Betting Information
Arbitrage Betting in Sports and Financial Markets
Arbitrage Betting Index
| What is Arbitrage? | The Punter’s View |
| Sports Betting Arbitrage | Problems with Arbitrage |
| Financial Arbitrage | Arbitrage and Betting Exchanges |
| The Bookmakers’ Perspective | Conclusion |
What is Arbitrage?
Arbitrage or arbitrage betting as it is sometimes known, is a strategy that involves taking advantage of price differences in different markets or exchanges to make a profit without any significant risk. It is based on the principle of exploiting discrepancies in the prices of identical or similar markets.
The process of arbitrage typically involves buying an asset at one price in one market and simultaneously selling it at a better price in another market. This allows the ‘arbitrageur’ to generate a profit from the price difference, while assuming little to no market risk. The transactions are usually executed quickly, to capitalize on the temporary price discrepancy before the market adjusts and erases the opportunity for arbitrage.
Arbitrage opportunities can arise due to various factors, including variations in supply and demand, differences in market efficiency, transaction costs, or regulatory restrictions. However, these opportunities are often short-lived, as market participants quickly respond to exploit the price discrepancy, which tends to bring prices back in line.
Arbitrage plays an important role in ensuring the efficiency of markets by reducing price disparities and aligning prices across different platforms.
This article explores the concept of arbitrage in betting and investing.
Arbitrage Betting on Sports
Arbitrage betting on sports markets is possible, and knowledgeable bettors can capitalise on odds discrepancies in various markets offered by different bookmakers. It involves exploiting temporary imbalances in odds or prices to secure risk-free profits.
Overround is the sum total of all the odds on the outcome of an event. The probability of each result adds up to 100% in a perfect ‘book’, but bookmakers make their profit by adding margin to the odds. Their overround offering is, therefore, always well above 100%. If you can find odds from different bookmakers that are under 100%, then you will have a potential arbitrage opportunity.
Football Example: Match Odds Market
Let’s look at a football match. The match is posted with many different bookmakers. We scour the market and settle on two bookmakers for making our arbitrage bet.
Note: It could just as easily have been three bookmakers, one bookmaker for the Team A price, one for the draw price and one for the Team B price.
Bookmaker X:
- Team A to win: Odds of 2.00 (50.00 % implied probability)
- Draw: Odds of 3.30 (30.30 % implied probability)
- Team B to win: Odds of 4.30 (23.26 % implied probability)
- Total overround percentage: 103.56% (Bookmaker margin = 3.56%)
Bookmaker Y:
- Team A to win: Odds of 2.15 (46.51 % implied probability)
- Draw: Odds of 2.90 (34.48 % implied probability)
- Team B to win: Odds of 4.80 (20.83 % implied probability)
- Total overround percentage: 101.82 % (Bookmaker margin = 1.82%)
Finding Arbitrage
To identify the arbitrage opportunity, we need to combine odds from our chosen bookmakers in such a way that the total implied probabilities are less than 100%.
Let’s take a look:
Bookmaker X:
- Team A to win: Odds of 2.00 (50.00 % implied probability)
- Draw: Odds of 3.30 (30.30 % implied probability)
- Team B to win: Odds of 4.30 (23.26 % implied probability)
Bookmaker Y:
- Team A to win: Odds of 2.15 (46.51 % implied probability)
- Draw: Odds of 2.90 (34.48 % implied probability)
- Team B to win: Odds of 4.80 (20.83 % implied probability)
If we take the Draw odds from Bookmaker X and the Team A and Team B odds from Bookmaker Y, then we get the following percentages / implied probability:
30.30% + 46.51% + 20.83% = 97.64 %
The total is under 100%. There is a potential arbitrage opportunity of 2.36% (2.4% rounded up).
What About Stakes?
We now need to work out our stakes. We will use a total stake of £500. We need to divide our stake between each bet in proportion to the odds / implied probability. This is the formula:
Stake = (total stake x implied probability) ÷ combined market margin
Using our £500 stake:
Team A: (£500 x 46.51%) / 97.64% = £238.17
Draw: (£500 x 30.30%) / 97.64% = £155.16
Team B: (£500 x 20.83) / 97.64% = £106.67
Our three individual stakes for our bet add up to £500.00 .
If you struggle with the staking aspect, there are plenty of ‘arbitrage calculators’ online.
Arbitrage Betting Returns
Our total returns for each bet will be as follows.
Staking £238.17 on Team A at odds of 2.15, would give you a potential return of £512.07
Staking £155.16 on the Draw at odds of 3.30, would give you a potential return of £512.03
Staking £106.67 on Team B at odds of 4.80, would give you a potential return of £512.02
(We can already see above that we are making approximately £12.00, over and above our £500 stake).
Overall Arbitrage Betting Profit
We know that our arbitrage ‘edge’ is 2.4%. So, 2.4% of £500 (stake) is £12.00 (500 x 0.024)
We should expect a profit of around £12.00.
We will of course only win one bet. So whichever bet we win, we will need to deduct stakes / losing stakes from our total return.
