Sports Arbitrage

Sports Arbitrage

Sports Betting Arbitrage, or Scalping as sports bettors from the US know it, is the combination of a well known financial trading concept and the modern occurrence of online sportsbook betting. Arbitrage is the idea of taking advantage of different prices in different markets simultaneously, while sports betting arbitrage is the application of that principle to the ‘price’ offered by bookmakers on sporting events: the’ odds’, or ‘the line’. Essentially, Sports Betting Arbitrage is buying the win and the loss of a sporting event at the correct price to ensure that no matter what the outcome, a profit is secured.

As with standard arbitrage, sports betting arbitrage must be done in separate markets: Any two bookmakers with differing odds will do. While the financial concept of buying and selling at two different prices is accurate, for standard betting it is confusing (in a two team event, the bookmaker is buying the win for one price, and selling the lay for a higher price), and so I will stop trying to maintain the comparison here.

In order for an ‘Arb’ or ‘scalp’ to be placed, you need one bookmaker to offer particularly high odds on Outcome 1 and a separate bookmaker to offer particularly high odds on Outcome 2, where there are only two outcomes available. If these odds are high enough to create a larger than 100% return on investment, you have an arb.

For example if a particularly close Tennis match between ‘John’ and ‘James’ is about to be played and Pinnacle offers odds of 2.1 (11/10) on John while Expekt offers odds of 2.05 (20/19) on James, you can very easily see that you have an arb. If you bet $100 on 2.10 and $100 on 2.05, you know that you are going to lose $100 because one side will lose, but the other side will win more than $100, thereby covering your loss, and making some money in the process.

A more complicated example:

Pinnacle has odds of 1.10 on Team A and 8.00 on Team B

BetAndWin has odds of 1.20 on Team A and 5.00 on Team B

If you bet $835 on 1.20 at BetAndWin, and $125 on 8.00 at Pinnacle, then your total investment is $960. If Team A wins, you win $1002 and lose the $125 bet at Pinnacle, resulting in a $42 final profit. If  Team B wins, you win $1000 and lose the $835 bet at BetAndWin, resulting in a $40 final profit.

No matter which team won, $40 profit was assured. That is the idea of Sports Betting Arbitrage.

The Applications of this Concept

This knowledge can be used several ways. It can be used in a pure form to derive small percentage profits time after time and make money. Manually finding these opportunities is time consuming and may or may not be worth the time for the profit. However there are many companies which offer alert services that find arbs for you and alert you to their location, their profit percentage, and how much to bet on them. These subscriptions all come at a subscription fee of course.

Some sports bettors use arbitrage in another way to make a little extra money. Most sportsbooks offer lucrative bonuses for new players, or for deposits of existing players or for a range of other things which attract more player betting action. These bonuses will always involve a ‘rollover’ condition which states that the bonus money must be bet a number of times before it can be withdrawn (usually being lost before that happens). Arbitrage can be used to take these bonuses without worrying about losing the bonus money to the book before you can withdraw it. By only gambling the bonus money on arbitrages, one of two things will happen. 1. The bets placed at the bonus holding bookmaker will win enough and the rollover requirement will be met, or 2. The bets placed at the bonus bookmaker will be lost, meaning that the bet at the other side of the arb will win, and in effect the bonus will be transferred into that book. Since the new book has no bonus requirements, it can be withdrawn at will.

Arbitrage can also be used when you simply want to bet on a game without risking losing your money. Assuming you can find an arb on your event, instead of simply placing a bet on your team, place the arb with one side maxed out, and the other side only covering the opposing bet. Using the example above, you could use your $40 guaranteed profit from the arb to further back one side. For instance, if you are confident the favourite will win, place $875 on the favourite and the normal $125 on the under dog. If you are wrong and the underdog wins, your gamble simply means you don’t win anything substantial (you would still win 65 cents). If you are right though, then the $875 wager at 1.20 pays out $1050, an extra $8 over the standard arbitrage trade.

On the other hand, if you think the underdog has a real chance to win and you hedge the other way, a $165 wager at odds of 8.00 pays $1320, a profit of $320; considerably more than the $42 profit from the standard arb. Of course, this substantial increase of profit is offset by the fact that there is considerably less chance that you will actually win. Which way you want to hedge is a gamble, but at least there is no actual financial risk involved and if you have a favourite team, you can actually gamble on them without losing!

Middling is another concept again completely. Middling involves taking advantage of differences in handicaps or total scores between bookmakers and trying to place two bets which will either cover each other or win twice. Often conducted by gamblers without the arbitrage aspect factoring the large risk of losing a small amount vs. the potentially large payout, arbitrage middles are very attractive when found.

For example a soccer game where you can find odds of 2.00 that the total score is under 2.5, and odds of 2.00 at another bookmaker that the total score is over 1.5. These odds create a break even arb, which means that you will not make any money ordinarily, but if the final score is 2, then both bets win. If you bet $500 on each side, there is a chance that it will all be for nothing, but there is also a chance that you will win $1000 outright, for no risk. Middling can be very profitable, but it is also much rarer than arbitrage.

