Sports Betting 101: How to Calculate the House Edge

March 25, 2020 12:35 AM

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 $81 billion, Nevada won $3.9 billion. Why does Vegas win so much money? Sure, they set set very accurate and hard to beat lines and of course capitalize on the luck and randomness of betting, but they also hold 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 the course of a full season. This is also considered the hold percentage. This is 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 cliche, but it's true. This is why the house always wins.

To illustrate how house edge works, let's take a look at the dimensions and set up of a roulette wheel. Many people love playing roulette because they think they have a 50/50 chance to win. After all, there are only two possible colors: red or black. However, this isn't the case. In America, the roulette wheel has 38 different 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 numbers and 38 numbers overall, it means you have an 18/38 chance of hitting red or black, which translates to 47.37%. 

In other words, you have a less than 50% chance of it landing on red or black. You might win your first roll and second roll. Maybe you even win five in a row. But the longer you keep playing, eventually you will lose. It's a mathematical certainly that over the long run the 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 may not seem like much, but if you extrapolate that number over millions and billions of spins over the course of a full year, that's how the house cleans up and makes so much money.

When it comes to 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 that the oddsmakers are some kind of mind-reading fortune teller who knows the outcome of every game before hand. 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 on the game and sure enough, the team that is winning was favored by 3 points. A common response among bettors is "Vegas knew!"

However, one of the main reasons why sportsbooks have an edge over bettors isn't that they can predict the future, set hard lines to beat 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. After all, when it comes to 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 two teams has to cover. And if the game ends on 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 they are able to charge an addition tax on all their 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 on both bets. Let's say you split the games and go 1-1 with your two 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 in order to win $100. So in total 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 overall, you risked $220 and ended up with $210. This means you actually lost $10 dollars 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 bet or even go on an epic hot streak. But the longer they keep playing, the greater likelihood they start to lose. This is why casinos give out 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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