Vigorish

Vigorish, often referred to as the 'vig,' is a term commonly used to describe usurious rates of interest or the charge taken by a bookmaker on bets.
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Definition

Vigorish (vig) is a term that originates from gambling and betting circles. It refers to the fee or commission taken by a bookmaker or a gambling operator for accepting a risky bet. The term has expanded in usage to describe any exhorbitant interest rates or fees charged in financial transactions, often seen as unfairly high or usurious.

Examples

  1. Sports Betting: A bookmaker offers bets on a football game but charges a 10% fee, known as the vigorish, on all bets placed.
  2. Loan Sharking: An illegal money lender charges excessively high-interest rates, known colloquially as vigorish, well above market rates, to borrowers who have limited options for credit.
  3. Casino Games: In some casino games, the house edge can be referred to as vigorish, representing the built-in advantage that the house has over players.

Frequently Asked Questions (FAQs)

What makes a rate “usurious”?

  • Answer: A rate is considered usurious if it exceeds the legal limits set by state or national laws. Usurious rates are typically significantly higher than those offered by standard financial institutions and are often seen as exploitative.
  • Answer: The legality of vigorish depends on the context. In regulated betting and gambling contexts where it is standard practice and disclosed, it is legal. However, in loan sharking, where exorbitant interest rates are charged outside of regulated financial systems, it is illegal.

How do bookmakers determine vigorish?

  • Answer: Bookmakers determine vigorish based on several factors, including the perceived risk of the bets, the likelihood of various outcomes, and their need to ensure a profit margin. It is often represented as a small percentage of the total bet.

Can vigorish be negotiated?

  • Answer: In regulated betting environments, vigorish is typically fixed and non-negotiable. However, in informal or illegal lending scenarios, there may be some room for negotiation, although such practices are risky and not recommended.

Does vigorish only apply to gambling and loans?

  • Answer: While vigorish is most commonly associated with gambling and informal lending, the concept can apply to any situation where a commission, fee, or interest rate is charged for the use of money.
  • Usury: Charging interest at a rate that is considered excessively high and beyond what is allowed by law.
  • Bookmaker: A person or organization that accepts and pays off bets on sporting and other events at agreed-upon odds.
  • Interest Rate: The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage rate (APR).
  • House Edge: The mathematical advantage that a gambling game, such as in a casino, provides to the house, or the operator.

Online References

Suggested Books for Further Studies

  • Gambling and Risk Taking: The Fiction of Commerce by John M. Bates
  • Laying the Odds: How to Succeed as a Sports Bettor by William T. Ziemba
  • Usury: The Path to Devious Lending Practices in History by Mary A. Lamberton

Fundamentals of Vigorish: Finance and Gambling Basics Quiz

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