How Do Online Sportsbooks Make Money?

It is a common misconception that sportsbooks make all of their money off the wagers on the losing side of a bet. It’s easy to see why since you forfeit your wager on any bet that you lose. The truth, however, is a bit more complicated than that.

We’ve put together this little guide on how sportsbooks in Ohio make money. We’ll shelve those misconceptions, break down the actual source of profits for sportsbooks and answer a few questions along the way.

Misconceptions about sportsbooks

It is an easy mistake to make if you’re new to sports betting in Ohio. You make a wager and you lose, and the sportsbook keeps all of your money. That, clearly, has to be where it gets its profits from, right? Nope.

The truth is, sportsbooks use that money to pay the winning bets on the other side of that wager. You may have lost and, in turn, watched your pocketbook get a little smaller, but the sportsbook takes your money and puts it toward the winnings of all the bettors who chose the other side of the bet.

How sportsbooks really make money

Sportsbooks collect a commission on all bets, which is known as vigorish. In the most basic terms, vigorish, aka the vig, is the cut of money a sportsbook charges for taking your bet. One final name for that cut is “the juice.”

Sportsbooks don’t collect the money at the start of the betting process. Instead, they collect the vigorish on the other side. As you may know, if you see -110 odds, it means a wager of $110 would win $100 from the sportsbook on a successful bet. If you do win, you collect your profits and go about your day.

Without the vig in gambling, that wager might be dollar for dollar, so a $100 bet would end up paying a $100 profit if you got it right. However, that would mean the sportsbook, which handles all of the transactions and betting, would not make any money from it.

Sports betting is big business. That business is about making money. Casinos and sportsbooks like those in Las Vegas perfected the system, and current online sportsbooks are following suit.

Let’s talk about the vig

It’s a strange term if you’ve never heard it before, but vigorish is an ingrained part of the sports betting industry. It’s the easiest way for sportsbooks to be able to cover the liability of winning wagers while still being able to make money.

With every bet that a sportsbook offers, there are going to be winners and losers. The goal for sportsbooks is to make sure that the amount of money they pay to the winners is less than what they take in from the losing side of the bets.

Experienced sports bettors know they have to win a certain percentage of their bets to factor the vig into their profit projections — “beating the vig,” in sports betting vernacular.

If you’re a more casual bettor, just be aware that if you make a wager at -110 odds, your return will be less than the amount of your initial wager. Say, for instance, that you bet $10 on the Cincinnati Bengals beating the spread against the Oakland Raiders at odds of -110. If you win, your payout would be $19.09 — your initial wager returned to you plus $9.09 (or just about a 90% return) in profit.

The other roughly 10% of that transaction goes into the coffers of the sportsbook, which is how it aims to ensure that it is making money despite having to pay out so much with every bet.

Why do odds exist?

Without gambling odds, bets would be dollar for dollar. When you make a wager with your buddy in the office that the Cleveland Cavaliers are going to beat the Detroit Pistons, generally your $20 bet will either win you an even $20 or you’ll see your money go into your friend’s wallet.

Sportsbooks can’t operate without making some kind of money. Since they don’t charge fees for creating accounts, they rely on the vig from each wager.

To best ensure that they don’t have too much of a liability for payouts to the winning side of a bet, sportsbooks aim to attract roughly equal money on both sides if it has odds of -110. Then, after they pay the winners, the remaining bit from the vig is their profit. If betting begins to get significantly heavier on one outcome over the other, sportsbooks will often shift the odds to make the other outcome more attractive.

How much money do sportsbooks make in the US?

Sports betting is big business — so much so that many states are using the tax revenues from legal sports betting to fund things like public works and education.

Since mid-2018, the amount of money changing hands has been significant. According to numbers obtained by Legal Sports Report, through mid-January 2022, legal US sportsbooks have accepted $92.5 billion in wagers. Of that money, sportsbooks have retained just over $6.8 billion — or about 7.4%.

JurisdictionHandleRevenueHoldTaxes/Jurisdiction Revenue
Montana$65,928,368$8,794,05713.3%$ -
New Hampshire$996,814,938$67,516,0056.8%$31,013,432
New Jersey$22,783,077,809$1,607,900,4227.1%$202,133,909
New Mexico$ -$ ---$ -
New York$363,546,597$41,873,31211.5%$4,187,331
Oregon$595,117,983$53,394,7109.0%$ -
Rhode Island$881,020,776$80,478,8609.1%$41,044,219
South Dakota$2,651,489$254,5829.6%$22,912
Washington DC$264,601,693$39,024,46814.7%$2,862,328
West Virginia$1,231,838,097$98,999,9018.0%$9,899,990

Why does it seem as if sports betting is suddenly everywhere?

Once upon a time, the US outlawed sports betting in much of the country, with a few exceptions such as Nevada. A law, the Professional and Amateur Sports Protection Act of 1992, effectively kept sports betting from expanding.

In 2018, the US Supreme Court ruled that PASPA conflicted with the 10th Amendment and overturned the law. This gave the ability to make laws regarding sports betting to the individual states. It didn’t take long for several states to legalize sports betting. States from Ohio to New York, Arizona, Michigan and many others are creating or have created laws to regulate sports betting.

For many states, this is an attractive new form of tax revenue that has allowed them to add serious funds to their coffers, essentially returning the sports betting revenue to the infrastructure that citizens use every day.

With so much money to be made, sports betting is in the process of continuing to expand to additional states as well as Canada.