Sportsbooks are viable businesses because they can turn a profit from taking their clients wagers. Thanks to the “juice” or the “vig” sportsbooks create a model where they remain profitable over the long run. Remember the “vig” is the premium 5-10% you pay to bet on sports.
However, to remain profitable, sportsbooks want to encourage equal betting action on both sides of a wager. When betting action is imbalanced, sportsbooks will engage in line movement to either encourage, or discourage, bettors from placing wagers on different sides of wagers.
How do sportsbooks set betting lines?
When the sportsbooks open their lines to bettors, the bookmakers setting the lines make their decision based on a multitude of factors. First and foremost, they use closely guarded systems (both quantitative and qualitative) to set the odds and price. While any oddsmaker worth his salt will never reveal their methods, you can count on bookmakers chiefly keeping a close eye on each team’s history, injuries, recent records, and respective home and away records, along with many other more minute considerations.
After determining what odds that they believe will encourage equitable actions on both sides of the wager, sportsbooks and their bookmakers open up the lines for bets. From here, the market unveils itself to the laws of supply and demand.
Bookmakers strive to create odds that will facilitate action on both sides, but the reality is that this doesn’t often happen. Where bettors are placing the money (the pressures of supply and demand) will create external pressure on bookmakers to continuously tweak their lines as the betting market reacts and responds.
It is important to remember that what sportsbooks strive for is not fair odds, but attracting equal action on both sides. This can result in intentional mispricing in lines. Of course, this leads to tremendous value for you, the bettor.
Betting line set up for a sportsbook
To illustrate our example of an ideal distribution for a sportsbook, let’s look at this sample line from Bovada.
Let’s say, hypothetically, by the time the lines close, bettors are wagering $110,000 to win $100,000 on San Antonio at +5.5. Similarly, bettors placed $110,000 to earn $100,000 on Denver at -5.5. No matter what happens in this scenario, the sportsbook is guaranteed to make a $10,000 profit. It doesn’t matter whether this spread was representative of a 50/50 probability. What matters for the sportsbook is that they’re pocketing $10,000, no matter what.
With this in mind, let’s explore why the betting action might be unevenly distributed, and what drives sportsbooks to adjust their betting lines. Things don’t always end up these neat and tidy for sportsbooks.
1. Supply and demand affects line movement
Let’s take the same example above in a different context to illustrate a scenario where a sportsbook would have to tweak their lines.
The game above is set for Tuesday at 10:30 PM, and at on Monday and 11 AM, bettors wagered $220,000 to win $200,000 on San Antonio at +5.5. Conversely, bettors wagered $165,000 to win $150,000 on Denver at -5.5. If San Antonio wins outright or loses by only 5, covering the spread, the sportsbook would lose $35,000. They would have to pay out the $200,000 owed to bettors after San Antonio covered, while only receiving $165,000 from bettors thinking that Denver could cover the 5.5 point spread.
Clearly, this is not an ideal scenario for a sportsbook, as they’re always looking to make it a profit.
Moving the Spread / Total
In the lead up to the game, sportsbooks would likely tweak the lines to encourage age more action on Denver, and less on San Antonio. You might see the odds reformulated as being +4.5 for San Antonio, and -4.5 for Denver. If the action was still unevenly distributed, it might be further brought closer together to read +3.5 for San Antonio and -3.5 for Denver.
The same logic is applied to making adjustments on the total.
Adjusting the Odds
It’s also possible that sportsbooks could adjust the odds. For example, to encourage the action on Denver, they could change the payout from -110 to EVEN, and change the San Antonio odds from -110 to -120. This redistribution of price would have a similar effect to the altering the spread numbers themselves.
Sportsbooks employ the basic economic principles of supply and demand. If the supply (betting volume) isn’t great enough for the result desired, sportsbooks artificially increase the demand by making the price of the line or line itself, on the other side, more attractive. With an increase in demand, comes greater quantity. If the supply (betting volume) is in excess of what a sportsbook wants, they make it less desirable, artificially reducing the demand. With a decrease in demand, comes a diminished number of bettors taking the line.
It’s important to remember that lines move in both ways; in terms of points being offered, and the available payout.
2. Injuries, Scratches, Coaching Decisions (External Effects)
Not every change in a betting line is due to the distribution of betting action.
The following are common events that will cause line movements.
- Weather Changes
- Major injuries to key players
- Players who are last minute scratches
- Pitchers, goalies, or other players in other key positions not starting the game
Weather always plays a role in the outcome of a game. For example, if an NFL game is set to be played outside, and snow is in the forecast, the game is likely to have fewer points scored. As such, many bookmakers will reduce the total number of points offered on the over/under bets for that specific game.
