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Sports Arbitrage Part One

Welcome to BashTheBookie.co.uk and congratulations on taking the first steps to making risk-free money from sports arbitrage.  This is the first in a series of four lessons in which we will explain exactly how you can find and profit from "arbs". 

We think that by the end of lesson four you will be both excited and stunned by the possibilities to make risk-free money from internet betting sites.  But first we need you to clear your mind of everything you know, or think you know, about betting and the people who are involved in it. 

We can now begin our introduction to sports arbitrage with the fundamentals of betting and how bookmakers ensure they always make a profit.  Even if you’ve placed bets in the past it is important not to skip this first lesson.  We list a number of tasks that you need to follow to gain the full benefit from arbitrage investing and also some helpful tips too.  Please ensure you follow this advice.

Please note - during the four courses we will advise a number of bookmakers that you should open accounts with to benefit from arbitrage investing. 

It would be extremely worthwhile to read our advice on the matched betting tutorial to benefit from this other loophole whilst opening the accounts we advise, thus increasing your investment bank before you even begin!!  You will have also gained experience in using internet bookmakers ahead of reading these lessons.


 How bookmakers make money

Don’t believe what you may read in the papers about certain events not going to plan that cause bookmakers to make a loss.  Sure, an unlikely outcome may dent profits, but in the long run bookmakers always make money because for each and every event they have profit built into it.  And don't forget other events go the bookmakers way too, such as for example a Manchester United win over Arsenal to end their unbeaten run when most of the money had gone on the Arsenal win.  But as we said, every event has a profit margin built in by the bookmaker.

This we will explain in a second or two.  To gain a better understanding you will need to become familiar with decimal odds, which may look very different to the traditional British fractional method of listing betting prices you may only know.  But believe us, this method is much easier to comprehend, it is the principal method used in arbitrage investing, and is increasingly becoming the industry standard for internet gambling.

Here’s how it works.  Decimal odds correspond to the total return from a successful result including your stake.  For example, £10 staked on a result priced at 3.00 would return £30 including your stake (£20 profit in other words).  This as you may have guessed is the same as a result priced at 2/1 in traditional odds.  For simple fractional odds, the decimal equivalent is the first number added to the second number then divided by the second number, with 3/1 being 4.00, 5/1 being 6.00 and so on.  Where this becomes a little more complicated, and this is only because it is actually the fractional odds that are complicated, is when more complex fractions are converted.  Back to another example on how you would convert the odds – 7/4 would become 2.75 for example (first plus second divided by second).  Most people would struggle to work out a successful return from a £10 stake on the first odds but on the second all you need do is calculate the stake, any stake, against the odds, here showing a return of £27.50 including stake.  Honestly, once you spend a little time looking at decimal odds the traditional odds will seem like a foreign language!!  To help you there is a chart showing how the odds compare HERE.

  • Tip – Bookmakers and odds comparison sites often talk about short and long odds , and from that shortening and lengthening odds.  In simple terms, short odds are most likely those of the favourite in an event that produce a lower return for the punter.  If odds are shortening then they are reducing in pay-out potential (for example from 3/1 to 2/1 in fractional odds, or 4.00 to 3.00 in decimal odds).  Long odds and lengthening odds are the exact opposite, reserved for the less favoured outcomes and for odds moving in that direction.

Now that you understand decimal odds back to how a bookmaker might price odds to ensure they make a profit.  Let’s think of a fictional two outcome event between two equally balanced competitors – say, a tennis match.  You would think that the bookmakers would give each of these competitors a 50% chance of winning – but oh no no no!  They have to make their profit and they do this by pricing up this fictional event, and every sports event in real life, by giving odds to cover more than 100% of the outcomes.  Here’s how:  You can work out the probability of an event by dividing 100 by each of the decimal odds and then adding them all together.  In our example, we would have expected to see odds of 2.00 for each competitor to give them each a 50% chance of winning (100 divided by 2.00 would give 50%).  Instead we’d be more likely to see odds of 1.85, which gives each competitor a 54% chance of success.  If you add these together you get 108% total probabilities for an event that can only add up to a total of 100% of different outcomes.  In other words the bookmaker has built into this event a profit margin of 8% or minus 8% profit for you. This is most commonly known as over-round and because each and every bookmaker builds this into each and every event it means that you’re unlikely to ever see a poor bookmaker, well until people started bookie bashing!!  But on the other hand, we are more interested in something called under-round


 
How Arbs Occur

Under-round is the exact opposite of over-round.  This means that all the possible outcomes of an event do not add up to the 100% that every event mathematically must do.  This is how we make the profit instead of the bookmakers.    Of course, you will never find an under-round on an event at any one bookmaker – instead you have to look to cover the different outcomes of the event at different bookmakers.  This is how people make money from arbs.  This is how very shortly you yourself could be making money from arbs.

