How Sportsbooks Set Odds (And Where They Make Mistakes)

The Oddsmaking Process Demystified

Sportsbooks aren't magical entities that know the true probability of every sporting event. They're businesses trying to set prices that attract balanced action while maintaining a profit margin.

Understanding how they work reveals where opportunities exist.

Step 1: The Opening Line

Opening lines originate from a few key sources:

Market-Making Books Books like Pinnacle, Circa, and Bookmaker employ teams of quantitative analysts who build sophisticated models. Their opening lines become the foundation for the entire market.

These shops:

• Use proprietary algorithms and historical data
• Factor in hundreds of variables
• Continuously refine models based on results
• Accept sharp action and adjust accordingly

Retail Books Most consumer-facing sportsbooks (DraftKings, FanDuel, BetMGM) don't originate lines. They:

• Copy lines from market-making books
• Add their own vig margin
• Adjust based on their specific customer behavior
• React to sharp action rather than originate it

Third-Party Providers Some books use odds feed providers who aggregate and distribute lines. This creates uniformity but also creates opportunities when feeds update slowly.

Step 2: How Models Generate Numbers

At the core, oddsmaking models attempt to predict outcomes using:

Power Ratings Numerical ratings for each team that can be compared. If Team A is rated 85 and Team B is rated 82, the model might project a 3-point spread.

Historical Data Past performance, head-to-head records, home/away splits, and situational trends.

Player Impact Measuring how individual players affect outcomes. A star player missing might shift a spread by 2-4 points.

Situational Factors Rest days, travel, motivation, playoff implications, and other contextual variables.

Betting Market History How similar situations have bet in the past and how accurate historical lines were.

Step 3: Where Human Judgment Enters

Models provide a starting point, but human traders make final decisions:

Subjective Adjustments

• Perceived motivation factors
• Recent form that models may underweight
• Public perception and expected betting patterns

Risk Management

• Adjusting to balance liability
• Setting max limits on different markets
• Deciding when to move lines vs. accept exposure

News Reaction

• Injury updates
• Weather changes
• Late scratches

The human element introduces both wisdom and bias. Sharp bettors exploit the bias.

How Lines Move After Opening

Once lines are live, three forces push them around:

Sharp Money Professional bettors identify mispriced lines and bet heavily. Books respond by moving the line.

Characteristics of sharp action:

• Large bets placed early
• Bets at off-peak hours
• Action from known sharp accounts
• Correlated movement across multiple books

Public Money Recreational bettors tend to bet favorites, overs, and popular teams. This weight can move lines, especially close to game time.

The public's tendencies create "false" line movement that sharps often fade.

Information Injury news, lineup changes, weather updates, and other new information forces adjustments. Books with faster information adjust first; slower books create arbitrage opportunities.

Where Sportsbooks Make Mistakes

No line is perfect. Here's where value hides:

Prop Markets Player props have massive inventory (hundreds per game) and limited sharp attention. Models are less refined, creating more mispricing.

Use our value bet finder to scan prop markets for +EV opportunities.

Low-Liquidity Markets Minor sports, lower divisions, and obscure leagues get less sharp attention. Lines are less efficient, but limits are also lower.

Derivative Markets Alt spreads, alt totals, and game props (will there be overtime, etc.) are often priced using simple formulas that sophisticated bettors can beat.

Live Betting Live odds must be set instantly with algorithm-only decisions. Overreactions to in-game events create opportunities.

Correlated Parlays Books struggle to properly price correlated outcomes. Some same-game parlays offer hidden value because the true correlation isn't fully captured.

News Lag When injury or lineup news breaks, some books adjust faster than others. The slow movers offer temporary value.

Player Prop Cross-Market Inefficiency The same player prop might be priced differently across books, or inconsistent with related markets (team totals vs. individual totals).

The Vig: Understanding the House Edge

Sportsbooks build in a profit margin (vig, juice, or vigorish) to every line.

Standard vig (-110/-110): True 50/50 odds would be +100/+100. At -110/-110, you must risk $110 to win $100. The book holds 4.5% of total handle in a balanced market.

Higher vig markets: Props and parlays often carry 10-20%+ vig. More vig means harder to overcome, but also suggests more mispricing to find.

Reduced vig books: Pinnacle and betting exchanges offer lower margins. The tradeoff: sharper lines with less "error" to exploit.

Retail vs. Sharp Book Comparison

The strategy: find value at retail books using sharp book lines as your benchmark.

Using Sharp Lines to Find Value

The core +EV betting strategy:

1. Identify the sharpest available line (Pinnacle, Circa, consensus)
2. Calculate the fair odds (remove vig)
3. Compare to other books
4. Bet when other books offer better odds than fair value

This is exactly what our +EV scanner automates. When retail books are slow to adjust to sharp movement, opportunities emerge.

Why Books Sometimes Get It Very Wrong

Occasionally, lines are significantly mispriced. Common causes:

Model Blindspots Situations that don't fit historical patterns. New coaches, rule changes, or unusual circumstances.

Overreaction to Recent Results A team gets blown out and the market overcorrects. Sharp bettors buy low.

Underreaction to Injuries Some player absences are underweighted, especially for non-star players whose impact isn't widely understood.

Public Team Bias Popular teams (Cowboys, Lakers, Yankees) are consistently overbet, forcing books to shade lines. Sometimes they over-shade.

Weather Misjudgment Weather impact is hard to model. Books sometimes get it wrong in both directions.

The Closing Line as Truth

Despite all their flaws, markets are remarkably efficient by closing time.

After all sharp action, public betting, and information updates, the closing line represents the market's best estimate of true probability.

This is why beating the closing line is the gold standard for measuring betting skill.

Key Takeaways

• Market-making books originate lines using sophisticated models
• Retail books copy and adjust based on their own liability
• Lines move due to sharp money, public money, and information
• Mistakes happen most often in props, derivatives, and low-liquidity markets
• Sharp book lines are your benchmark for identifying value at retail books
• The vig varies by market and book, with sharps offering less juice
• Live betting algorithms make quick decisions that create opportunities
• Use tools like our value bet scanner to find where books have mispriced markets
• The closing line is the ultimate measure of market efficiency