arbitrage betting
a detailed explanation
2-sided, 3-sided, multi-sided bets
for simplicity reasons we will explain the concept of arbitrage betting with examples of 2-sided bets (an event has only two possible outcomes). the same mathematics as described in this article also apply for 3- or more-sided bets.
examples of 2-sided bets
tennis, match winner: either player A or player B will win the match.
soccer, cup competition outcome: either team A or team B will make it to the next round.
example of a 3-sided bet
soccer, league match outcome: either team A wins, team B wins or the game ends with a draw.
example of a multi-sided bet
ice hockey, total numbers of goals: technically, there are endless goals possible. bookmakers often offer 0, 1, 2, … n, >n as possible outcomes.
how bookmakers make money
bookmakers make money on a 2-sided sports bet through the vig, which is the commission they charge on each bet. in a typical 2-sided bet, where there are two possible outcomes, the bookmaker sets odds that include this built-in fee. for example, if the decimal odds are 1.98 on both sides, bettors need to wager $100 to win $98. this extra $2 per bet is the bookmaker’s margin, ensuring they profit even if the game’s outcome is random. the bookmaker doesn’t have to predict the winner; they just need to set odds that make sure they collect a commission from both sides.
the bookmaker’s goal is to balance the betting action, so they receive roughly equal amounts of money on both sides of the bet. when the betting is balanced, the bookmaker can pay out the winning side and still make a guaranteed profit from the vig. for example, if $200 is bet in total ($100 on each side), the bookmaker collects $4 regardless of which team wins. this system ensures the bookmaker makes money over time, even if individual bets result in a loss or win for bettors.
the flaws in the bookmaker system
just because a sports event only has two outcomes does not mean that their probabilities are both 50%. imagine liverpool from england’s efl premier league playing accrington stanley from the fourth highest league (efl two) in the fa cup competition. it is obvious that the chance of liverpool to win is much larger, that’s why the odds from a bookmaker A may look more something like:
if you bet $100 on liverpool to win, you will only win $2 - a pretty low return for the fact that there is a small risk of losing a full $100.
now imagine the whole team of liverpool is catching up a nasty virus on the day before the match. that will definitely increase the chances of accrington stanley to make it into the next round. that’s why you can expect bookmakers to adjust their odds (increase liverpool’s odds, decrease accrington stanley’s odds) based on these events. but how much will the odds be adjusted?
well, that’s where the flaw in the bookmaker system lies. there is no right or wrong, since nobody can predict the future. bookmakers have extensive models behind their odds calculation. and even though these systems are similar, they are not the same. that is why you can find differing odds on different bookmaker platforms.
how arbitrage betting makes use of differing odds
arbitrage betting is a strategy that takes advantage of differing odds offered by different bookmakers on the same event to guarantee a profit, no matter the outcome. by placing 2 bets on the two possible outcomes of a game, bettors can ensure that the combined odds result in a situation where the returns from the winning bet exceed the total amount wagered. this is possible because bookmakers often have slight variations in their odds due to differing opinions on the event, and by carefully calculating stakes across various platforms, bettors can lock in a risk-free profit, provided they act quickly before odds change. let’s have a look at these differing odds from two different bookmakers:
bookmaker A and bookmaker B now rate the odds differently, and we can make use of that by picking the better odd from each bookmaker.
let’s say we have a total of $100 to bet. we can place:
$87.43 at bookmaker A on liverpool, at odds of 1.15. if liverpool wins, this will return us a total of $100.54, and a win of 0.54%
$12.57 at bookmaker B on accrington stanley, at odds of 8.0. if accrington stanley wins, this will return us a total of $100.56 and a win of 0.56%
⇒ in any result we will walk away with a guaranteed win, if both bets are placed and accepted successfully.
the challenges of arbitrage betting
bookmakers run their services as a money-making business, and they don’t like to see their customers walking away with a profit. arbitrage betting is time consuming and comes with several significant challenges that can make it difficult to consistently win.
the first issue is finding opportunities, as bookmakers adjust their odds frequently, and discrepancies may only last for a short time. this requires bettors to be quick and constantly monitor multiple sportsbooks. calculating correct bet sizes is also crucial, as bettors need to stake precise amounts to guarantee a profit, which can be tricky without proper tools or experience. however, betting fractional amounts (such as $87.43 or $12.57) reveals you as an arbitrage bettor, often resulting in restricted or banned accounts. other obstacles include liquidity limitations, where some sportsbooks may impose bet size limits, and the potential for mistakes in calculations that can lead to losses rather than profits.
to summarise, these are the major challenges of arbitrage betting:
finding opportunities and being quick enough to place bets
calculating correct bet sizes while rounding stakes to mask your arbitrage behaviour
avoid restricted or banned accounts
liquidity limitations by the platforms
stake calculation mistakes
so, what’s next?
if you are interested in investing time and cognitive resources into arbitrage betting, we recommend you trying it out yourself. it is advisable to start with small stakes that you can afford to lose because calculation failures or changing odds are likely to happen even to sharp minds, especially at the beginning.
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