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How Bookies Profit from every Sportsbook Wager by Managing their Money
23rd April, 15:22Sportsbook Money Management
One of the most common misconceptions about sportsbooks is that they have a stake in the outcome of sporting events.
Sportsbooks are enterprises that make money the way other organizations make money. They provide services and are paid fees to provide those services. They cut risk by managing cost of services sold and inventory. Bookies build their sportsbooks businesses through marketing. That's the same way most businesses grow.
Now that we know that running a sportsbook is like running almost any other business, let's get down to how you can run your sportsbook to maximize profit.
Sportsbook Profit Calculation
Revenue Window 1 - From odds set to kickoff
Revenue Window 2 - Live wagering; from kickoff to end of game
Players can wager against the spread or wager the moneyline. In sports, this is the case for both revenu windows listed above.
Defining sportsbook risk on ATS and Moneyline bets
PayPerHead provides tools that can help you manage sportsbook risk. In fact, we offer tools that take your risk to $0. Before we get into that, let's talk about moneyline and ATS risks, using the following lines for Oaklands Vs Kansas City as an example:
Oakland +7 ½ (-110) +210 Kansas City -7 ½ (-110) -375
Moneyline Bets' Risk
If a player bets $200 on Oakland and Oakland wins, the payout is $620. $420 profit and the initial $200. Let's take it further. What if a bettor risked $2,000 on Oakland and Oakland won? The match gets scarier than the Large Hadron Collider creating blackholes.
$2,000 on Oakland at +210 = $6,200
The bookie that accepts the $2,000 moneyline wager must pay back the initial investment, the $2,000, and the $4,200 profit. Not many individual sportsbook operators can afford to make $6,200 payouts.
Take a deep breath. Let the horror wash over you and fade away. We've got tools to ensure this won't happen. But before getting to those tools, let's talk about the main risk for a sportsbook with ATS wagers.
ATS Bets' Risk
You may have heard of something called the "centered game". A centered game is where the probability of an outcome is reflected perfectly in the odds. As you might guess, centered games almost never happen. Right now, today, stop thinking, stop searching, stop considering the reality of a centered game.
There's one thing that no computer can calculate to a 100% probability, and that's human decisions. There's a word that you should Google, impermanence. Human beings are impermanent. So, get the idea of a centered game out of your head.
Because centered games rarely exist, if they exist at all, against the spread risk happens in some form on every game unless sportsbook operates can balance the book on every game.
Here's our football example again.
Oakland +7 ½ (-110)
Kansas City -7 ½ (-110)
Instead of $1,000 wagered on both sides of the spread, what happens if the entire $2,000 is wagered on Kansas City? Then, what happens if Kansas City beats Oakland 42-7? The calculated payout looks like this.
Total Wagered + Bookie Fees $2,000 - Payout $4,000 = ($2,000) Bookie Loss
In this scenario, bookies must pay back the initial investment as well as the profit players made wagering on Kansas City. Why would this happen? Casual sportsbook players have what Investopedia calls "herd instinct". That's the instinct to purchase the same stocks that everyone else is purchasing.
When players are on the wrong side, sportsbooks make way more money than they would by balancing the book. But when it does work for players, sportsbooks, even mega Vegas books, are on the hook for massive payouts.
Your Risk Compared to a Vegas Sportsbooks' Risk
Before getting to the tools that will help you cut risk in your sportsbook, we should talk about the difference between you and a Vegas sportsbook. You probably already know that Vegas makes its money on casino wagering, shows like Cirque du Soleil, and hotel rooms. They don't make most of their money on horse racing and sports betting.
You're different. You make most all of your sportsbook profit from your book, your digital racebook, and your live and digital casinos. You don't offer rooms, shows, or buffets.
It's important that you understand the difference. You can't expect to make up lost profit due to herd instinct in your sportsbook. Players won't upgrade their rooms in your digital sportsbook business.
That means, it's even more important for you to use pay per head tools than it is for a Vegas sportsbook to use their tools. You don't have as many revenue streams to lean on as a Vegas casino does.
But don't worry. PayPerHead offers plenty of tools that bookies can use to manage sportsbook risk.
PayPerHead tools for sportsbook risk management
To manage risk, PayPerHead bookies can use the following pay per head tools.
Pay per head is exactly what it sounds like. For a fee "per head", bookies can offer their players a sports betting interface, a digital racebook, and a digital and live casino. Bookies that partner with PayPerHead pay a small fee for each player. The cost is normally $11 to $13 depending on the package, though right now they are offering free service to help out those who are being hit hard by the coronavirus related economic downturn .
Under normal circumstances, however, if a bookie has 10 players, the cost per month is $100 to $130 depending on the package his players are on. Before deciding if it's worth it or not, check out the tools that you can use to manage risk with PayPerHead software.
Layoff account at PayPerHead
Your PayPerHead layoff account acts like your personal wagering account. The goal with the layoff account is to balance the books on games where herd instinct has led to more money wagered on one side of a spread than another.
In our Oakland-Kansas City example, bookies could have wagered $2,000 on Kansas City. That would have balanced the books. Once KC covered, bookies could have used the $2,000 they profited in their layoff account to pay off the players that wagered on $2,000 on KC to cover.
Don't misuse your layoff account. It's designed as a tool to help you balance wagers in your sportsbook. It's not designed for you to gamble with. Remember, you must pay whatever you lose in the layoff account.
Also, sometimes you should let wagers "ride". That means, allow the outcome to be the outcome. On some games, you'll make more money if you don't balance the books. This is risky, but your profit could be huge.
Oddsmakers set lines to encourage wagering on both sides of a spread. So, for example, if the line is Kansas City -7 ½, be sure that bookies set that line to encourage equal amounts of action on both sides of the spread.
However, you know your sportsbook better than Vegas oddsmakers. Change betting lines to reflect the reality of your sportsbook. You must do this within reason. You can't make KC -16 ½ in your sportsbook when the Vegas odds are 7 ½. Use the line mover sparingly.
PPH Player management tools; set maximum betting limits
You can increase wagering limits or lower wagering limits. Here's the most effective way to use max betting limit tools.
Set max betting limits on all moneyline bets. Remember, you don't get a bookie fee for moneyline wagers. It's difficult to calculate how to balance the book with moneyline wagers. Set max betting limits. Also, disallow moneyline wagers to be a part of any parlay bets.
Check Player Activity Reports
Raise or lower betting limits based on player activity. If a player shows consistent action, and pays you consistently, raise their betting limits. Lower betting limits if you want to be safe.
Agent Payment Solution® (APS)
The APS is your most powerful sportsbook management tool. The PayPerHead APS allows bookies to make payouts faster and collect faster. It also allows players to deposit easier with credit card, MoneyGram or cryptocurrencies.
The faster you make payouts, the faster players wager with that money. The easier you make deposits, the easier it is for players to bet with the money they deposit. The faster you collect, the faster you make profit.
Sportsbook Management Leads to Profit
A sportsbook is the same as any other business. Profit is calculated by revenue minus cost of goods or services. Our formula for profit is this:
Total Wagered + Bookie Fees - Total Payout = Sportsbook Profit
If you want more info on the Agent Payment Solution and other great per head software tools that help your sportsbook profit, reach out to a PayPerHead representative today via chat or at 1-800-605-4767.