Wanted to post this a few days ago, but life got away on me.

I worked for a monopoly bookmaker and spent a fair amount of time looking at how they work. Our turnover was $2.6bil/yr with $150mil profit in a country with less than 10 million people.

So, Some things to give you guys a bit more context.
1. There are two types of bets. Fixed Odds and Tote.
- Tote is a pool based betting system where the odds can change after you have placed your bet. The odds are calculated automatically based on the distribution of bets on the options available. Typically the house will keep 50%+ of the total pool as profit and distribute the remainder among the winning punters. This is a very high profit betting system that the book keepers are trying to keep alive. It's dying off at a pretty rapid rate though.
- Fixed Odds Betting (FOB) is where you get payment on the odds you lock in at the time of placing your bet. Most betting now is FOB.

For the sake of responding to various points other respondents have made I will focus only on Fixed Odds; especially as Tote is only used for horse/dog racing.

2. How do the odds work?
For us, we had university students who'd manage the books. They had software that showed them how much risk/leverage they had and what the guaranteed profit was. They can set "bet limits" and manually approve (or deny) any bet that was greater than the bet limit. Most of the time they would have open websites from other bookies and copy the odds from theirs as they change. It's quite popular for bookies to just copy each other manually.

For Live/In-Play betting the book keepers will watch the event and manipulate the odds as things occurred. Either using their own knowledge or copying from other gambling sites. Again, the process is completely manual at the back end.

There is a move for organisations around the world to consolidate on their sources of odds (e.g. using a common back-end odds distribution platform); but ultimately there is still a large manual component to changing the odds, especially during live play.

3. How do they make money?
On Tote, they take 50%+ of the total pool before creating dividends.

For Fixed Odds, they balance the books. They change the odds to always ensure it's in the houses favour. We always aimed for 10-15% profit on events with fixed odds bets. Home players/athletes will always have much lower odds because of people's tendency to bet with the heart.

They deny bets. The bookie doesn't have to take your bet. For large bets they will often push back an offer to you at a lower rate than advertised to ensure their books stay balanced. For live/in-play bets they'll delay your bet until that odd is no longer available ensuring your bet is not accepted.

They have A LOT of different betting options where only a few will actually win. People tend to bet with their hearts and the number of options are setup to basically ensuring the bookie is profitable.

If you win too much, they shut down your account. They have no obligation to deal with you. Their goal is to make money and they see your gambling as a way you "enhance your enjoyment of the event", not an attempt to make money. So there isn't a large tolerance for people who do make money.

4. How do I (the punter) make money?
Surprisingly, you can consistently make money gambling.

Don't bet on Dogs/Horses. Even the top 1% of punters barely break even. They're profitable because of the kick-backs the bookies give them for having high turnover (>$1mil/yr).

Find a sport you know a lot about that supports in-play betting. It's going to be you vs a person. So if you have indepth knowledge of the sport you'll be able to see changes in flow and make winning bets before the bookie notices.

FWIW, I bet on League of Legends. During the LOL Worlds I can make 2500% with >90% win rate. Now, I'm only winning a few $k total so nothing significant.

That's all I can think of at the moment. Happy to answer any questions you have.