But that theory wouldn't work if put into practice. Why would people make bets if even winning costs them more than the profit they take out of it? Places like Laral's couldn't operate like that.
This is how i think it works:
Say the odds are even, 1:1. If the people supporting one combatant bet 100gps, all those supporting the other side would have bet the same amount, otherwise the odds wouldn't be even. You bet 100, they bet 100. There is 200 gps in the pot, winner takes it all. You bet 100, you get 200, you make a 100% profit. The proprietor takes a percentage of the profit (from the 100gps you won)
Say the odds are 3:1. One side has bet three times as much money as the other. Side A has bet 100gps, Side B has bet 300gps. There is 400gps in the pot, the winner takes it all. If Side A wins they have Quadrupled their money, if Side B wins they have made a 25% profit and have 125% of their original wealth. (minus whatever percentage of the profits (the 25%) the proprietor takes)