The Sports Bet Agencies Edge – Vigorish Explained

Posted: September 10, 2013 by Beaner in Sports betting
Tags: , , , , , , , ,

The reasons for why people gamble are many and varied and there is no magic blanket that can be thrown over the gambling population that has a universal explanation for their motivation.  One of the reasons should be to make more money than you gamble, which should be the goal of every punter.  But often it isn’t.  People gamble for many reasons, and making money isn’t always the number one agenda.  Is it fun to lose money to the sports bet outlets regularly?  I wouldn’t think so, but it should still be fun trying to win money consistently and land your occasional white whale.  When it’s no longer fun and dissatisfaction dominates your gambling emotions, you should be examining your motivation for betting.

The Champ Bros have always found it is more fun to be winning money than to be losing it.  It is very frustrating for us to lose money, as Kenny will attest to this year and I have experienced in many previous years.  We don’t see the point in betting money and not caring about losing.  This is not the attitude we carry into the challenge of trying to make a profit from sports betting.  We want to win, and we want to find the strategy which gives us a chance of winning.  And this isn’t easy.  We don’t kid ourselves about this and openly say from the outset that turning a consistent profit is difficult, where most years breaking even is a good result.  But buyer beware, as ‘breaking even’ is actually winning more than you are spending.

Picking winners and finding ‘good bets’ is just the beginning to staying in front and maintaining a profit for the long haul. To do this you also have to beat the bookmaker’s edge (aka vigorish/ vig or take or juice, or in poker terms, the rake), which means that you have to win more than merely breaking even to compensate for what you are giving to the sports bet agency EVERY SINGLE BET.  Just as poker players have to beat other players PLUS the casino rake and time charge to make money over time, the sports bet punter has to pick the winners and surpass the bookies vig as well.

I always look at a head-to-head match as having two possible outcomes.  This is important as the odds often distract the punter from this reality. Ideally you would want to get 2-1 on every bet you make on a head-to-head match; you bet $10 and win $20 if you get it right (which includes the $10 you wagered).  No one else takes a cut of this money and your win is based solely on picking the winning team.  But the book makers would have you believe that no two teams are ever evenly matched (or rarely so).  If you go through all the head-to-head sports it is very rare that two teams will have the same odds.  Have a look through the matches in the AFL, NRL, NFL, MLB, NBA, WNBA, NBL etc.  It is uncommon to find two teams with the same odds to win.

And when you do, you will see the bookmaker’s vigorish straight away.  Below is a typical list of odds for head-to-head games from a selection of Australian sports betting agencies (this list is for the MLB):

Bet365:  1.95/1.95

Centrebet:  1.93/1.93

Sportingbet:  1.93/1.93

Sportsbet:  1.92/1.92

IASbet:  1.92/1.92

Unibet:  1.91/1.91

Tom Waterhouse:  1.91/1.91

Luxbet:  1.91/1.91

TAB Sportsbet:  1.87/1.87

As you can see, TAB Sportsbet generally has the lowest returns of all the agencies, but ironically is probably the most popular in Australia.

Note: I couldn’t always find the basic head-head odds at bet365, but I think they call it the ‘Money Line’ and it is at 1.95 v 1.95 (it also shows up as ‘to win’ and ‘result’ with some sports too).

 

With the Tennis qualifiers, there is a drop in the odds offered compared to what is offered above, which was for Major League Baseball, so there is some variance between sports for what odds the agencies will offer when they deem it to be an even contest.

E.g. for the ATP Petange Challenger Qualifiers (9th Sept 2013), the head-to-head odds below were available. As you can see, they are significantly lower than what is offered above for the MLB.

Sportsbet:  1.87/1.87

Centrebet:  1.87/1.87

Sportingbet:  1.87/1.87

Tom Waterhouse:  1.86/1.86

Bet365:  1.83/1.83

My guess as to why this is the case?  The tennis players involved would be relative unknowns and hard to find any form lines on, so the betting agencies offer these matches with lower returns to protect themselves from match fixing, which would be easier to achieve with individuals than team events at this level.  Tanking or not, Bet365 is making 8.5% on any bets for this match, regardless of who wins (see below).

The other easy way to see what the different sports bet agencies are offering for an even bet is to look at the line betting.  When they offer the line, you will see the return for either team will usually be the same, as they have squared them up by offering the points difference.

Vigorish

What all this basically means is that the bookies are making money on EACH and EVERY bet you make, even if you win.

If Kenny and I both pick a team in a match deemed to be even, say with TAB Sportsbet at 1.87, and we each bet $10, one of us stands to win $18.70.  TAB Sportsbet gets $20 out of us, and then gives the winner $18.70, keeping $1.30 on the transaction, which is 6.5% profit for them.  So you can imagine if $100 000 was bet on the match with an even spread of bets between both teams, TAB Sportsbet would make $6500 REGARDLESS OF THE OUTCOME.  Think about that, wouldn’t that be nice.

