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, Betfred reported that their profits for the year ending in September 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.
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, with a pay packet of £270.7 million, including over £50 million in dividends.
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, top gambling sites 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.
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, representing 0.3% of total tax receipts.
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.