Where do odds come from?
Every sportsbook has a different process for generating and moving odds. Figuring out where the prices come from can help you beat your book.
You see it all the time. It’s late in the fourth quarter and the home team scores a touchdown to go up by six points. It’s 27-21 and the kicker is lining up for the extra point. With 23 seconds left on the clock everyone around you lets out a deep breath. They can relax now — this win is in the bag. While everyone else takes a sip of beer and loads up a Tostito’s scoop with buffalo chicken dip, you’re still on the edge of your seat. You have the home team -6.5 and the over 48.5. This extra point will not only determine the state of your account balance, but your mood for the rest of the night. The kicker goes through his normal routine: three steps back and two over, drawing a line in the dead-middle of the uprights with his arm. He signals his holder that he’s ready to go. The ball is snapped, the hold is clean (laces out, Dan Marino!), and the kick… DOINK!
You lose both your bets by the hook, 0.5 points. You’re understandably devastated, but one question keeps racing through your mind: HOW DOES VEGAS DO IT?
The answer to that question starts with another question: which book did you bet with? While most betting entities are colloquially referred to as “Vegas” due to the historical monopoly of sports betting legality in that city, most sportsbooks have nothing to do with Las Vegas. A lot of the companies you see endless ads for are based outside of Vegas. Many of them outsource to European companies for their odds and trading services. Maybe you bet with an offshore book, in which case there is no relation to Las Vegas at all. Knowing what type of book you’re dealing with will help you beat closing lines, identify value spots, and be conscious of “traps” (which don’t really exist but I’ll get into that later).
A simple google search will do wonders to figure out who makes odds and manages risk for each individual sportsbook.
Mythbusting
Before I dive into different type of sportsbooks I want to clear up the commonly held but incorrect belief that “the goal of the sportsbook is to get equal money on both sides”. This is not true. The goal of the sportsbook, albeit a lofty one, is to find the true probability that an event will occur. If they can achieve this very difficult goal they will make money over the long run because the swings will even out over time and they’ll collect the vig.
Think about it like this. If I’m a bookie offering odds on coin flips, I will never lose money over the long run if I offer -110 on both sides and accept all action. I might have some pretty large swings if the action is too lopsided, but those swings will eventually even out and I’ll collect the 4.7% in the long run. However, if I start taking big action on Heads and move it to -125, I am at major risk of taking long term losses on Tails +105. Even if I’ve balanced the action for today, I will always lose on Tails +105 over the long run (and I’ll stop getting action on Heads -125).
That’s why casinos don’t change the odds at the roulette wheel based on action. It doesn’t matter how much money is on red, the house knows the probabilities and they’ll let you bet into their edge all day long. The only difference between casinos and sportsbooks is that sports probabilities cannot be calculated with 100% certainty, whereas table game probabilities can. That, however, doesn’t change the goal of the book.
Types of Sportsbooks
I’ll start with Las Vegas-style books and casinos. These traditional American sportsbooks typically move on action and have very limited offerings. This allows them to have large limits and welcome action from everyone. These sportsbooks have a symbiotic relationship with sharp bettors, who ultimately shape the majority of their lines. Here’s how it works: the book puts up a line using in-house calculations that range from good to laughably bad and they open with low limits. Sharps feast on these lines, which aren’t totally accurate yet as no one has had a chance to bet them into place. These lines will move quickly based on this sharp action and will eventually reach equilibrium and settle. Once the sharps start to back off, the book will be confident there’s no value left and the increase the limits. At this point (think late in the week for NFL) these books will take massive action on the sharpened lines. Even in lopsided volume situations (popular team plays not-popular team), the line will stay put (barring new information) because the sharps already picked off the value. It’s like vultures getting to an animal corpse early… by the time the other animals arrive there’s no meat left. Circa is an example of a Las Vegas sportsbook (available in Colorado as well) that operates like this.
Offshore books work in a similar way, only with more automation and an increased prop offering. Pinnacle is widely considered one of the sharpest books in the world, and they use the process described above for their main lines. They take massive volume from professional bettors, syndicates, and whoever else is looking for low vig prices with large limits. They move their lines in an automated fashion based on action, and have very advanced risk management processes in place. They know who their customers are and how to move the lines accordingly. Betcris is another well known offshore that follows this model and is considered extremely sharp. There’s also the Betfair exchange, which is a peer-to-peer option with no “house”. Betfair’s prices are often very sharp as it takes massive amounts of volume due to a VERY low vig. Betfair can afford to do this because they take no risk on bettors’ wagers. This book operates by allowing one party to “back” a side, and allowing another to “lay” their position. If a bad price (often quantified based on Pinnacle’s price) is backed it will immediately be layed by a sharp bettor, and vice versa. Betfair’s only obligation is to match the backers and layers with one another. These books are called market makers and generally help determine the prices for the rest of the world…
Which brings us to the next category: European-run sportsbooks and odds providers. As I mentioned earlier, many of the books holding the largest US market share are run by European companies. Sports betting has been legal in Europe for a long, long time and they have their own way of doing things. Instead of following the Vegas model of taking action from everyone in order to sharpen lines, these books typically let those books do that work for them. Once the Pinnacles and Betcris’s of the world open up their lines, the European books follow with a whole slew of creative game and player props in addition to loads of alt lines. It is very rare for a European sportsbook to have vastly different prices from others on the market, because they all base their prices on those of the market makers. This isn’t true 100% of the time — there are situations in which European books willingly differ from market — but those instances are few and far between. Many sportsbooks trust offshore/Vegas pricing more than their own, so if there’s a discrepancy they’ll trend toward the general market price. They will also reference these market makers in determining how “sharp” you are. If you consistently bet on prices higher than the market makers’ and generate closing line value (CLV), you’ll appear sharp and likely get limited quickly. While these books rely on market makers a good bit for pricing, they do have very advanced risk management and player profiling systems. This helps them identify profitable players fairly quickly and move prices accordingly.