Where it gets interesting is when the matches aren’t evenly matched.  Say TAB Sportsbet is offering 1.20 on the fav and 4.60 on the upset in a head to head match.  They have deemed one team to be much stronger than the other and are prepared to gamble on this result.  Now if Kenny and I again both pick a team and bet $10 each, one of us stands to win $12 and the other $46.  TAB Sportsbet get $20 out of us.  On the 1.20 win they will make $8, but on the 4.60 upset they will lose $26.

The same match is listed as 1.23 and 4.40 on Sportsbet and in the same scenario, we can win either $12.30 or $44, and they will either make $7.70 or lose $24.

So how do they make their money in these matches?

The majority of punters will be betting on the favourite hoping to win $12 from their $10 bet (a $2 profit).  Those picking the upset are trying to win and make a profit of $36. For the bookie, they just need to position the odds so that the result gives them a profit no matter what the outcome is, as seen with the odds above.

Say 10 people bet $10 each on the upset.  They have bet $100 and the bookie would have to pay out $360 extra to cover them.  That would require 36 bets on the favourite of $10 each.  So overall there was $460 bet.  If the fav does get up, it has to payout those 36 punters $12 each, which is $432, and a profit of $28.  In this balanced scenario, even if the upset did occur, they still wouldn’t lose any money.  But if say 40 people bet on the fav and 10 on the upset, they will make a profit with either result.  $500 bet.  Fav wins = payout $480 ($20 profit).  Upset = payout $460 ($40 profit).

So as I hope you can see, it wouldn’t be difficult to keep adjusting the odds of either outcome depending on how much money was being spent on which result, so that the sports bet agencies always made a profit on EACH and EVERY bet they offer to the punters.

Vigorish Formula

There is a formula where you can easily calculate this bookmaker’s edge/ vigorish, and it doesn’t take many calculations to see how much profit they make from every bet they offer the punter.

v = 100 * (1 – (p*q/ p+q) )

Where v = vigorish, and p and q are the decimal payouts for each outcome.

In the TAB Sportsbet scenario for an even match, p = 1.87 and q = 1.87

v = 100 * (1 – (1.87*1.87/ 1.87+1.87)) = 100 * (1 – (3.4969/ 3.74)) = 100 * (1 – 0.935) = 100 * 0.065 = 6.5%.

Hey, same as my calculation above!

In the second TAB Sportsbet example, p = 1.20 and q = 4.60

v = 100 * (1 – (1.20*4.60/ 1.20+4.60)) = 100 * (1 – (5.52/ 5.8)) = 100 * (1 – 0.9517) = 100 * 0.04828 = 4.828%

So believe it or not, TAB Sportsbet are still making 4.828% out of the 1.20 v 4.60 match no matter who wins.  Again, an easy way to make money; I’ll take people’s bets on any sport they like, give them odds so they can gamble on winning some money, and then take 5% of every single transaction regardless of the result.

Who Pays the Vigorish

There is some debate as to who actually pays the bookies juice; the winner or the loser.  It is a bit of a perspective dilemma, whether you view it from the winner’s perspective or the loser’s perspective, but I like to keep things simple and this is my explanation.  The winner pays the vigorish.

Let’s use the head-to-head match where both teams are paying 1.87, and Kenny and I bet $10 each on a team to win; he picks Collingwood and I choose Richmond.  At the end of the game, one of us is going to lose $10 and one of us will win $18.70.  When you bet $10, you assume that if you lose, the $10 is lost.  If the odds were a true reflection of an even match, the winner would expect to double their money and collect $20.  However, they are only going to receive $18.70, and are paying a tax of $1.30 to the bookie for handling their money for this bet.

It can be argued that because the bookie was holding both our bets as a $20 pool, the winner gets back their $10 bet and the $8.70 from the odds, which is what they were expecting, and the loser has in fact paid the $1.30 tax out of their losing $10, with $8.70 of their losing bet going to the winner.  The problem I have with this view is say only 1 bet was placed on the event and it wins.  There is no loser to pay the vigorish, so the bookmaker must be paying it for you.  This could be argued theoretically, but the bottom line is, the sports bet agencies don’t EVER pay even money for evenly matched head-to-head events, and the reduction in the odds below 2-1 is what the punter is paying as a tax to the bookies if they win their bet.

With betting exchanges like Betfair, they take a flat rate (5% less incentives) of the NET PROFIT the punter may make on any event they have bet on, where the loser just forgoes their investment with no further loss incurred. This to me is what the sports betting agencies do as well, except they often take more juice and it is factored into the odds before you make the bet.

The next post is going to look at the formula for calculating vigorish for events with 3 outcomes, which will be applied to the soccer.

Beaner

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