Now that sports betting is legal in Colorado, many bettors may be filled with questions. Maybe they have questions about Colorado’s sports betting bill. Maybe they’re curious about how sports betting became legalized in Colorado. But one question that’s a little harder to answer is this:
Where do sportsbooks’ odds come from? Who makes them? How are they calculated?
Here’s everything you ever wanted to know about oddsmaking.
What Goes Into Oddsmaking?
Oddsmaking is the process of calculating sportsbook odds. Bettors may assume that the odds came from sophisticated algorithms or complex statistics.
And they’d mostly be right.
First, an odds maker needs to decide how likely an event will be in a game. Whether it’s a win, a point spread, or a prop bet, they need to know how likely it is to happen. That starts with a careful study of the team, the coaches, and past performance. Any other variables they consider will likely come from their oddsmaking experience.
Once odds makers have studied up, they’ll come up with a probability. Let’s say odds makers decide there’s a 25% chance of the Broncos beating the Patriots (I love the Broncos too, but who are we kidding?) Here’s what the odds should look like on a Broncos win:
- American Odds: +300
- Fractional Odds: 3/1
- Decimal Odds: 4
Why did I say these are how the odds should look? Because there’s one more variable that odds makers must account for.
How Odds Makers Make Sportsbooks Profitable
After collecting and weighing team, sport, and event-related variables, odds makers have to factor in a sportsbook’s desired profit margin.
Odds makers may think that the Broncos have a 25% chance of beating the Patriots. However, bettors won’t see +300 odds if that’s the case. They may see something lower, say +290. Here are the probabilities of Denver beating the Patriots with +300 odds and +290 odds:
At +290, the odds show that a Broncos win is just a little more likely than a +300 line.
But what about the Patriot’s side? A perfect 75% chance of winning would be -300 in American odds. However, bettors might see something like -350 instead. That means that the chance of the Patriots winning according to the sportsbook would be 77.8%.
Those are a lot of numbers, but here’s the important part. The total probabilities don’t add up to 100. If the Broncos have odds of +290 and the Patriots have odds of -350, here’s how the probabilities add up:
|Broncos Odds||Patriots Odds||Total Probability|
That’s not a mistake. Sportsbook odds aren’t supposed to add up to 100. That extra 3.4% is extra money in the sportsbook’s pocket. That way, sportsbooks have enough money to pay out winnings and turn a profit.
How much extra profit? An extra 3.4% chance of the teams winning translates to a 3.29% profit margin (3.4/103.4). That may not sound like much, but a sportsbook that accepts $10m in bets would be expected to make $329,000.
And that’s just on one betting line. Add up all the money bet on the rest of a sportsbook’s betting lines, and the math behind a large sportsbook’s revenue becomes clear.
Why Can Sportsbooks Offer Unfair Odds?
Sportsbooks can tilt the odds in their favor for the same reason that casinos can. The house edge is how casinos generate revenue. The more wagers bettors make, the more money the casino rakes in over time. It’s financially sustainable, even when the odd winner comes along and rakes in a massive jackpot.
In fact, Colorado law doesn’t require perfectly fair odds. Slot machines, for example, are only required to pay out between 80% and 100%. Most of them pay out around 90%. That means that for every $100 a slot machine receives, $90 is won by patrons, and $10 is kept for the casino. It doesn’t sound like much, but after 100,000 casino patrons bet $100, slot machine revenue grows drastically.
Similarly, sportsbooks give themselves a house edge to make money and stay in business. If potential bettors don’t like unfair odds, then they’re not going to like gambling at all, whether it’s slots, sports betting, or table games.
So What Does All This Look Like On A Real Betting Line?
After going through all this math, let’s see how these odds and probabilities impact bettors in real life. Let’s take an example from Colorado’s first four legal sportsbooks. Here are the lines on the Jose Justicia/Boris Koltsov Modus Icons darts game:
|Jose Justicia||Boris Koltsov|
Boris Koltsov is the clear favorite to win. (And who didn’t see that coming, am I right, darts fans?) However, look at the bets for Jose Justicia to win. FanDuel offers odds that are 35 points higher than BetMGM’s. Does FanDuel really think Jose Justicia is 5.1% less likely to win than BetMGM does? They might, but it’s more likely that BetMGM is seeking a higher profit margin than FanDuel.
How can you tell? Here are the total probabilities and profit margins for each of the four sportsbooks:
|Sportsbook||Total Probability||Profit Margin|
As bettors can see, FanDuel stands to profit the least off this riveting darts matchup, while BetMGM stands to pocket the most cash. The better the odds for the bettors, the lower the profit margin for the sportsbook. While BetMGM seems profit driven on this line, FanDuel is offering its customers the best odds on the underdog. Risk-tolerant bettors who believe in Jose Justicia are better off betting at FanDuel for more potential winnings than the other three sportsbooks.
However, that’s only true for this betting line. Other sportsbooks may have bettor odds on different lines. No one can guarantee odds on any line at any sportsbook.
But whether sportsbooks are seeking profit or customer satisfaction, bettors now have the tools to decide where to bet.
Oddsmaking At Colorado’s Sportsbooks In A Nutshell
Every sportsbook calculates their odds a little differently. However, even though most odds makers will agree on a probability, they’ll tweak their odds to give sportsbooks a house advantage. That house advantage varies across sportsbooks and allows them to remain profitable after paying out winnings to fortunate bettors.
Bettors can compare sportsbooks to see which ones are maximizing bettors’ potential winnings and which ones are maximizing profits. But wherever bettors choose to bet, odds makers generated their sportsbook’s odds by carefully studying the sport and their employer’s financial statements. It’s a challenging balancing act, but bettors across Colorado are enjoying the work of odds makers sitting in front of computers, silently monitoring cash flows for hours on end.