Team A wins: Total Return = £512.07 – £238.17 (Team A stake) – £155.16 (Draw Stake) – £106.67 (Team B Stake) = £12.07
Draw wins: Total Return = £512.03 – £155 .16 (Draw Stake) – £238.17 (Team A Stake) – £106.67 (Team B Stake).
= £12.03
Team B wins: Total Return = £512.02 – 106.67 (Team B Stake) – £155.16 (Draw Stake) – £238.17 (Team A Stake). = £12.02
The profit may be relatively small, but remember that it is theoretically risk-free / guaranteed profit. You will win approximately £12.00 whatever the outcome of the game.
(The reason for the slight discrepancies in profit / overall return figures is due to odds increments and/or the rounding up of decimal places in calculations).
Whole Picture
Below you can see the overall picture in an easy to view table, with the odds for each outcome, the stakes placed on each part of the bet and the total returns You can clearly see the arbitrage betting profit of £12.00, when comparing the total stake to the returns.
| Teams | Odds | Stake | Returns |
|---|---|---|---|
| Team A | 2.15 | £238.17 | £512.07 |
| Draw | 3.30 | £155.16 | £512.03 |
| Team B | 4.80 | £106.67 | £512.02 |
| Total | £500 |
Arbitrage in Financial Markets
Arbitrage is mainly associated with the financial markets.
A simple example of arbitrage could be as follows: Company A stock is trading at £25 on the London Stock Market and, at the same time, it is trading for £25.05 on the New York Stock Market.
A trader can purchase the stock on the London market and immediately sell the same stock on the New York market, and make a profit of £0.05 (5p) per share.
In theory, the trader could exploit this arbitrage until there is no more stock to trade, or until prices are re-aligned to eliminate any arbitrage possibilities.
Financial arbitrage is used by institutional investors, hedge funds, and professional traders who have the resources and infrastructure to identify and exploit arbitrage opportunities.
Arbitrage Betting – The Bookmakers’ View
Most Bookmakers don’t want arbitrage players Often they will limit accounts or close them completely if they suspect a customer is engaging in arbitrage activities. I am not an arbitrage player, but I disagree with bookmakers’ views on this. If they put up accurate prices, they won’t get hit. If bookmakers are offering higher odds, as part of a promotion perhaps, then let the arbitrage players or value players take the price. By posting the odds, you’re asking for them to be taken. Why should the client be punished?
From the bookmakers’ perspective, at least one price will be ‘wrong’, and that means a liability if it’s ‘their price’. They don’t want customers exploiting that.
The Punter’s View
From the punter’s angle, we couldn’t care less which of the odds are accurate at which bookmaker, because we’re getting a guaranteed profit regardless.
There is one bookmaker called Pinnacle (formerly Pinnacle Sports) that do accept arbitrage players, mainly because they know that they offer odds and lines that are accurate (or at least odds / lines that do not deviate from ‘true’ values by exceeding their margin) and they manage their risk very professionally. Pinnacle are routinely on the ‘right side’ of the arbitrage and are therefore not exposed, like other bookmakers.
Problems with Arbitrage Betting
Whilst arbitrage in sports betting and financial markets presents an appealing opportunity for risk-free profits, there are dangers that you should be aware of:
- Limited Profit Margins: Arbitrage opportunities in sports betting often come with slim profit margins. The price discrepancies are typically small and short-lived, making it challenging to generate substantial profits. Bettors must place large bets or engage in multiple arbitrage opportunities to achieve significant returns.
- Stake Limitations and Account Restrictions: Bookmakers are vigilant in monitoring arbitrage bettors and may impose stake limitations or even restrict or close accounts of those consistently exploiting arbitrage opportunities. This can hinder the bettor’s ability to place significant bets and diminish the overall profitability of sports betting arbitrage. In financial markets it is easier to invest large sums but then the risks will be greater.
- Timing and Market Efficiency: Arbitrage opportunities arise due to temporary imbalances in odds or prices. However, the market quickly adjusts to exploit these discrepancies, thanks to the involvement of large numbers of bettors and automated systems. It requires swift action to take advantage of arbitrage opportunities before they disappear.
- Transaction Costs: Placing bets on different platforms or with multiple bookmakers, can incur transaction costs, such as deposit fees, withdrawal fees, or commission charges. These costs can eat into the overall profit margin of an arbitrage bet, reducing the potential profitability.
- Human Error and Technical Glitches: Engaging in arbitrage betting involves managing multiple bets simultaneously. Human errors, such as miscalculations or placing incorrect bets, can lead to losses instead of profits. Additionally, technical glitches on sports and financial platforms, can disrupt the execution of bets and trades and potentially result in missed opportunities or unintended outcomes.
- Legality and Regulatory Compliance: The legality of sports betting and arbitrage opportunities varies across jurisdictions. It is crucial for bettors to understand and comply with the legal and regulatory frameworks in their respective locations. Engaging in illegal or unregulated betting activities can lead to legal consequences and financial penalties.
- Market Volatility and Unexpected Events: Any sports or financial market can be subject to unpredictable factors, such as injuries, weather conditions, natural disasters or terrorist attacks. Such events can significantly impact the market. In such circumstances, even the most carefully calculated arbitrage bets can turn into losses.
