How Sportsbooks Earn Their Edge

A sportsbook is a place where people can make wagers on various sporting events. The days when bettors had to visit a physical betting outlet are long gone, as most sportsbooks offer the convenience of online betting. The range of sports that can be backed online includes classic horse racing, international soccer leagues, and America’s popular pro and college teams.

While gambling always involves a negative expected return, savvy bettors can increase their profitability by understanding how sportsbooks earn their edge. This article presents a statistical framework that allows the astute bettor to guide their bets by modeling the relevant outcome (e.g. margin of victory) as a random variable, and then using this model to derive a set of propositions. The resulting propositions convey the key questions that the astute bettor should ask when betting on a specific event, and the corresponding expected profits when correctly placing bets on these outcomes.

The results of the analysis presented here confirm the existence of a sportsbook edge, and suggest that the optimal strategy is to bet against favorites. In particular, the analysis of point spreads reveals that sportsbooks often overestimate the median margin of victory for some stratifications. This underestimation is consistent with the hypothesis that sportsbooks exploit public bias for wagering on home favorites.

If you’re thinking about opening a sportsbook, it’s important to be aware of the legal requirements and regulations in your jurisdiction. Many states require a license or permit to operate a sportsbook, and the licensing process can take weeks or months. You’ll also need to understand the various laws regarding advertising and the types of betting options available in your jurisdiction. In addition, you’ll need to obtain a bank account for your business, which can be difficult in some countries.