How Sportsbooks Make Money

Sportsbooks accept bets on various sporting events and pay winners from the losses of those who place wagers. They are known as bookmakers and make their money by charging a commission, also called the vig or juice, on losing bets. This article explains how a sportsbook makes money and why you should be careful not to bet more than you can afford to lose.

A sportsbook’s odds are set based on the probability that an event will occur. This is because an event with a higher probability of occurring will have a lower risk and a smaller reward, while one with a lower probability and a larger risk will pay out more money. It is therefore essential to understand how sportsbooks set their odds in order to be a successful bettor.

In this article, a theoretical treatment of the sportsbook’s margin of victory as a random variable is used to derive a series of propositions that convey the answers to key questions that a bettor should ask about the reliability of a given sportsbook’s proposed margin of victory estimate. The theoretical treatment is complemented with empirical results that instantiate the derived propositions and shed light on how large of a sportsbook bias, in units of points, is required to permit positive expected profit when placing bets on a match against a sportsbook’s proposed margin of victory.

To calculate the expected value of a unit bet on a match, the expected probability of winning a bet against a sportsbook’s margin of victory was measured for every point spread and total that sportsbooks offered during the National Football League season. The data shows that for most matches, a sportsbook’s proposed margin of defeat estimates are within 2.4 percentiles of the true median outcome.