How do sportsbooks figure house edge?

According to a UNLV Center for Gaming Research study, more than $81 billion was bet on sports in Nevada from 1984 to 2018. Of that total, Nevada won $3.9 billion. Why does Vegas win so much money? Sure, it sets very accurate and hard-to-beat lines and capitalizes on the luck and randomness of betting. But it holds a built-in advantage over bettors based on the rules of the game and overlooked fine print.

This advantage is popularly referred to as the “house edge.” It is a mathematical equation that calculates the average profit the house stands to make on every bet over a full season. This is also considered the hold percentage — the amount of money the house holds on to after all bets have been settled and paid out. Simply put, the rules of the game make it such that the odds are stacked against bettors without them even knowing it. It’s a cliche, but it’s true. This is why the house always wins.

To illustrate how the house edge works, let’s look at the dimensions and setup of a roulette wheel. Many people love playing roulette because they think they have a 50/50 chance to win. After all, it has only two colors, red and black. However, this isn’t the case. In America, the roulette wheel has 38 numbers, with 18 red and 18 black. But 18 plus 18 equals 36, not 38. That’s not half. What gives? 

The green zero and green double zero, of course. The two green numbers provide the house edge. Because there are 18 red, 18 black and 38 overall, it means you have an 18/38 chance of hitting red or black, which translates to 47.37%. 

In other words, you have less than 50% of a chance to land on red or black. You might win your first roll and your second roll. Maybe you even win five in a row. But if you keep playing, eventually you will lose. It’s a mathematical certainty that over the long run, the house will come out on top 52.36% of the time. That 2.36% is the house edge. It means that for every dollar spent on a roulette spin, the house holds on to 2.36 cents. That might not seem like much, but if you extrapolate that number over billions of spins a year, that’s how the house cleans up.

In sports betting, the house always wins for a similar reason. If you’ve watched enough games as a bettor, it’s hard not to think the oddsmakers are some kind of fortune-tellers who know the outcome of every game beforehand. It seems like every time you turn on an NFL game late in the fourth quarter, the score is 17-14 or 20-17 or 27-24. You check the spread and, sure enough, the team that is winning was favored by three points. A common response among bettors is, “Vegas knew!”

However, a main reason sportsbooks have an edge over bettors isn’t that they can predict the future, set hard-to-beat lines and capitalize on luck and randomness. Sure, that plays to their benefit. But unlike roulette, there is no green zero or double zero to ensure they come out on top. In betting on sports, you always have a 50/50 chance to win your bet. If you’re betting on the moneyline, one team has to win and one team has to lose. If you’re betting on the spread, one of the teams has to cover. And if the game ends in a tie or push, you get your money back. So where exactly is the house edge?

The main reason the house always wins in sports betting is because it can charge an additional tax on all bets, known as the juice. Standard juice is -110, meaning you have to pay the house an extra 10 cents on every dollar you bet. However, this juice could be even higher, up to 20 cents or more (-120). 

To put this in perspective, let’s say you place two NFL spread bets. One is on the Miami Dolphins +3, and the second is on the Dallas Cowboys -6. In both instances, you are paying -110 juice. Let’s say you split the games and go 1-1 with your bets, with the Dolphins covering but Dallas failing to cover or losing straight up. If you go 1-1, that means you broke even, right? 

Wrong. Because you had to pay -110 juice on both bets, this means you had to risk $110 to win $100. So you risked $220 overall. You won $100 on your Dolphins bet, plus you got the $110 you risked back. But you lost the $110 you risked on your Cowboys bet. So you risked $220 and ended up with $210. This means you actually lost $10 despite splitting your plays. 

Whether it’s roulette or betting on sports, the goal of the house is to keep bettors betting. They might win their first bets or even go on hot streaks. But the longer they keep playing, the greater the likelihood they’ll start to lose. This is why casinos give free drinks and comp rooms. They want you to stick around and keep betting because, whether it is the zero and double zero in roulette or the juice in sports betting, the law of averages is always in their favor.

 

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