Originally posted by DonMichaelCorleone:
How do they come up with the spreads?
You had to ask?
You're gonna owe me big time for this one, cuz it ain't simple to explain.
Remember how I was talking about how if you bet with a sportsbook, you have to risk $11 for every $10 you want to win, regardless of which team you want to bet on?
That's how the "book" (legal or illegal) makes their profit, because the average bettor is unable to pick at the .524 rate necessary to break even.
But it's all dependent upon a point spread, or "line" that attracts an equal amount of action on each side.
Take the Denver-Indianapolis game this weekend. The line is what, 9 1/2?
But if Indianapolis was only, say, a 2 point favorite, it's reasonable to assume that virtually no one would bet on Denver. And if Indianapolis won, the bookmakers would sustain huge losses. Of course, if Denver wins, they would make a huge profit, but
a) It's unlikely that Denver will win the game, and
b) The bookmakers aren't looking to take the risk. They want their profit to be assured.
So experienced linemakers (today the lines emanate from the large Las Vegas sportsbooks. In the old days, guys like
Casino character Ace Rothstein), people who know the history of how the public tends to bet, create a line designed to attract what they think will be an equal amount of action on each team.
Presumably, they're very good at what they do, since I haven't heard of any Las vegas sportsbooks going broke recently.
Now, ideally, the books will be perfectly in balance, with an equal amount wagered on each team.
So with everyone laying 11-10, the bookies can't lose.
Take in $1000 in bets on Team A, and $1000 on Team B. Whichever team wins, the bookie collects $1100 from the losers, and pays the winners only $1000.
Now, the larger the bookie, the less important it is that his books balance exactly.
At a big Las Vegas sportsbook, for example, if they take in $350,000 on Team A, but $370,000 on Team B, they still make a profit whichever team wins.
If Team A wins, they collect $407,000 from the backers of Team B ($370,000, plus $37,000 more because they are laying 11-10), and pay out $350,000 to the backers of Team A, for a $57,000 profit.
If team B wins, they collect $385,000 from the backers of Team A ($350,000, plus $35,000 more because they are laying 11-10), and pay out $370,000 to the backers of Team B, for a $15,000 profit.
So as long as a point spread is created which attracts
roughly an equal amount of money on each side, the bookie can't lose.
But what, you might ask, does a small neighborhood illegal bookmaker do if his books don't balance, and he doesn't have the volume to make a profit whichever team wins as in the example above?
He simply takes the amount that he is "out of balance", and wagers it (called a "layoff") with a larger bookie. And if that wager puts the larger bookie too much out of balance, he wagers
his excess with a bookie who is even larger.
Think of it as a pyramid. In the end, all the excess is "layed off" by the smaller bookies, thus insuring their profit, and at the top of the pyramid, the imbalance only affects the
size of the profit, as in the example above with the bookie who is handling hundreds of thousands.
But again: The key point here is the experience of the linemakers in creating a pointspread that will attract roughly an equal amount of wagering on each side.
