How Do Bookmakers Generate Sports Odds?
The way that sportsbooks manufacture their odds and betting lines has changed drastically over the years. The sports betting industry was once dominated by old-school Vegas oddsmakers, but much has changed since the advent of online sportsbooks, as well as the fine-tuning of sports betting software and algorithms.
How exactly do sportsbooks generate their lines and odds? In this article, we’ll explain everything you need to know about the process, the people involved, and the evolution of the process.
One Thing Hasn’t Changed: The Goal of Oddsmakers
One thing that hasn’t changed since the early days of sports betting is the ultimate aim set by the sportsbooks: balance the action on both sides of a wager.
If you’ve read our guide on reading and understanding odds, you’ll know that you can calculate the implied probability of an event happening simply by performing a few simple calculations.
However, betting lines aren’t designed to reflect the real and accurate probability of either outcome. After all, one of the best strategies to getting an edge over your sportsbook is making a wager when you think there’s a discrepancy between the real probability of an event and the implied probability determined from a betting line.
How Are Odds Determined?
Odds are engineered to attract equal action on both sides of a betting line. In a perfect world, a sportsbook receives equal betting volume on both sides of a wager. Then – win or lose – they’ll make 5-10% on the juice (or ‘vig’).
As such, it’s integral to understand that the chief function of oddsmakers isn’t to create an accurate (and probable) picture of reality: It’s to mitigate your sportsbook’s risk. Think of contemporary oddsmakers as risk management professionals, as well as expert sports predictors.
What Did Oddsmaking Look Like in the “Old Days”?
While the goal of bookmakers has stayed the same since the inception of sportsbooks, methods have definitely changed.
Far before the proliferation of computers and when payphones still dominated communication, oddsmakers used to huddle around chalkboards in unkept backrooms of Las Vegas to brainstorm the right numbers.
Because sports betting has been legal in Nevada for so long, many of the most prominent and famous oddsmakers originated in Las Vegas and surrounding areas. Many oddsmaking consulting firms continue to base themselves in Las Vegas.
Oddsmakers in the era before online sportsbooks used to place emphasis on their own unique power ratings across different sports. How precisely these ‘power ratings’ were created still remains a mystery, as the bookmaking community was incredibly close-knit and always extremely reluctant to reveal what factors went into their ratings.
We can infer that the methods used to generate power rankings weren’t really that different than the ones media outlets (such as TSN) use. A combination of individual player performance, schedule, and team performance were balanced to create power rankings, while combining traditional sports statistics and intangible factors.
After setting their own power rankings, oddsmakers would factor in the injury report, and what famed bookmaker Jimmy the Greek described as “a little bit of horse sense” to generate the first number. From there, as money came in, oddsmakers shifted the line and odds attached to it.
Oddsmaking in these days was grounded more in individual oddsmakers’ individual expertise and their gut feelings, instead of today’s statistics and data. As sports betting started to explode in popularity, however, new ways to make odds would emerge. Handicappers like Jimmy the Greek were still integral to the process, but they wouldn’t be the only people involved in generating odds.
Who’s Involved in Bookmaking Today?
Today, oddsmaking involves more people with more responsibilities than ever. The “horse sense” that handicappers relied on when they constructed odds is still a part of the process, but a bookmaker’s “gut feeling” certainly isn’t as pronounced as it once was.
Mathematicians and statisticians play a significant role in oddsmaking today. As oddsmaker Todd Furhman describes, the formation of odds “[isn’t just] Xs and Os, it’s data, numbers, and an understanding of the market.”
Aided by contemporary computing power, mathematicians and statisticians pore over decades of data, incorporating trends into their odds and liens that oddsmakers of old wouldn’t haven’t been able to find in a couple of minutes.
Are Power Ratings Still Important?
Yes, the power ratings of old still serve an extremely valuable purpose in the process, but there’s far more to it. Understanding bettor behavior, mathematically managing risk, and determining the public’s reaction to specific lines all play equally large parts in the creation of odds. Computers can incorporate more data than any human ever could, and oddsmakers use this to their advantage.
Synthesizing the insight of mathematicians and statisticians has made the process more quantifiable and way more precise. Instead of just relying purely on instinct, top oddsmakers integrate valuable understanding of probability and risk that ‘number specialists’ possess.
As any successful investor or sharp bettor will tell you, diversification is great. The same is true for oddsmakers: The more people from different backgrounds working together to create the best lines and odds, the more accurate the line will be. The more accurate the line, the more profitable it is for sportsbooks.
Sportsbooks Cut Costs By Outsourcing Oddsmaking
Of course, the services we mentioned cost a lot of money. Employing an army of handicappers, mathematicians, and statisticians isn’t free. The more people employed by a sportsbooks, the more overhead, which cut into profit margins. Most oddsmaking for most sportsbooks (online and otherwise) doesn’t take place in-house anymore.
