(photo: Baishampayan Ghose)
The exact methods they use are pretty complicated, but bookies and sports books essentially don’t care who wins or whether or not the odds actually represent the true odds of one team, athlete, racehorse, or whatever actually winning. They only care that bets are being made as evenly as possible, for example, that roughly half of all people that bet on a college football game bet on one team and half the betters bet on another.
This is because bookies take a cut of all the winnings. So if I bet a dollar on even odds for the Yankees to win a game against the Red Sox and they win, then I would only get 95-99 cents in winnings. If the Yankees lost then the bookies would take my entire dollar. As long as the same number of bets are made on the Yankees and the Red Sox the bookies will make money.
The spreads and odds are initially set to what the bookies (or a central gambling commission in some jurisdictions) believe will make the betters bet along even terms. So if the Yankees are the heavy favorites in the game they’ll give the Red Sox higher odds or a higher spread to entice betters to bet on the Red Sox. But they aren’t perfect, and new information can come out that changes the expectations for the game. So the bookies will change the odds that new betters can bet on to entice those betters to bet on the teams that not very many people have bet on yet. So of the bookies see that 60% of people are betting on the Yankees, then they will adjust the odds to give a higher payout to the Red Sox to entice more people to bet on the Red Sox. If the new bets coming in are evenly for both teams then that’s where the odds stay, if not then they make further adjustments. But they still have to honor all bets made at the original odds or spreads.