The sports-betting market

King Yao is the author of Weighing the Odds in Hold‘em Poker, and Weighing the Odds in Sports Betting. He uses his experience from making millions in financial derivative markets and translates it into gambling. Since he left his trading position in 2000, he has been playing poker and betting on sports. He travels to Las Vegas frequently, especially during football season.

Here are some basic principles of sports betting. All sports bettors should know the information below. All other types of casino advantage players, including blackjack players of all skill sets, which encompasses card counters, should have good working knowledge of Expected Value as well. You should not be betting online or anywhere else without this fundamental knowledge.

The sports-betting market is similar to financial markets. Sportsbooks act like market makers and professional traders. Sharp bettors act like hedge funds and smart investors. They can act like market makers in some instances. Square bettors act like square investors by buying high and selling low. This article explains how the sports-betting market works, how lines open and move, the efficiency of the market and ways to use market prices intelligently.

Not an Exchange

Unlike the stock market in the United States, there are no central exchanges or mechanisms to prevent “trade-throughs,” a term used for a trade that happens at a worse price than the best bid or best offer. But there are other markets where individual entities make trades directly with each other rather than through a central clearing system like an exchange. In some markets, banks act as market makers and make bids and offers on financial products. Different banks may have different prices on the same product, but they are not obligated to tell their customers when another bank has a more competitive price. This is similar to how sportsbooks act.

All sportsbooks have betting lines on the same games, but sometimes their prices differ. If you want to bet Seattle -3 -110, the sportsbook has no obligation to tell you that you can bet Seattle -2.5 -105 across the street. You have to look at multiple sportsbooks to determine the best places to make your wagers. Updated lines at most sportsbooks are available on the Internet.

Goals of a Sportsbook

A sportsbook has two goals when it puts up a line: maximize profits and minimize risk. Those two goals can conflict at times, and different sportsbooks put different priorities on them. Some sportsbooks are more risk averse and strive for minimal risk. Their casinos think of them like $5.99 buffets: loss-leaders useful for attracting customers but not for making profits.

Other sportsbooks are more aggressive; their primary goal is to maximize profits. These sportsbooks are willing to take unbalanced positions, and have a rooting interest in some games.

How Lines Open

Sportsbooks post new lines with a combination of the goals listed above in mind. They may have their own in-house line makers or they may subscribe to a service that sends recommendations on opening lines.

Some sportsbooks have confidence in their handicapping ability, and are not averse to posting new lines as early as they can, with reduced limits. They have the advantage of being among the few sportsbooks with lines available for betting, and they get a large market share during this early stage. Often their early lines are efficient. But when they do make mistakes, smart bettors are quick to take advantage. Lines are then adjusted to reflect the betting action. The limits are raised when the sportsbooks have a better grasp of what the efficient line should be with information they received from early betting action. The winnings of smart bettors against early lines can be considered part of the sportsbooks’ costs of making the lines.

Other sportsbooks wait until lines have been bet into and adjusted at the more aggressive sportsbooks to help them decide what numbers to post.

This is part of an occasional series of articles, to be continued ...

Excerpted with permission from the e-book version of Weighing the Odds in Sports Betting by King Yao, edited for this format.