Have you heard about arbitrage betting but have no clue what it means or how people make money from it? Keep reading to find out!
We will explain the fundamentals of sports arbitrage betting with simple, clear examples and show you how to exploit these principles for financial gain!
We will also cover the very real and often overlooked risks of arbitrage betting. Let's get started!
What is Arbitrage?
Arbitrage (or arbing), is the practice of purchasing something (typically an asset or product) and then selling it almost immediately in another market for a higher price. It is often (incorrectly) said that this produces risk free profit.
This practice occurs in any market where the same item has the potential to be sold for different prices.
In financial markets, this can occur with share or currency trading. Although quite rare, some companies have been listed on multiple stock exchanges before. When the same item (in this case a share in a particular company) is bought and sold in different markets, the potential for an arbitrage opportunity arises.
For example, if Apple shares were being bought and sold for $100 on the NASDAQ, but at $102 on the New York Stock Exchange (NYSE), a trader could purchase shares on the NASDAQ and sell them for a profit on the NYSE!
Another example is retail arbitrage. A common business model for retail outlets is to purchase goods in bulk from overseas factories for $X per unit, then sell them individually to consumers for some multiple of $X.
For example, a household pedestal fan might be bought in bulk for $3 per unit, then sold individually to consumers for $15 per unit, creating a profit of $12 per unit (ignoring other costs).
The country where the fans are being produced is valuing the fans at a much lower price than overseas markets, hence there is an arbitrage opportunity!
What is Sports Arbitrage Betting?
You may be wondering how the concepts of arbitrage apply to the world of gambling.
Similar to the examples above, people who take advantage of arbitrage betting are exploiting price differences in multiple markets for the same item.
In this case, various bookmakers (the markets) are setting the odds (the prices) for outcomes of various sporting events (the items).
In an ideal, hypothetical world, the bookmakers would be able to perfectly calculate the probability of the outcome of all sporting events and set their odds accordingly. However, we live in an imperfect world where these probabilities are calculated differently by different bookmakers.
If Bookmaker A has a different opinion to Bookmaker B on the winner of the UEFA Champions League, it may be possible to bet on Outcome C at Bookmaker A and Outcome D at Bookmaker B and make a profit regardless of the outcome!
This is the essence of sports arbitrage betting.
Arbitrage betting opportunities can also arise when some bookmakers are faster than others at reacting to news which may impact the outcome of a sporting event.
If news is released of Real Madrid's star striker spraining their ankle in training and Bookmaker X takes 15 minutes to update their odds on the upcoming match, while Bookmaker Y updates within 2 minutes, there will be a 13 minute window where an arbitrage opportunity exists!
Still not clear? Let's dig into a few examples!
Arbitrage Betting Examples
For those that are unfamiliar with how betting odds work, odds of 2.00 indicate that if your bet is successful, you will receive 2.00 times that amount of money that you originally wagered on the bet. For example, if you wagered (staked) $100 on the outcome and were successful, you will receive $200 (your $100 stake plus $100 in winnings).
For an event where there are only two outcomes (win or loss), odds of 2.00 on each of the outcomes mean that there is an even (50%) chance of both outcomes occurring.
However, in reality, a bookmaker needs to have an edge to make money (they are a business after all!) so even if they thought that there was an even chance of both outcomes, they would set the odds to something like 1.90 for both outcomes.
If 2 punters decided to bet $100 on the 2 different outcomes, the bookmaker would receive $200 in staked bets, but only pay out $190 to the punter which won. They would profit the $10 difference. This is a 5% profit margin for the bookie ($10/$200 = 5%).
Considering that the bookmaker will always have a profit margin built into their odds, arbitrage opportunities are not possible by betting on all outcomes with a single bookmaker. The arbitrage opportunity exists between different bookmakers.
Tennis matches are a great example, as there are only two outcomes (Player 1 wins or Player 2 wins). It is not possible for a match to end in a draw.
Say that Roger Federer and Rafael Nadal were matched up in the final of the French Open. Nadal has a strong record on the clay so he is a hot favourite. However, different bookmakers have different opinions on just how much of a favourite he really is.
Each of the bookmakers have individually priced in a profit margin to their odds.
However, if we take the highest odds available for Nadal (1.29 @ Pinnacle) and the highest odds for Federer (4.70 @ Bet365) and bet on each of them with a very particular wager, it is possible to profit regardless of who wins.
By staking a total of $500 at both bookmakers, we have guaranteed ourselves a minimum win of $506.09, which is a profit of $6.09 (1.22%).
Want to know how to calculate the stakes in the table above?
