We all know sportsbooks aren’t in the business of losing money. To the surprise of no one – they make a lot of money. On sporting events in 2019, the state of New Jersey took $4.55 BILLION in wagers, pocketing $293 million of sports bettors’ hard-earned money. This represents a hold of 6.4%, meaning for every $100 wagered, they made $6.40. If this sounds like a good proposition to you, go ahead and stop reading now and kiss your money goodbye.
As we continue this journey showing you how to turn the tables, it’s important understand how to figure out how much coin they are taking out of the market on various bets.
Unless you’ve been living under a rock, you have probably heard of the vig, vigorish, cut, take, margin, house edge or some other term referring to the money the sportsbook expects to win on every bet. Here’s a not so little secret – we don’t like it. I don’t know about you, but I’d rather the sportsbooks NOT have a 6.4% edge on me. Therefore, we’re constantly trying to find ways to turn that edge for the books into an edge for us. To begin, we need to understand how to measure the vig taken on each bet.
Remember this example from our previous post showing the various bets we can make?
Remember that to bet on the Virginia point spread we had to wager $110 to win just $100? Yes, this is the vig. Now let’s demonstrate how much the vig is on a standard -110 bet with a little story.
A Hokie and Wolf walk up to a sportsbook counter. The Hokie says “Lemme get $110 on Virginia -110” as he hands the cashier two $50s and a $10.
“Sure thing” replies the cashier as she hands the Hokie his ticket. The Wolf mutters “Idiot” under his breath as he walks up next, unveils a bunch of crumpled up bills and says “Gimme that Wolfpack. $110 on the spread. Easy money”.
The cashier processes the Wolf’s bet and in her mind calculates how much money she just made the book.
“Well” she thinks, “the Hokie and the Wolf each wagered $110, so I collected $220 in total. However, one of these guys is going to win, so I will have to pay him his wager of $110 back, plus his winnings of $100. The loser? Tough luck, I don’t pay him anything. Since we received $220 and only had to pay out $210, we just made $10. Not bad!”
In that little story, the sportsbook took $220 in wagers and won $10. Therefore, the vig (or hold %) is $10 / $220 or 4.54%. Less that the 6.4% that NJ held in 2019 (for reasons we will explain at a different time) but still a significant chunk of change.
Now let’s assume the sportsbook was offering -105 spreadlines instead of -110. Assuming both bettors wagered $105 to win $100, the sportsbook would take $210 of bets and win $5, meaning a hold of $5 / $210 =2.38%. That is a significant difference from 4.54%.
*PRO TIP* Always look for -105 when it’s offered.
Breakeven Win Percentage and Expected Hold
Now the action on both sides of a game is never identical, some look to calculate the expected or theoretical hold by the sportsbook. To do this, we first have to calculate the breakeven win percentage. The definition doesn’t need much explanation but here goes: it is the long-term winning percentage needed to breakeven against certain odds.
For plus-money odds (+100 or greater) the breakeven win percentage is calculated as follows: 100 / (100 + Odds). Let’s give it a try. For odds of 200, the breakeven win percentage is 100 / (100 + 200) = 33.3%.
For minus-money odds (-100 or less) the breakeven win percentage is calculated as follows: Odds / (Odds – 100). For odds of -200, the breakeven win percentage is -200 / (-200 - 100) = 66.6%.
Now let’s calculate the breakeven percentage for the moneyline on the NC State/Virginia game.
For NC State, we calculate the breakeven percentage as 100 / (100 + 205) = 32.8%.
For Virginia, we calculate the breakeven percentage as -250 / (-250 – 100) = 71.4%.
Now you might notice that the sum of these breakeven percentages is greater than 100%. Question: why might that be? If you answered “VIG!” then you’re starting to pick this stuff up.
That’s exactly right. The breakeven percentages will never add up to 100% because of the vig that the sportsbooks hold.
Armed with the breakeven percentages, we can calculate just how much the book expected to hold from us on that money line bet using the following formula:
Expected Hold = 1 – 1 / SUM (Breakeven Percentages)
In this case, the book is expecting to hold:
1 – 1 / SUM (32.8% , 71.4%) = 4.04%.
A little better than the vig on the spread, but still not ideal. In further posts, we will discuss methods to reduce the effective vig that you play into.
To conclude this piece, I want to take a quick look at futures bets, which are a favorite of both the sportsbook and the recreational sports bettor. (HINT: not a Cleat Street favorite).
Future Bets and Expected Hold
For the uninformed, future bets are wagers made on an event that isn't decided for quite a while. This could be a wager on what team wins the World Series or who is crowned NBA MVP, for example. There’s no denying the fact that these bets can provide excitement for a long time. But if you’re looking to become a successful sports bettor, there are (much) better places to start.
First of all – most of these wagers will not be graded for along time. The World Series winner, for example will be determined in late October. Thus, if you place a bet on the World Series in March you are letting the sportsbook hold your money for approximately 7 months. Gee whizz that’s generous of you! Me, I’m not so generous. To generate the returns we seek, we turn our capital over many times throughout a year, wagering on more than 1,000 games. Any capital that is locked up in a future bet cannot work for me during that time and decreases my cash turnover ratio. In other words, I got bigger plans for my dough.
Second – the hold that is often charged on futures bets is borderline criminal. Without naming names, I recently calculated the breakeven percentages and hold offered on the World Series winner by one NJ sportsbook using the formulas above. The expected hold: 21.8%! And to be honest, on some futures markets we've seen a hold as high as 40.0%!
Come on. Really?
If handing a sportsbook $100 and getting $60 in return six months from now is your idea of a good time, shoot us an email and we can suggest some new hobbies to try. Your significant other will thank us.