- Information Discrepancies: Obtaining accurate and up-to-date price information from multiple platforms can be challenging. Discrepancies in information can lead to incorrect calculations and miscalculated arbitrage opportunities.
- Genuine Error: Bookmakers don’t need to pay out on bets where they feel the odds presented an ‘obvious error’. It is usually written into their terms. They can legally refuse the payout, based on their assertion that the odds were clearly a ‘mistake’. So be aware of prices that are ‘to good to be true’.
So Arbitrage Betting isn’t Viable?
It’s definitely viable. I used to make arbitrage bets with bookmakers the whole time, although it can be a lot of work for relatively little reward. It is, however, quite satisfying when you find an ‘arb’.
Since the advent of the betting exchanges however, arbitrage is perhaps more viable now than ever before.
Arbitrage using the Betting Exchanges
Although you can still find arbitrage opportunities only at bookmakers, the betting exchanges have made things a little easier. (If you are not familiar with the betting exchanges then check out my betting exchange guide).
Here’s an example:
A big Champions League match between Inter Milan and AC Milan.
We check out all the bookmakers odds and find the best prices we can for a home win, draw, and away win.
We need one bookmaker only. We are interested in the top line ‘Match’ / market.
The current odds are: Inter (off the boards / perhaps being adjusted) The Draw: 3.450. AC Milan: 3.690.
We go to a betting exchange, in this case Matchbook and look the prices on offer.
The price on the betting exchange for AC Milan is 3.6 for an immediate arbitrage, 3.55 if we want to risk asking for a better price. (The latter might be considered more of a ‘trade’ because the exchange bet would not be taken immediately).
Risk Free Bet
If we take the odds on offer immediately, we would back AC Milan to win with the bookmaker for e.g. £100 at 3.69 for a profit of £269.00 . We would then ‘lay off’ our liability immediately on the exchange, by betting against AC Milan to win, for £100 at 3.6 and a liability of £260. This would give us a ‘free bet / chance of winning’ £9.00 if AC Milan won, with no risk (£269-£260).
AC Milan Win: £9.00 profit.
Inter Milan Win: £0.00.
Draw: £0.00.
Profiting Whatever the Result
If we wanted to profit regardless of the outcome, then we would have to lay back a bit more money on the exchange. We laid back £100 initially (to offset our stake / liability at the bookmaker) for our ‘zero liability’ bet. Now we lay off an extra £2.50 on the exchange. So our arbitrage bet set-up looks like this:
Back £100 (bookmaker) at odds of 3.69 = £269.00 profit.
Lay £102.50 (betting exchange) at odds of 3.6 = £266.50 liability.
If our back bet at the bookmaker loses we will lose our £100 stake, but we will make £102.50 on the exchange for a profit of £2.50 (£102.50 exchange bet – £100 bookmaker bet).
If our back bet at the bookmaker wins, we will make £269.00 profit, but we will lose £266.50 on the exchange, for a profit of £2.50 (£269.00 bookmaker bet – £266.50 exchange liability).
So, that’s £2.50 profit whatever the outcome.
Using the same principles, you can of course lay off on the exchanges, any free bet that you might receive at a bookmaker. You can find out more here.
Note: the betting exchanges generally charge at least 2% commission on winning bets. I have not factored this in to my examples as they are intended to be purely illustrative. However, we do not need to worry about commission, if the exchange portion of the bet loses, as there is no commission on losing bets on the betting exchanges. Be sure to factor in any charges or commission re your calculations.
What about laying back at 3.55?
In this case we would profit more, but we would need to wait for your bet to be matched on the exchange. Looking at the weight of money on both sides, it looks likely that we could get matched at 3.55, but it’s not guaranteed. A sudden fluctuation or piece of team news for example, could move the price in the other direction.
I use the word arbitrage a little more loosely here, because our bookmaker and exchange bets will not be matched simultaneously, because we leave the exchange part of the bet in the market to be matched.
If you were to get your lay bet matched at 3.55 then your ‘free bet’ profit on an AC Milan win, using £100 stakes, would be:
Bookmaker bet: Back £100 at 3.69 = £269.00 profit – Exchange bet: Lay £100 at 3.55 = £255 liability.
£269-£255 = £14.00 profit, with no liability on the Inter win or the draw.
Or once again you could lay back a little extra on the exchange and profit whatever the result of the match.
The latter bets might be best described as a ‘trade’ between bookmakers and exchanges, because the bets are not totally risk-free. The basic principle, however, of securing a profit whatever the outcome, remains intact.
Final Words
I don’t really practice ‘arbing’ that much anymore. I prefer to trade on the betting exchanges, even with the added risk of markets moving against me. I would suggest that the only way of making a decent amount of money out of arbitrage, is through the financial markets or by trading off prices with a bookmaker like Pinnacle, who accept arbitrage players.
You may, however, have your own ideas on how to make money out of arbitrage betting. It remains an intriguing and attractive concept. Although markets are generally efficient, there are always new companies coming to the table and you may find your opportunities there.