Mirio Mella, the customer engagement manager for Pinnacle, says that sportsbooks are spending less on in-house oddsmaking and risk management, and instead allocate money towards advertising and promotions. Sportsbooks need to differentiate themselves beyond just the odds themselves, and this comes in the form of massive marketing campaigns.
However, there must still be someone at each individual sportsbook who has the final say in which odds get posted. Even if the majority of the work is outsourced or copied, someone at every has to make the final determination about the odds and lines offered.
Sportsbooks Copy Other Sportsbooks To Save Money
With the global market for sports betting at an all-time high – and there are no signs of it slowing down – there have never been as many high-quality sportsbooks available to international bettors. This means there’s also less room for sportsbooks to differentiate themselves on odds and lines alone. Odds at online sportsbooks are available to everyone the second they come out, and certain sportsbooks simply copy lines and odds from each other.
As such, many sportsbooks are placing less emphasis on creating unique lines, and devoting less of their budget to oddsmaking. If a sportsbook can browse the web to get a general idea of what the market dictates for odds and lines, there isn’t as much sense in spending a ton of money to create their odds in-house.
Of course, there are some sportsbooks which remain industry leaders in generating odds and lines. According to Scott Kaminsky (one of the first employees at Roxy Roxborough’s legendary oddsmaking outfit), 99% of sportsbooks follow the lead of the sportsbooks that DonBest.com provides the lines and odds fro.
Of course, nearly every sportsbook tweaks the lines slightly to suit their client base, but according to Kaminsky, offshore sportsbooks inspire opening numbers. Kaminsky points explicitly to Pinnacle’s clout when it comes to setting initial lines and odds, saying that “when Pinnacle’s lines move….give them a lot of respect because they take smart action.”
Again, it’s impossible to know exactly which sportsbooks are copying which, because details of oddsmaking are considered trade secrets, and are subsequently rarely disclosed.
Third-Party Oddsmaking Consulting Firms
Sportsbooks can get around the high cost of employing a team of experts by outsourcing the majority of their odds and lines to external, third-party consultants. While this still costs money, it’s definitely cheaper than doing them in-house.
One such example is CG Technology, a Las Vegas-based odds consulting firm. CG Technology primarily provides odds and lines for brick and mortar sportsbooks in Nevada, and they list illustrious sportsbooks such as the Palms, the Hard Rock Hotel, and The Cosmopolitan as clients.
However, similar services with comparable operational structures (like Don Best, mentioned above) provide odds for online sportsbooks.
Companies like CG Technology incorporate proprietary algorithms and data analysis methods into their odds and line generation, but they claim to balance data analytics, the unique customer tendencies of their clients, injuries, and price comparisons before releasing their lines.
Even consulting firms like CG Technology understand the importance of comparing your lines to other sportsbooks before making them official. Jason Simbal, CG Technology’s vice president of risk management, states “if you were putting up your numbers first, without having any reference point, you could be susceptible to your lines being the correction.”
So, who actually posts lines first? It’s hard to say, but sportsbooks are most confident that they’ve got the perfect lines and odds. In the age of the internet, news travels fast!
One Exception: Unique Lines and Odds
If sportsbooks offer an unusual, exotic bet (such as odds on a television show), chances are that they create the numbers themselves.
They may also enlist the help of oddsmaking software, like the one offered by Bet Radar, but the final say is in the hands of some sort of in-house oddsmaker.
What is the Future of Oddsmaking?
We’re pretty confident that the future of oddsmaking rests in automated methods, as well as the massive power of predictive sports betting algorithms. As you’ve seen, mathematicians and statisticians play an increasingly significant role in generating odds and lines, but – thanks to the insane potential of machine learning – AI and algorithms are reducing the human element.
As long as sports betting has existed, sportsbooks have hired sharp bettors to work for them. We think that – as technology progresses – sportsbooks will be capable of generating the most profitable lines with fewer humans involved in the process.
Famous oddsmakers like Jimmy the Greek started out as oddsmakers on the strength of their betting prowess. They made an easy transition from being expert handicappers to working for the same sportsbooks they once cleaned out.
Nowadays, just as many statistical geniuses as handicappers win big at sportsbooks across the world. Sportsbooks are aware of this, and slowly (but surely), many are starting to hire ‘numbers guys’ to help them make more precise odds.
If you’re curious as to where the future of oddsmaking is heading, we’d recommend you check out our guide to the financial firms that are dipping their toes in sports betting!
If you’re looking for more information on the rudimentary aspects of sports betting, check out the remainder of our betting 101 guides.