Bookmakers employ a range of strategies to ensure profitability, particularly by capitalizing on bettor irrationality and market inefficiencies. One common approach is setting biased odds that exploit systematic errors in betting behavior, thereby maximizing speculative profits rather than simply balancing books (Goto & Yamada, 2023; Levitt, 2004). By offering more multiples and accumulator bets, bookmakers can further increase their margins while reducing payout variations, making their business model more stable (Cortis, 2015, 2016). Additionally, price discrimination based on individual betting patterns allows bookmakers to adjust odds or limit sharp bettors, ensuring that their most profitable customers—often those who engage in more speculative or recreational betting—remain active (Strumpf, 2003).
Market segmentation also plays a role in bookmaker profitability, with some firms targeting less-affluent areas where recreational bettors may be more likely to engage in less rational betting behavior (Newall, 2015). Compared to financial markets, the betting industry often achieves higher returns due to these structural advantages, although some evidence suggests that bookmaker profitability may be decreasing over time due to increased competition and regulatory pressures (Krieger et al., 2011).
The operational strategies of bookmakers can be broadly categorized into two models: “position-takers,” who rarely adjust odds and restrict access to sharp bettors, and “book-balancers,” who actively manage betting inventory by adjusting odds dynamically to minimize risk exposure (Grant et al., 2018). These models, combined with market inefficiencies and regulatory considerations, allow bookmakers to maintain profitability despite the presence of informed bettors. Understanding these strategies is essential for bettors seeking to navigate betting markets effectively and for regulators aiming to ensure fairer gambling practices.
One common approach is setting biased odds that exploit systematic errors in betting behavior, thereby maximizing speculative profits rather than simply balancing books
Summary of: Goto & Yamada 2023; Levitt 2004
Anecdote
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Articles Cited
- “Shingo Goto, Toru Yamada (2023): What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers, https://doi.org/10.1016/j.iref.2023.03.002
- Bookmakers tilt odds in sports betting markets to maximize their own speculative profits by accommodating bettors’ irrationality, which reinforces systematic biases in betting markets.”
- “S. Levitt (2004): Why are Gambling Markets Organized so Differently from Financial Markets?, https://doi.org/10.1111/J.1468-0297.2004.00207.X
- The sports gambling market is structured very differently from typical financial markets, with bookmakers announcing prices and taking large positions on game outcomes, which allows them to achieve higher profits by exploiting bettor biases and being more skilled at predicting game outcomes.”
- “Dominic Cortis (2015): EXPECTED VALUES AND VARIANCES IN BOOKMAKER PAYOUTS: A THEORETICAL APPROACH TOWARDS SETTING LIMITS ON ODDS, https://doi.org/10.5750/JPM.V9I1.987
- The paper provides a theoretical approach towards setting limits on odds for bookmakers, summarizing key methods of displaying probabilities as odds, estimating expected bookmaker profit, and providing guidelines for bookmakers to increase profitability and lower variation in payouts.”
- “Koleman Strumpf (2003): Illegal Sports Bookmakers, –
- This paper provides an economic analysis of illegal sports bookmaking operations, examining their structure, pricing, risk management, and profitability.”
- “Kevin Krieger, Andy Fodor, Greg Stevenson (2011): The Sensitivity of Findings of Expected Bookmaker Profitability, https://doi.org/10.1177/1527002511418516
- The authors re-examined the findings of a previous study by Levitt on the profitability of sports bookmakers, and found that the increased profitability reported by Levitt has decreased in more recent data.”
- “Dominic Cortis (2016): Betting Markets: Defining odds restrictions, exploring market inefficiencies and measuring bookmaker solvency, –
- The paper by Dominic Cortis (2016) provides mathematical models and analyses related to betting markets, including defining odds restrictions, exploring market inefficiencies, and measuring bookmaker solvency.”
- “P. Newall (2015): How bookies make your money, https://doi.org/10.1017/s1930297500004630
- The paper reports an observational study finding that UK bookmakers herd in their advertising of complex bet types with high expected losses for bettors, likely exploiting biases in probability judgment such as the representativeness heuristic.”
- “Andrew R. Grant, Anastasios Oikonomidis, A. Bruce, Johnnie E. V. Johnson (2018): New entry, strategic diversity and efficiency in soccer betting markets: the creation and suppression of arbitrage opportunities, https://doi.org/10.1080/1351847X.2018.1443148
- The paper identifies two types of bookmakers in soccer betting markets – “”position-takers”” who restrict informed bettors and “”book-balancers”” who actively manage their odds, and finds that the practices of position-takers prevent arbitrage opportunities from being exploited in practice, even though the authors identify 545 such opportunities.”
Insufficient Detail?
At times it is difficult to answer the question as there are not enough relevant published journal articles to relate. It could be that the topic is niche, there’s a significant edge (and researchers prefer not to publish), there is no edge or simply no one has thought to investigate.
