How Do Betting Sites Make Money?

The gambling industry is known for its vast profits, which grow more eye-watering every year. Although the gambling industry suffered a severe downturn with Covid, revenues have bounced back in the years since, with the majority of bookmakers reporting significant boosts to their profits over the last couple of years.

In September 2022, Betfred reported that their profits for the year ending in September 2022 had risen to £19.6 million from just £5.3m the previous year, while Flutter Entertainment, which owns Betfair, Paddy Power and Sky Gaming, reported an increase in revenue of almost £2 billion in the year ending December 2023.

The famously well-paid MD of Bet365, Denise Coates, meanwhile, was among the highest paid executives not just in the UK, but in the world, earning more than 10 times the pay for any FTSE 100 boss in the year to March 2023, with a pay packet of £270.7 million, including over £50 million in dividends.

The Betting and Gaming Council tells us that the gambling industry is responsible for contributing about £7.1 billion to the UK economy, employing over 100,000 people, and raising around £4.2 billion in tax for HMRC.

Source: Betting and Gaming Council

So how do bookmakers make such astonishingly large amounts of money each year? Read on to discover exactly how and where they make their profits.

Sportsbook Betting Profits

A ‘sportsbook’ refers to a venue, whether a physical building or a virtual space, where sports bets are accepted. When it comes to online betting, sportsbooks are the sections of bookie’s websites that allow you to place bets on sporting events.

The key to a bookie’s profits here is what’s known as the ‘vigorish’, often shortened to ‘vig’, which is, in essence, the fee charged by a bookmaker to accept a wager. This may also be referred to as the ‘overround’, ‘juice’, ‘under-juice’, ‘cut’, ‘take’, ‘margin’ or ‘house edge’ - the world of gambling really likes its terminology.

If you’ve ever visited a bookie’s site, this might be a little puzzling. There’s no obvious sign that you’re being charged anything when you place a sportsbook bet, and you might have assumed that the site made its profit entirely from gamblers’ losses.

What bookmakers actually do, however, is manipulate the odds offered on events to ensure a profit margin. To illustrate this, let’s take an imaginary football game. In a fair game, the percentage chances of all outcomes would add up to 100%, perhaps as follows:

Team A - 50%

Draw - 20%

Team B - 30%

The vig comes in the form of an extra 5% or so added on by the bookies. The eventual probabilities, which are then converted to the odds the bookie will offer to punters, might look something like this:

Team A - 52.5%

Draw - 21%

Team B - 31.5%

That approximate 5% margin guarantees them a profit on the event.

On top of this, bookies will also adjust the odds as bets are made. If they see that a favourite is building up a lot of money in advance of an event, they may lengthen the odds on their opponent. This aims to encourage punters to bet on the underdog and balance out the bookmaker’s books.

Casino Betting Profits

When it comes to casino, the house edge is relatively straightforward, and perhaps a more familiar concept to the layperson. The maxim that ‘the house always wins’ comes from real life casinos, but the principle is no different for online casinos.

Slots

Online casino games are programmed to produce a specific ‘return to player’, usually shortened to RTP (check out our full guide to RTP for a detailed breakdown of how this works). So, for example, a slots game with an advertised RTP of 95% will pay out an average of £95 in winnings for every £100 staked.

This is, of course, averaged out over millions of spins, and allows for significant variance between individual spins. In jackpot games, a percentage of the RTP will also go towards building up those jackpots, increasing the variance of those games still further.

Thus you have the possibility of winning thousands, or even hundreds of thousands, of pounds from just a single spin, without the bookmaker risking their bottom line.

Legally, online casino games are required to maintain their advertised RTP, which means that bookies can be confident of their exact margin. However, if a game has an RTP of 95%, that won’t mean the entire remaining 5% goes to the bookie in profit, as they’ll also have to pay the developers of the games.

The slot developers that produce the most popular games are in a highly advantageous position, as all online casino providers will want to feature their games. This allows those developers to demand a cut of all profits on those games. Smaller developers have less leverage, and will usually work for hire as they gain a name for themselves. In either case, their fees come out of the bookie’s profits.

Live Casino

On some live casino games like roulette, the RTP can be very simple to calculate. With a fair wheel, a fixed number of possible results, and a fixed payout for each result, a player with a good grasp of maths could calculate the RTP for themselves if they wanted to - though bookies do have to display the RTP anyway.

Other games are more variable, especially if they include an element of skill as well as of luck. Blackjack, for example, can have an RTP of up to 99%, if a player employs perfect strategy, as the game isn’t based solely on chance (and to ensure your strategy is indeed perfect, check out our blackjack strategy calculator).

No matter the game, the RTP will always be below 100%, because the bookie will always take their margin on the games they offer.

Exchange Sites

Betting exchanges, such as Betfair and Matchbook, work very differently from traditional bookmakers. If you’re not sure how a betting exchange works, check out our guide to betting exchanges - but, in brief, an exchange allows individual punters to bet against each other, with bettors taking on the role of bookmaker by placing lay bets against the outcome of an event.

The exchange’s profits come from charging commission, usually between 2% and 5%, on winnings. As a result of this, they’re often able to offer more favourable odds than traditional bookmakers, though this does of course depend on having other bettors available who are willing to match a bet at those odds.

