A sportsbook operates in the same manner as a traditional bookmaker, establishing odds and taking wagers from customers. Its primary purpose is to make money by paying out winning bets. In order to do so, it must have sufficient cash flow to cover overhead expenses. This includes rent, utilities, payroll, software, and more.
Sportsbooks generate revenue by charging a percentage of each bet, known as the vig. This is typically 4.5% to 4.8% of the bet amount. A sportsbook’s vig income covers the costs of running the business and allows it to offer bettors competitive odds. It can also help it mitigate risk by allowing bettors to place offsetting bets (known as layoff bets) on one side of a game.
Another source of sportsbook income is point spread betting. This type of betting involves the sportsbook adjusting a team’s odds to reflect expected performance or injuries. This is a great way to attract action and reduce potential liabilities.
Finally, sportsbooks may also earn income by offering proposition bets and futures bets. A proposition bet is a wager on specific events that may not affect the final outcome of a game or match, such as player performance, occurrences, or statistical benchmarks. A futures bet is a wager on the outcome of a multi-stage event, such as a season or tournament. These bets tend to have higher margins than regular wagers.