What Is The Vigorish? Understanding The Vigorish In Sports Betting
UNIT 2.6 – THE VIGORISH IN BETTING
Introduction To The Vigorish
The vigorish is a term used in sports betting, often shortened to “the vig” or “the juice”, and refers to how sportsbooks make money in the business of sports betting. The vigorish isn’t just a technical term but a concept that greatly affects the odds on offer. In this section, we explain what the vigorish is and why it plays such an important role in sports betting. In all, we cover the following:
What Is The Vigorish In Betting?
The vigorish can be thought of as a built-in fee charged by sportsbooks for facilitating bets. The vigorish is worked into the price of the odds to ensure the sportsbook always makes a profit. In essence, the vigorish serves as the sportsbook’s primary source of revenue for providing a platform where individuals can place bets on various sporting events. Picture it as the price of admission to betting on sports; every time you make a bet, you pay this fee so the sportsbook can stay in business. Because of the vigorish, odds at a sportsbook may not always perfectly reflect their true probability. Instead, they show the probability of an event plus the vigorish added in.
How Does The Vigorish Work?
The vigorish guarantees a profit for the sportsbook, regardless of which team wins. Imagine a scenario where every bettor wins their wagers – which is always a possibility, albeit unlikely. If this were to happen, sportsbooks would be out of business in no time as they would be required to pay every winning bet out of pocket. The vigorish, however, acts as a form of insurance for the house.
Think about how a sportsbook pays out winning bets. When a sporting event occurs, some bettors will win and have their stake returned in addition to their winnings, while other bettors will lose and the sportsbook will keep their stake. Unfortunately for them, the sportsbook doesn’t get to pocket all those stakes – instead, they use this money to pay out profits to the winners.
Of the amount paid over to the winners, the sportsbook will have priced the odds in a way that the amount collected in losing stakes is greater than the amount they have to pay out – and this is the vigorish. It’s this amount that is worked into the odds that ensures the sportsbook always comes out on top.
Let’s look at a simple example:
Suppose you want to bet on a basketball game between Team A and Team B. The sportsbook sets the following odds:
- Team A: -105
- Team B: -105
Both teams have the same odds of -105, which means you need to risk $105 to win $100 regardless of which team you bet on.
Now, let’s consider two bettors placing opposing bets:
- Bettor A places a $105 bet on Team A.
- Bettor B places a $105 bet on Team B.
- The sportsbook has collected a total of $210 in bets ($105 from Bettor A and $105 from Bettor B).
Here’s what happens in this scenario:
- If Team A wins, Bettor A gets $100 in profit, for a total of $205 back. Bettor B loses their $105 bet.
- If Team B wins, Bettor B gets $100 in profit, for a total of $205 back. Bettor A loses their $105 bet.
In either case, the sportsbook will pay out $100 in profit to the winning bettor and return their original bet amount of $105. However, since the sportsbook collected a total of $210 in bets, and they only paid out $205 in profit, they made a profit of $5. This $5 represents the vigorish, which is the sportsbook’s commission for facilitating the bets.
How Is The Vigorish Calculated?
The example above is a slight oversimplification of how the vig is calculated, but it shows the general idea. In reality, sportsbooks collect a vigorish by diversifying their risk across the many bets they facilitate. Some bets will win little to no juice, and others will win a large sum. This distinction becomes more clear when bettors lay down large sums of money on risky bets, or when an upset occurs. To ensure they collect the vigorish on average across the many bets on their site, the sportsbook uses implied probability. Implied probability is not a guarantee of an event happening, but it can tell the sportsbook on average if they will collect a profit.
Sportsbooks begin by determining the implied probability of an event, and from there they calculate what the odds should be without the vigorish added. After this, they add in the vigorish to ensure they make a profit. If you were to take these odds with the vigorish added and convert them back into probabilities, the probabilities of both sides of the event would add up to more than 100%.
For example, say we have two evenly matched teams that each have a 50% chance of winning – the odds should theoretically be even money if they were to correspond perfectly with the likelihood of winning (-100 for both teams). However, by slightly adjusting the odds, say to -110 for each team, the sportsbook incorporates the vigorish. In this case, you have to pay $110 to only win $100, which is more than the implied probability says you should have to pay. This difference between the true odds and the adjusted odds is where the sportsbook collects its commission.
Let’s look at a more complicated example using implied probability. Say we’re betting on a football game with the following odds:
- Miami Dolphins: -160
- New York Giants: +140
We can understand where the vig comes into play by converting the given odds into implied probability. As a reminder, we can convert odds into probability as follows:
Negative Odds Implied Probability (%) = Odds / (Odds + 100)
Positive Odds Implied Probability (%) = 100 / (Odds + 100)
So using our example, let’s calculate the implied probability of the Miami Dolphins winning at odds of -160:
Negative Odds Implied Probability = 160 / (160 + 100)
Negative Odds Implied Probability = 160 / 260
Negative Odds Implied Probability = 0.6153
Multiply the answer by 100 to get a percent of 61.54%
Now, let’s calculate the implied probability of the New York Giants winning at odds of +140:
Positive Odds Implied Probability = 100 / (140 + 100)
Positive Odds Implied Probability = 100 / 240
Positive Odds Implied Probability = 0.4167
Multiply the answer by 100 to get a percent of 41.67%
Now, if we add the implied probabilities on both sides together:
61.54% (Miami Dolphins) + 41.67% (NY Giants) = 103.21%
The amount that exceeds 100% is the vigorish, or 103.21% – 100% = 3.21% In this case, the vigorish is 3.21%. This means that the sportsbook has a built in profit margin of 3.21% when they offer these odds.