To Summarize
Las Vegas Style: High limits, sharp prices, limited offering, usually not available on mobile
Offshore: High limits, sharp prices, illegal in the United States, makes you feel sketchy
European-run: Vast player/game prop and alt-line offerings, mobile friendly, weak prices, quick to limit sharp bettors
Differences based on sport/market
In the case of NFL, all of these different types of books generally land on the same number. The reason for this is simple: they take a ton of bets over a long period of time. After a full week of taking action from sharps, squares, and everything in between, the lines are going to be extremely accurate, no matter the sportsbook’s process. The less time and volume on a given sport or market, the less sharp the prices will generally be. That’s why people often say “there’s more profit opportunity in props” or “there’s a lot of value in small leagues”. In a lot of cases this is true, as sportsbooks struggle to juggle bets on hundreds of props and keep the prices as sharp as the main lines. In terms of niche sports/leagues, books often have fewer resources allocated to sports that take less volume. The reason for this is straightforward: a bad price in Russian hockey is a lot less costly than a bad price on an NFL moneyline. I’ll do an entire piece on player props, but for now I’ll leave it there.
This doesn’t mean you should dedicate your entire life to studying the nuances of the Professional Lacrosse League or Women’s Field Hockey. With uncertainty comes risk, and sportsbooks hate risk. Niche leagues and markets will have significantly lower limits than highly liquid sports like NBA, NFL, or MLB. How you budget your time is, of course, your decision, but just remember that 1% of $100,000 and 10% of $10,000 are the same number. Even if your edge on pesäpallo is ten times your NFL edge, you’ll be able to make more money betting NFL because you’ll certainly be able to wager 10x more on NFL than pesäpallo (it’s a real sport, look it up).
The same goes for props and main lines. You may fare better on strikeout markets than MLB moneylines, but you’ll only be able to get $500 down per bet compared to $5000 per bet. The solution? Bet both of them… but we’ll get to that later.
How to apply this knowledge
If you can identify what type of book yours is, you’ll quickly learn how to determine if your bet is a good one. If you’re betting with a book that copies Pinnacle, you can be confident your bet is value if you’re getting a better price than Pinnacle. Chances are that price will move and you’ll beat the closing line. If your book moves off sharp action, check back in 15 minutes. If the price has moved in your favor, it was a good bet. If the price hasn’t moved or has moved against you, don’t chalk it up to your self-proclaimed Good Will Hunting brain. There’s a reason that price stayed/moved against you and its your job to figure out what that reason is. Exercises like these will help you change your definition of a good bet from “a bet that won” to “a bet at a better price than you should have gotten”. If you make more good bets based on these ideas, you will make more money in the long run.
Also, take notes on which books you trust most with certain markets. There might be a book out there that you consider extremely sharp when it comes to pitcher K’s. Instead of trying to beat that book, try to beat their price with another book. Eventually you’ll know which books to go to, and which to avoid, for each type of bet.
Daily definition
I want to talk about the word “value”. It’s a favorite of sports betting Twitter and it’s thrown around very casually. I’ve used it a lot already in this article, so I want to clarify what I mean when I use it.
Just because a selection has a high payout doesn’t mean it’s value. If you’re offered +400 to correctly predict what number a fair 6-sided dice lands on, it isn’t “value”. Conversely, if you’re offered Tails +105 (on a fair coin) it’s value.
Value is all relative. If a great team is an underdog, it’s not necessarily value. If a great team is an underdog and it should be a favorite it’s value.
To say something is value, you need to compare the sportsbook price (and implied probability of that price) to the price you’ve calculated (or the price of a book you trust). If you’re getting a better price than you should, that’s value.
Content recommendations
A Queen Of Sorts - 30 for 30 Podcasts by ESPN
This is one of my favorite gambling-related stories. It doesn’t have to do with sports betting, but rather figuring out how to beat the house. By learning the rules you can figure out how to beat them. There is no better example of that than this story.
How to Win Games: Find the Hidden Rules by Jonathan Bales
I feel like a content sommelier, pairing podcasts with written content. Jonathan Bales is a very sharp DFS player and bettor who is currently heavily involved in the crypto space. This article illustrates the same concept as the podcast does. I’m just going to copy and paste to reiterate the ever important statement: By learning the rules you can figure out how to beat them.
The end
And that’s it for installment #1 of this newsletter! If you enjoyed this and/or learned something, please consider sharing with someone who might enjoy it as well. As always, you can follow me on Twitter @Ben13Porter and reach out if you’d like to have a conversation regarding sports betting or anything else. Thank you so much for reading and subscribing!