Read my article on arbitrage betting calculations!
$6.09 might not sound like much but when you consider that you could use wager this money on a match occurring tomorrow and once the match is over, wager it again on another match occurring the following day, it’s clear that your winnings can quickly compound!
Much better than earning a few percent per year by leaving it in the bank!
Best of all, it can all be done from home with just a computer and an internet connection!
How do you find arbitrage betting opportunities?
Whilst it is possible to find arbitrage opportunities by manually comparing the odds on multiple bookmaker sites for individual events, many traders prefer to use software that does all of the legwork for them.
The software compares the odds with tens of bookmakers for thousands of sporting events simultaneously and alerts you when an arbitrage opportunity is found.
These software are typically available as a subscription service.
Read my summary of arbitrage betting software!
Is sports arbitrage betting legal?
Upon hearing about sports arbitrage betting, almost everyone has the same reaction. Is it legal? We automatically assume that if there is a way to get money online this easily, it must be illegal!
Quite the opposite, in fact. It is absolutely legal, as long as your country of residence allows online sports betting. You are simply placing bets with multiple bookmakers which is not illegal at all.
For more detail, see my country-by-country guide to the legality of sports arbitrage betting.
So why isn't everyone doing it?
After reading this, you might be wondering why everyone isn't taking advantage of arbitrage opportunities. Well, there is a good reason!
Arbitrage profits are only 'risk free' in mathematics and computer simulations. In real life, there are a number of factors that can put the arbitrageur at risk of taking a very real loss. Sports arbitrage betting is no exception to this.
Here are the most common risks faced by someone undertaking sports arbitrage betting.
Incorrectly calculating how much to stake on each outcome can expose to you to potential loss. This can be alleviated by using online arbitrage calculators.
Change in odds
After placing your bet with one bookmaker, you may go to the second bookmaker to find that their odds have shortened (lowered).
The arbitrage opportunity may have disappeared, leaving you to either gamble on one side, or lock in a guaranteed small loss by backing the second outcome at the lower odds.
Bet not accepted
After placing your first bet, you may find that your bet with the second bookmaker is not accepted.
This is typically due to the bet exceeding the maximum allowable stake at that bookmaker. The imbalance in stake between the two bookmakers can expose you to loss.
Palpable (palp) error
The bookmaker can void your bet (even after the match has concluded!) if they deem that they made an obvious error with the odds (such as reversing the odds between the two sides or similar).
There have been a number of claims of palp error by bookmakers in rather dubious situations (ie. the mistake is not that obvious). Less reputable bookmakers are more likely to void your bets. In the case of a palp error, your stake will be returned to you.
A classic example of this occurs in tennis. Tennis players can retire before the conclusion of a match if they are injured or otherwise have a reason to do so.
Some bookmakers will consider the player to retire as the ‘loser’ of the match, whereas other bookmakers will void all bets (return stakes) in the event of a retirement.
If you backed the retiring player with a bookie who considers retirement as a ‘loss’, you can be seriously out of pocket, as the other bet will not win, but merely be voided!
Occasionally, the arbitrage hunting software can mistakenly match the odds between two separate sporting events. This can result in 'false arbs' that don't exist in reality. Always double check the odds before placing your bets!
To comply with money laundering laws, bettors must send documents such as passports or birth certificates to the betting companies to verify their identity before they can withdraw their winnings.
If the betting company's servers are compromised by an external hacker, there is the risk of identity theft.
The most serious occupational hazard of a sports betting arbitrageur is having your account limited or closed by a bookmaker.
Any punter that is winning too much or winning too often is liable to having their account limited or closed. Once this occurs, there is little that can be done to reverse it.
Nenko from Church of Betting has an excellent article on some tips and tricks you can use to maximise the life of your soft bookmaker accounts!
Considering all of the potential pitfalls above, we highly recommend joining our 100% free video course on sports arbitrage betting, which includes defensive arbitrage strategies to prolong your sports trading career for as long as possible!
Sports arbitrage betting is a viable way to make a side income online by exploiting discrepancies in odds between various bookmakers.
While it won't make you millions, it can make you a decent amount of money. Each individual arb only results in a small profit, but by repeating the process many times over, you can enjoy a decent income from it.
Decent working capital, a fast internet connection, arb hunting software and an attention-to-detail mindset are required to succeed in the world or arbitrage gambling.
Arbitrage betting can be combined with other tactics such as matched betting to further increase your profits.
To learn more about how to start doing sports arbitrage betting yourself, and to avoid the pitfalls discussed above, we recommend that you enrol in our 100% free online course! Sign up below!
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