The gambling industry is highly profitable, with major companies like Betfred, Flutter Entertainment, and Bet365 reporting significant revenue growth in recent years. For example, Betfred’s profits rose to £19.6 million in 2022, while Bet365’s Managing Director, Denise Coates, earned £270.7 million, making her one of the world’s highest-paid executives.
The industry contributes £7.1 billion annually to the UK economy, employs over 100,000 people, and generates £4.2 billion in taxes. Notably, betting sites not blocked by GamStop also play a role in this landscape, offering additional options for users seeking alternatives outside the self-exclusion scheme. This article examines how bookmakers achieve such massive profits through sportsbooks, casino games, and betting exchanges.
Sportsbook betting: the power of the vig
A sportsbook refers to any platform — physical or digital — that accepts bets on sporting events. Online, sportsbooks are a core feature of bookmaker websites where users wager on everything from football matches to horse racing. The secret to sportsbook profits lies in the “vigorish”, often shortened to “vig.” This is essentially a fee bookmakers charge for accepting wagers, though it can also be referred to as the “margin,” “juice,” or “house edge.”
The vig isn’t immediately obvious to bettors. You might assume bookies make money solely from gamblers’ losses, but in reality, they manipulate the odds to ensure a built-in profit margin. Here’s an example: In an evenly matched football game, the true probabilities might look like this:
- Team A: 50%;
- Draw: 20%;
- Team B: 30%.
Bookmakers, however, will adjust these probabilities to include their margin, resulting in something like this:
- Team A: 52.5%;
- Draw: 21%;
- Team B: 31.5%.
These adjusted probabilities are converted into odds, ensuring the bookmaker earns a profit regardless of the event’s outcome. Additionally, bookmakers continuously tweak odds based on betting patterns. For instance, if a favorite attracts significant wagers, they might lengthen the odds on the underdog to balance their books and limit risk.
Casino games: the house always wins
Casino profits, whether from physical venues or online platforms, are largely driven by the well-known principle that “the house always wins.” This concept is rooted in the house edge, the mathematical advantage the casino has over players.
Slots: The RTP factor
Online slot machines are programmed to deliver a specific Return to Player (RTP) percentage. For example, a game with a 95% RTP will, on average, pay back £95 for every £100 wagered. However, this figure is averaged over millions of spins, meaning individual outcomes can vary widely.
Jackpot games add another layer of complexity. A portion of the RTP is allocated to building the jackpot, resulting in even greater variance. This allows players to win massive payouts, sometimes in the hundreds of thousands, while the bookmaker’s profit margin remains intact.
Legally, online slots must adhere to their advertised RTP, giving bookmakers confidence in their long-term profitability. However, a portion of the remaining margin goes to game developers, who often demand a share of the earnings. Established developers, whose games are in high demand, have considerable leverage, while smaller developers often work for hire as they build their reputations.
Live casino games
For games like roulette, the RTP is straightforward to calculate. With fixed outcomes and predetermined payouts, the house edge is built into the game’s mechanics. Blackjack, on the other hand, introduces an element of skill. While the RTP can reach up to 99% for highly skilled players, the game’s design ensures the house retains its margin over time. Regardless of the specific game, the RTP is always below 100%, guaranteeing the bookmaker a profit.
Betting exchanges: a different model
Betting exchanges, such as Betfair and Matchbook, operate differently from traditional bookmakers. These platforms allow bettors to wager against one another, with users taking on the role of the bookmaker by placing lay bets against specific outcomes. The exchange itself profits by charging a commission — typically 2% to 5% — on winnings.
This peer-to-peer model often results in more favorable odds compared to traditional sportsbooks, as there’s no need for bookmakers to build in their own margin. However, the quality of the exchange depends on having enough users willing to match bets at competitive odds.
Interestingly, some betting exchanges, including Betfair, have expanded to include traditional sportsbooks, blending exchange-based betting with conventional revenue models.
