Bookmakers

A bookmaker, or bookie for short, is the person or company that offers to serve as the opposite side in a bet. There is a plethora of bookmakers all around the world. Some bookmakers are only available in certain countries, due to legislative or administrative barriers. Be sure to check that your bookmaker is licensed in your region.

Basics

Nowadays, a bookmaker is usually a company that offers these services in specialized shops or through the internet. The service a bookmaker provides is that they are always available to take the other side of any bet they offer, which is usually a wide range of bets. That means that if there is a match between two players on, if you want to bet on one of the players to win the match, the bookmaker is happy to accept the bet. In case you want to bet on the other player, they are also happy to take the bet. They have no preference which bets to accept, thus they are unlike an other person who might be willing to accept only bets they deem favorable to themself.

But the bookmaker will provide odds for the different odds they offer. And of course the odds will be chosen by the bookmaker. This leads us to the bookmakers’ advantages and disadvantages.

Bookmakers’ Advantage

The bookmaker has the advantage of being able to set the odds and adjust them until his advantage is sufficient. For example, let’s analyze a match between two equally strong players. The fair odds for this match would be even odds, so odds of 2.0 for each player. The expected return for a bet of one currency unit would be exactly one currency unit as well:

\[E_{return} = 50\% \times 2.0 + 50\% \times 0 = 100\%\]

The bookmaker will usually not offer fair odds but rather offer odds that are lower and thus favor him. In the case of an even match, odds will be lower than 2.0. Usually odds on even chances are in between 1.8 and 1.97. Thus the expected return on a bet would be less than 100%. For example for odds of 1.9, the expected return would be:

\[E_{return} = 50\% \times 1.9 + 50\% \times 0 = 95\%\]

Thus a bettor that randomly places bets on even chances with odds of 1.9 would expect to lose 5% per bet on average. This loss is the bookmakers’ gain and the payment for the bookmakers’ availability to accept bets.

Bettor’s advantage

A sophisticated bettor on the other hand has the advantage that he can chose the bets he likes from all the offered odds from one bookmaker or even multiple bookmkakers. To put it in a different way, it’s the bookmaker’s disadvantage that he has to move first. He has to publish his odds before he knows what matches or outcomes bettors will bet on.

For example for a first round of a World Tour event that is played with main draws of 32 players or pairs, there are nominally 80 matches. The bookmaker will then publish his odds for all these matches, and after that, the bettor can pick the odds that seem the best and odds that seem the most favorable to him, or he can chose to not play at all.

How do Bookmakers Earn Money?

Generally there are two ways the bookmaker can expect to make a profit. The first is to know the probabilities of all outcomes or at least have a reasonably good aproximation. Then he will only offer odds that he expects to be profitable for himself. So for example, if a player is will win with a probability of two-thirds, then the bookie can safely offer any odds below 1.5 and expect a profit on each bet. The drawback of this approach is first that the bookie is dependent on his knowledge of the probabilities. For other areas of gambling, this knowledge is easy to obtain, such as the probabilities for each number on a fair roulette wheel. For badminton matches, probabilities are much more uncertain and difficult to estimate. Another drawback is that the bookie still might lose on a match if there are more bets on one outcome than on the others, and by bad luck, the result of the match is this outcome. A longer stretch of bad luck might even endanger the bookmaker financially. Also a strict adherence to estimated probabilities leaves the bookmaker vulnerable to unexpected influences, the most dangerous one being match fixing.

The second approach on how to make a profit is known as the balanced book. A bookie following this approach will try to have roughly the same amount of bets distributed over the different outcomes such that the money he has to pay out after the event does not vary much for the different outcomes. If the bookmaker manages this in such a way, that this amount he has to payout is smaller than the total amount of money bet, he is assured a profit. In order to achieve this the bookie will try to disencourage betting on outcomes where he would pay out more than on other outcomes, usually by lowering the odds. Correspondingly he will try to encourage betting on outcomes with too little money bet on, usually by offering increasing odds. In this approach the bookmaker doesn’t need to care about the outcome of the event, as long as the books are balanced, he will be ensured a profit.

In reality, sports bookmakers will probabliy use a combination of both approaches. As there is no insight in how bookmakers really work, we can only assume how they work. Probably they will start with an approximate probability to assure that they have a starting point and are not too vulnerable in the beginning. Then if there are bets coming in, it is tried to adjust odds in a way that the book is sufficiently balanced.

Finally note that these thoughts only apply to bookmakers where the odds are agreed upon at the time of betting. For other forms these no longer hold. The simplest other system would be similar to a jackpot. Suppose you can bet money on the winner of a badminton match. After the match all wagered money, after deducing a bookmaker’s fee, will be split on those who bet on the winner proportional to the amount each one bet. In this system you cannot be sure, what your payout will be for a given wagered amount of money. Future bets might increase the money in the jackpot, but it might as well increase the money bet on your chosen outcome, thus diluting your share of the jackpot in case you win.

Another way bookmakers use to increase their profit is by attracting dumb money. A bettor who places bets randomly without any appreciation of odds or probabilities is the best customer and is always welcome by any bookie. The same can be said for a bettor who always bets on his favorite players or teams disregarding the odds.

Similar to this is the discouragement of smart money. A bettor who regularly wins more than he bets is not necessarily a bookmaker’s favorite customer. Some bookmakers will hinder these smart bettors by limiting the bets they are allowed to place, by offering lower odds or even forbidding them to bet anymore.

Bookmakers who rely more on the knowledge of probabilities are more forced to attract dumb money and discourage smart money as all lost money goes is their profir and all won money is their loss. Bookmakers who rely more on the balanced-book approach will of course also try to attract dumb money, but can be more tolerant of smart money, as these smart bettor’s profit come from the losing bettors and not directly from the bookmaker. These smart bettors can even be helpful as they provide the liquidity needed to balance the books and prevent the book from being too one-sided.