Some exchanges, including Betfair, have also branched out into offering sportsbooks, which make their profits through traditional means.

Tax On Bookies

Because gambling is tax-free for consumers, tax is charged at the bookmaker’s end. Bookie’s profits are taxed at 15%, and they therefore factor this into their pricing. Their odds are already manipulated to ensure their profits, and must be adjusted still further to account for the tax they’ve got to pay.

This 15% tax is a huge revenue generator for the government. It’s estimated that HMRC will collect as much as £3.6 billion from betting and gaming duties in the financial year 2024-2025, representing 0.3% of total tax receipts.

Source: Office for Budget Responsibility

Gambling Addiction Protections

Betting sites also have a legal responsibility to protect their customers from the dangers of gambling addiction. Under the conditions of their gambling licence, they’re obliged to follow certain codes of conduct, including a Social Responsibility Code.

This means that they’re required to undertake certain checks, including identify and age verification checks, to ensure that gamblers are who they say they are, and that they’re over the legal age to be gambling. In some situations, they have to perform investigations to establish the source of a gambler’s funds, to be certain they’re gambling within their means. They must also identify potentially vulnerable customers and direct them to tools and agencies to help them if there’s reason to believe they’re struggling with gambling problems.

Customers must be encouraged to set deposit limits and to opt in to ‘reality checks’, which pop up to remind a customer if they’ve been logged in and gambling for over a certain period of time. Customers also have the option to self-exclude from betting providers if they’re struggling with gambling addiction.

All of these provisions will eat into a bookie’s profits - but they still make billions regardless. Even with these protections, as many as 1.3 million people are thought to struggle with problem gambling, despite the industry’s past assurances that rates of addiction are low.

Source: Gambling Commission

Protecting Their Profits

Bookmakers are, unsurprisingly, extremely protective of their profits. They devote significant resources to mitigating any risk to their profit, and to increasing their revenue, through a wide variety of means.

Offers

Unless you’re completely new to the world of betting, you’ll have come across offers of all kinds from the bookies. Sign up offers are particularly free-handed, as they’re designed to draw newcomers into habitual gambling. It can come as a surprise to many that it’s worthwhile for bookmakers to make offers as generous as, say, bet £10 and get a £30 free bet - but these offers illustrate just how much bookies expect to make in the long run if they succeed in snaring a new customer.

As well as sign up offers, bookies offer frequent reload offers, intended to encourage existing customers to continue to gamble. Bookies exploit human psychology to perfection, knowing that customers will be strongly tempted by the prospect of getting something for free, even when they’re aware that gamblers are always more likely to lose than to win.

Winnings and stake restrictions

To manage the risk of customers winning too big, bookies will sometimes impose restrictions on both the maximum a punter can win from a bet, and also the maximum stake they can place. Sometimes stake restrictions will only be on certain events or offers, but they may prevent some customers from placing more than a certain amount on any single bet.

Some bookies will also require manual approval for stakes over a particular value, which can allow them to decide on a case by case basis whether they consider any individual bet to pose a threat to their overall profits.

Gubbing

When people talk about being ‘gubbed’, they mean that a bookie has imposed a restriction upon their account.

Bookies invest a lot in technology and algorithms to detect patterns that they consider to be indicative of ‘unfair betting’. Bettors who appear to be unwilling to risk their own money or who show signs of Matched Betting, perhaps by focusing only on offers and promotions, or betting on highly obscure events, run the risk of being gubbed.

Bookies also keep an eye out for bettors who appear to be ‘arbing’ - that is, engaging in arbitrage betting. This refers to the practice of placing a matched bet where the bookmaker’s odds are higher than the exchange’s, resulting in an instant profit. This is usually the result of a delay in the bookie updating its odds for a particular event, so it isn’t hard for them to identify bettors who are likely to have been arbing, and to take action against them accordingly.

Usually, if a person is ‘gubbed’ by a bookie, this means that they are excluded from taking advantage of any future offers, but they may also be stake restricted, or even kicked off the bookmaker’s site altogether.

Bookies will also gub perfectly ordinary bettors who just happen to win consistently. While it’s perfectly possible (if unlikely) for anyone to have a run of luck, winning too much can be looked on with suspicion by a bookie, and they’d rather be safe than sorry. For more information and advice regarding gubbing, take a look at our top tips to avoid being gubbed.

How To Beat The Bookies!

Now you understand how bookies make their profits, you might be wondering how you can increase your own chances of success.

There are numerous betting strategies that gamblers employ to give themselves a profitable edge in their gambling activity, though in most cases there is still a significant risk of losses. Advantage betting, for example, involves an element of skill or knowledge, increasing the bettor’s chances of winning - for example, card counting in blackjack. Value betting, meanwhile, involves identifying bets that are more likely to win than the odds imply, allowing the bettor - theoretically - to make profits in the long run.

The most reliable way to take a slice of bookmakers’ profits for yourself, however, is Matched Betting, which takes advantage of those generous sign up and reload offers mentioned above to make guaranteed profits. To find out more, check out our complete guide to Matched Betting - or alternatively, you could take out our free trial and get stuck in right away.