The first question that will
spring to mind for most readers would be what is Arbitrage?
Dictionary Meaning of Arbitrage
The purchase of securities on one
market for immediate resale on another market in order to profit
from a price discrepancy.
A kind of hedged investment meant
to capture slight differences in price; when there is a difference
in the price of something on two different markets the arbitrageur
simultaneously buys at the lower price and sells at the higher price
v : practice arbitrage, as of stocks
Sports Betting Arbitrage
Arbitrage is using the difference
in markets in such a way that a risk-free profit can be guaranteed
whatever the outcome of an event. In Sports Betting Arbitrage you
are in fact taking an advantage of bookmakers differing opinions
about the outcome of a sporting event to ensure a certain profit.
In the financial markets this may
involve buying a commodity or financial instrument in one market
and simultaneously selling the same commodity or financial instrument
at a higher price on a different market to ensure a risk-free profit.
In Sports Betting Arbitrage you are profiting from bookmakers having
different opinions about the outcome of a sporting event.
Sports Betting Arbitrage bets win
regardless of the outcome of the event without the need for any
expert knowledge of sports or sports betting.
In other words arbitrage is a trading
technique whereby exactly offsetting positions are taken in a market
simultaneously but at different prices. The difference in price
represents an immediate risk-free profit that is independent of
the subsequent movement in price of the instruments traded.
Examples of Sports Betting Arbitrage
Arbitrage Example 1:
A pre-season NFL match between
Team A & B gives us the following market-anomaly between Book
maker A & B:
Team A |
Booker A |
1.85 |
Team B |
Booker B |
2.50 |
This arbitrage can yield a profit
of just over 6%, meaning that a correctly structured investment
of £1000 would yield £63.22 of risk-free profit regardless
of which team wins the match.
Arbitrage Example 2:
Some time ago there were many arbs
between 3% and up 9.17% for the European Championship Qualifiers.
Several of these arbs lasted until close to kick-off time because
there is so much betting activity on the games.
An example of one arb is given below: -
Poland Vs Latvia
You could bet: -
Latvia at 15.0 with Bet365
The Draw at 7.0 Luvbet
Poland at 1.35 with several bookmakers
By splitting your total stake
Poland 77.951%, Draw 15.033% and Latvia 7.016% you would guarantee
a profit of 5.23% regardless of the outcome of the match.
i.e.
Poland 77.951 x 1.35 = 105.23
Draw 15.033 x 7 = 105.23
Latvia 7.016 x 15 = 105.23
Arbitrage Example 3:
During Wimbledon, the Ladies Singles
Match between Lindsay Davenport and Kim Clijsters resulted in bookmakers
Victor Chandler giving Davenport odds of 2/5, and bookmakers Tote
gave Clijsters 3/1.
At 2/5, the total amount to invest in Davenport to return $100 was
$71.42. Whereas at 3/1, the total amount to invest in Clijsters
to return $100 was $25.
That means the total investment
required to return $100 - whichever player wins - is just $96.42
A Guaranteed Risk-Free Profit of
3.58% In Less Than 90 Minutes!
So why doesn't everybody use arbitrage?
Arbitrage opportunities in most
markets appear and disappear extremely quickly. In every market
that reveals arbitrage opportunities, there will be arbitrageurs
operating. Many banks’ dealing rooms have personnel whose
sole job is to seek out and act upon these types of opportunities.
Sports
arbitrage is more accessible to everyday people because of the internet,
but there are still barriers which stop everyone from being successful.
It takes capital, time, organisation and energy to make consistent
profits. It is important to develop streamlined processes that enable
you to act upon opportunities immediately. Sports-arbitrage is risk-free,
not effort-free. Your success depends upon your own level of commitment
and hard work. Individual arbitrage prices do not last for long
and there is a steep learning-curve for all new traders to climb.
How do bookmakers feel about this?
From a business perspective bookmakers
are only interested in ensuring that they generate value in every
book they make. An arbitrageur's money is as good as any other punter's
and since at least half of all the bets an arbitrageur makes will
lose, the bookmaker is likely to value his or her business.
There is a general misconception
concerning a bookmaker's need to balance his book. It is usually
believed that in an ideal book, punters would stake the amount on
each possible outcome of a ‘two horse race’ such that
the bookmaker's liability is balanced regardless of the outcome.
By achieving an equal liability on both eventualities, with his
margin built in, the layer is able to ensure a risk-free profit
for himself.
That perception however does
not necessarily apply to large bookmakers with plenty of working
capital & lots of active clients. These companies need not be
concerned with balancing their books; they merely need to attract
enough turn-over on every event. This will automatically shift the
odds in their favour.
Consider this scenario in a golf
2-way match-up with‘head to head’ pricing of 1.90 on
each player. If he takes a total of £10,000 on each side,
the bookmaker has taken £20,000 and whatever the result pays
out only £19,000, generating a risk-free profit of £1,000.
This situation, however, describes a bookmaker's ideal scenario;
it does not describe the practical reality of bookmaking. More likely
would be a scenario where a total of £20,000 to win £18,000
is laid on one of the two outcomes. The other side will have attracted
far less money (perhaps it is not part of an arbitrage!), with clients
investing, say, a total of £10,000 to win £9,000. In
this scenario, the bookmaker is exactly £8,000 ‘short’
and he now appears to be in the position of a punter looking for
a specific result. Closer inspection reveals that if he gets the
result he prefers, he has won £11,000. (Keeping £20,000
and paying out £9,000). Alternatively, if the ‘other
side’ wins, the loss is £8,000. (£18,000 having
been paid with only £10,000 kept from the ‘short side).
So, the bookmaker has actually
risked losing £8,000 in order to win a possible £11,000
and that translates into odds of 11/8 (2.38), a 5.3% swing in his
favour from the odds he quoted (1.90). Over a period of time, this
added value will more than compensate for any failures to balance
the book.
Nevertheless,
even with this in mind, it is a fact that some bookmakers may be
fundamentally opposed to clients making money from dealing with
them, without incurring risk. It is, therefore, important to take
measures to disguise your activities and not make it obvious that
you are an arbitrageur.
How much capital would I need to make it worthwhile?
The answer to this question will
depend entirely on your objectives. Up to a limit, the more capital
you have available, the higher number of opportunities you will
be able to place bets on simultaneously. Clearly, once free capital
has been used up, you will have to wait for some of the bets to
settle before you can take advantage of new opportunities.
Conservatively, in order to generate
an average of £100 per week, you will need capital of about
£3,000 to £5,000. In this case, you should look at your
arbitrage project as a hobby and find your own arbitrage opportunities
as & when you have time to search.
Consider, also, the point that
many bets may be funded using a credit card. This means that a series
of bets may be placed during a given month with minimal cash outlay.
When the credit card balance becomes due, you may simply transfer
your winnings back to the card or use idle trading cash from your
bank account, thereby avoiding any interest charges, and then start
the whole process over again. In fact, with many card companies
offering cashback on expenditure, significant bonuses can be accrued
over time.
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