You are in charge of a large LV or online sportsbook. When Mayweather v Mcgregor is announced you figure a non-boxer going up against the 49-0 all-time champ has almost no shot, but the public likes the dog, so you will ‘sucker’ people by giving them 20-1 on Mcgregor*. Low and behold people flock to your 20-1 sucker bet offer, you lower to 10-1, then 5-1 and people keep pounding mcgregor.
Overall you have $100k worth of bets on Mcgregor at 8-1 avg odds, meaning you will have to payout $800k/losses if he pulls off the upset. You now have 2 choices:
1: offer Mayweather at -400, or risking 4 to win 1. This will get you Mayweather action because other sportsbooks are only offering -500. If you do this, you can book $720k worth of action. If Mayweather wins, you lose $180k on this bet (people risking -400 meaning $720k to win $180k), but win the $100k on Mcgregor and lose $80k total. If Mcgregor pulls off the upset, you pocket $720k on Mayweather BUT payout $800k on Mcgregor and also lose $80k. This $80k is your guaranteed loss for ‘mispricing’ a fight where ALL the action came in one way.
2: take your chances with Mayweather. If he wins, you make $100k of Mcgregor bet losses. If he doesn’t you payout $800k.
This is the decision most sportsbooks face now. Close out positions for a loss ($80k in our example) OR take your chances with the greatest fighter of all time to profit – downside is losing $800k on the McGregor upset. My guess is most do the latter and take their shot. Why? Herd mentality. If Mayweather loses, sportsbooks will ALL lose and EVERY sportsbook operator could say ‘who could imagine that would happen’? In that case, the ‘who’ would be Joe Public who would get a laugh at the sportsbook expense.
SPORTSBOOK ISSUE: it is NOT the operators money, they are ‘just’ management. IF it was their money, they’d close it out, figuring they can handle losing $80k and fight another day charging great VIG, why get buried for $800k? BUT – when you are a hired gun, making a mistake that forces a locked in $80k loss means your heads on the chopping block, take your chances instead with the heavy fave for the win and the profit.
*If Mcgregor has a 2% shot to win the fight as most expert predicted, the true odds are closer to 50-1 and you are making a great bet as the sportsbook offering only 20-1.