Risk Factors

It should be no surprise that this isn’t risk free. Conceptually an arbitrage is an exchange where your profit is known beforehand, the transaction is carried out, and you are guaranteed a payout from one bookmaker or the other which will total more than the outlay. However reality likes to ruin even the best theories.

Bookmaker Rules

Various rules set up by bookmakers have the potential to cancel one side of an arbitrage trade after the game has started, thereby exposing you to risk. The two most common examples of this are Tennis and Baseball. With Tennis, bookmakers have rules about how many matches or sets must be played for the wager to be considered active. If one bookmaker rules that the bet is active after the first ball, and the second bookmaker rules that it is active after the 3rd set, and one player retires injured in the 2nd set, then you are stuck with an un-hedged bet and the arbitrage has been ruined. Similarly with baseball bookmakers have different rules about what happens if teams change their pitchers. Sometimes the odds are allowed to change, sometimes the bet is cancelled, and some allow the bet to go ahead without change. Some of the best bookmakers let you choose your conditions before you place your bet. Hockey similarly has various rules when it comes to overtime, penalty shoot outs and drawn games. The rules very so drastically from bookmaker to bookmaker that it isn’t worth trying to describe the variations. Just learn the rules of the bookmakers you want to use. Memorise them.

These risks can obviously be minimised by trading on tennis matches, hockey games and baseball games only between bookmakers who use the same, or similar rules. This reduces the risk significantly.

Time

The very nature of an arbitrage opportunity makes it brief. When an arb presents itself, many people will start betting on the higher odds (whether they are trading or not, the very reason bookmakers make the odds higher is to attract more money to that side of their books: bookmakers need to have both sides hedged so that their profit is guaranteed too!).  When odds are raised people will start betting on that side, and as soon as the bookmaker has enough bets for that side, they will lower their odds again. For the arb trader this means you have to act fast or else you risk placing your first bet just as the second bet has its odds changed, leaving you short of your arbitrage. If this does happen, you can choose to leave the single bet and hope for the best (gamble), or hedge against complete loss of your initial by backing the other side at the highest odds available (which may result in a 1-5% loss on average).

This risk can be minimised a number of ways. The most obvious is to have everything set up and prepared and double checked first, then press the accept button on both bets as simultaneously as you can. That will limit your time exposure, however you can’t take too long preparing and double checking everything because often bookmakers will allow you to go all the way to the ‘Are you sure you want to do this’ screen with odds which are already expired and then not allow you to place the bet just when you think everything is in place. You have to refresh the odds at both bookmakers, then quickly move from that screen to placing your bet in as little time as possible.

Another trick to minimise this risk is to bet at the bookmaker which has created the arb. Often, although not always, an arb is created because of one particularly out of line bookmaker. If in the example above WilliamHill, Racebook and TheGreek all have the same odds as Pinnacle, then what you want to do is place the bet with Pinnacle Sports first. Pinnacle Sports are the odd ones out and the one upon who the whole arb is dependent. If TheGreek change their odds, then you still have 4 other bookmakers to try, but if Pinnacle Sports change their odds, then the arb is gone. By watching out for who has made the arb you can virtually remove this risk factor by betting with them first.

Human Error

Human error can come in two forms: your fault, and someone else’s fault. If you make a mistake, bet on cricket when you are meant to bet on tennis…then you have no one to blame but yourself. Don’t make mistakes. It will cost you. The only ‘someone else’ who can make a mistake which will cost you money is when someone at the bookmaker has put the wrong odds up, and you see an arbitrage, maybe a 20% arb, something very profitable and very exciting. If the odds were ‘an obvious mistake’ then the bookmaker will most likely reserve the right to cancel the bet. This once again will leave you with half an arb, which is basically a wager. Your choice at that point (assuming the game hasn’t already started) is same as above: hope for the best, or hedge your losses.

Obvious or ‘Palpable’ errors can be identified by a couple of factors. Odds which are 25% or more out of line with the market average are probably a mistake, and may be cancelled on you. Another indicator is where one bookmaker does not have a definite favourite while everyone else does. To clarify this, odds below 1.85 would indicate an obvious favourite, while odds above 2.25 would indicate an obvious underdog. Odds between these two values indicate that no one side is a definite favourite. How to use this knowledge to identify possible errors comes down to only trading odds where both sides agree that there is an obvious favourite/underdog, or both sides agree there is no favourite/underdog. If one bookmaker gives odds of 1.9, and the other gives odds of 2.7, then one of the bookmakers has probably made a mistake since one believes there is no favourite, while the other believes there is.

These guidelines should be able to help, remember, they are only guidelines, not guaranteed fact. Bookmakers may still cancel bets that meet all of the above criteria, and they may let bets go which meet none of it. This is simply a risk which has to be accepted.

By Shane Greenup (Aegist)
A more thorough guide to Sports Betting Arbitrage, Arbitrage alert services, and Arbitrage trading techniques can be found at Sports Arbitrage Guide.