If a key player for a team playing is injured (think the Patriots, without Tom Brady) sportsbooks will re-calibrate their odds or line to reflect this information. If the Patriots were heavily favored in light of this new information, they might become the underdogs.
Sometimes coaches make the decision to withhold their top players, to mitigate the risk of injury. This often occurs late in the season in the NFL, NBA, MLB, and NHL as teams prepare for their playoff runs. If this information is leaked, it will drastically alter the odds or line bookmakers place on the event. For example, if the Cleveland Cavaliers aren’t going to dress LeBron, they’re definitely not going to be the odds-on favorites.
Occasionally, a coach will also make a last minute decision to switch out their starting goaltender (NHL) or starting pitcher (MLB). This will drastically alter the odds or line placed on a game, minutes before the action begins. If the Montreal Canadiens decided at the last minute the give Carey Price a night of rest and play Antti Niemi, this would doubtless impact the line or odds sportsbooks assigned to that game.
3. Sportsbooks Follow “Sharp” Action
Online sportsbooks are all privy to all of their bettors betting history. As such, they know which accounts likely belong to “sharps,” or professional bettors. Usually, the sharps have a higher volume of bets as well as a sizeable bankroll to back their accounts up. They aren’t too hard to spot.
Knowing where the majority of “smart” money is going on a certain game has been known to affect sportsbooks lines. Sportsbooks engage in line movement in order to discourage more bets on the same side as the “sharps,” who often exhibit a higher than average winning percentage.
Sometimes, when the line moves after the “sharp” money falls on a certain side, people are inclined to bet on the same side as the “sharps,” even at odds that are less favorable than what they were initially released at. This can be an advantageous strategy for beginner bettors who are willing to monitor the lines closely. By doing so, beginners can rely on the knowledge and expertise of “sharps,” who always do their research.
If you’re familiar with the stock market, you’ll know that institutional investors drive equity prices. Retail investors follow. The same is true with sports betting. “Sharps” set the initial prices, and the public follows.
Note: The Downsides of Tailing Sharps
However, there is no reliable mechanism to tell when a line has moved because of “sharp” action, or due to other factors. Sportsbooks will never make any public declaration as to why they changed their lines. You will always have to make deducements based on your knowledge of sports and sports betting themselves.
Further, the “sharps” almost always get the best price. For example, say the majority of sharps bet on the Pittsburgh Penguins to beat the New York Rangers at -130. If there’s an influx of serious cash on the Penguins at that number, bookmakers at your sportsbook are going to adjust the line. By the time the average bettor trying to “tail” a “sharp” gets in, the line could be pegged at -140 or -150. This might not seem like a huge difference, but it adds up in a very significant way over the long run. Read our line shopping article for a deeper dive into this phenomenon.
It’s also important to remember that “sharps” sometimes try to manipulate the public into betting on certain sides. For example, they might place a small bet (say, $5000) on the Penguins and try to shift the lines to make betting on the Rangers more appealing. Having successfully done this, they might lay a huge bet (think $50,000) on the Rangers at a better price. The $5000 they lost betting on the Penguins would be a write off after getting a big payout from a Rangers victory.
Exercise caution when trying to “tail” sharps. They’re a cunning breed!
Bonus Pro Tip: NFL “Middling Numbers”
In football, there are key numbers that bookmakers keep in mind when they are setting the spread and totals.
The scoring structure in football means that the majority of teams win by either 3, 7, 9, or 10 points. Roughly 15% of the time, football games are won by 3 points. 8% of the time, teams win by 7 points. This contrasts with the fact that only about 3% of games end with a 5 point margin of victory.
Oddsmakers are privy to this information, and they make every effort to not move a line by too much. Whenever possible, bookmakers will go to great lengths to refrain from moving a line over a key number. If they do, they expose themselves to massive risk. This is because bettors may “middle” them, betting on both the spread before and after it moves.
For an example of this, read about what is referred to in sports betting circles as “black Sunday.”
Sportsbooks refer to this kind of massive loss, where bettors win both bets, as getting “middled.” Its an utter disaster for any bookmaker.
Consequently, when it comes to football point spreads, bookmakers will often instead change the odds (instead of the lines) as much as they can before they have to move the spread. However, this isn’t set in stone. So, always keep your eyes out for an opportunity to bet the “middle.” It pays off huge!