cold knobs on a faucet in order to get the perfect temperature, moving lines allows sportsbooks to dial in on a “balanced” market price.

What is a “balanced” price or line? From a sportsbook perspective, it is when there is equal action coming in on all sides of a wager. From a gambler’s perspective, it is when you really have to stop and think about who you want to bet on. If it makes the large majority of gamblers unsure and gives them pause, it is a good indication of a well balanced line.

Sportsbooks are less like casinos and more like OTC participants in a stock market (not to be confused with stock exchanges). They create a market by accepting bets, and they make their money on the volume of trade coupled with a built in spread (like the bid-ask spread in financial markets). Therefore, there is no reason for sportsbooks to want you to fail (unlike casinos, who need the majority of players to lose in the long run). As long as their books are balanced, they have taken plenty of action, and are not overexposed to any single outcome, they are making a profit and facilitating their role as a market maker.

So what does this have to do with your own gambling? If you always remember that you are playing against the public and not the bookmaker, you can exploit mistakes in public perception. We call these mistakes inefficiencies, and it is at the root of finding edges in lines.

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