  • So just to quickly recap – any total of probabilities over 100% means an over-round and profit to the bookmakers, any total of probabilities under 100% means under-round and profit to you!!  We actually like to use the term ‘Surebet’ for this, but we'll stick with the internet convention and call it an arb!!
So why do these surebets/arbs occur??  For lots of different reasons, some of which are pretty obvious and others that are inexplicable!  What we can say is that every bookmaker has internal profit built into their prices, but they often differ on what they think the probabilities of each outcome would be.  And because there are now dozens of reputable bookmakers trading online you can look around to find vastily different prices.  So let’s think of our example again – we have two tennis players in a match and again there is very little between them, in fact opinion is split between the bookmakers as to who will win.  We have a look around the internet and we find one bookmaker has priced Player A at 1.80 and Player B at 2.05 – this means they think that Player A has a probability of 55.55% and Player B a probability of 48.78% still giving them an over-round of 104.33% or profit to them of 4.33%.  But still their prices reflect that they feel this will be a close match with probabilities for each player only just either side of 50%.  But now we have found a different bookmaker who again thinks it will be close, but they slightly favour Player B and in fact have given prices exactly the opposite to that of the first bookmaker - their less favoured is Player A at 2.05.  And that is how we would make our profit completely risk-free and guaranteed – we would back Player A at 2.05 at one bookmaker and Player B at 2.05 at another bookmaker.  Each outcome has a 48.78% chance totalling 97.56% - but there is 100% of possible outcomes.  Our profit margin here would be in exact opposite to the over-round – our profit is the difference between our total % and 100%, in this case 2.44%.  Not bad going when this is absolutely guaranteed money for absolutely nothing.  We will explain in the next lesson how you use our special calculator to work out how much to stake on each event to lock in profit no matter what the outcome of the event may be. 
  
 And back to why would different bookmakers prices vary? We already understand that odds do not necessarily truly represent the probabilities of a sporting event.  What is equally as important is the fact we are actually talking about a sporting event which has thousands of variables which could contribute to the result.  The most sophisticated computer in the world could not accurately predict the exact outcome of any sports event (what the result would be, who would score and when, who would get booked and when etc).  Of course, bookmakers use odds compilers (people) to set their prices and that means there will be differences of opinion and opening odds as well as some errors of judgment.  So even where compilers agree on the order of likelihoods of an event (i.e. home win, then draw, then away win most likely in a particular football match), their probabilities of each outcome can vary so much that an under-round or arb occurs.  And did you know how many different things you may bet on for any given sports event? 
  • Task – Have a look on ourodds comparison site at any Premiership match and look at all the markets available!!!  You’ll see that for most football matches you can bet on anything from the actual winning team, to the number of corners, to whether a particular player will get sent off or not!!  So many opportunities for bookmakers to differ on the probabilities which they so frequently do.  So many rich pickings for those of us who realise risk-free guaranteed profit can be made from these frequent differences of opinion.    

An important opportunity when looking for out of place odds is to find when prices for events are first set, because frequently bookmakers are in competition to upload their odds first in an effort to gain custom.  This means they have no odds set by competitors to compare against meaning when the other bookmakers follow suit the first odds issued can be well off the mark.  This window between the original odds and the new odds reflecting overall market opinion provides rich pickings for an arb investor. 

  • Task – Pinnacle are normally amongst the first online bookies to publish odds across a wide range of events often leaving their odds well off the mark – this should be the very first bookmaker you need to join – no deposit necessary so join right away.

 
The Flow of Money

Another reason that odds can change is in reaction to, or in preparation to, an imbalanced amount of money being placed on an outcome.  What this means is that when bookmakers set their odds (probabilities) they expect to see the money being placed against these odds to be relatively proportionate.  Therefore, a larger amount of money than expected being placed on one outcome can see that price shorten and the other outcome(s) lengthen.  If this situation occurs at only one bookmaker it could well lead to an under-round if other outcomes are backed at a different bookmaker. 

  • Tip – Value is often used in reference to odds.  Good value odds are those considered to have a probability and pay-out equal to or better than the real mathematical probability of an outcome.  Poor value is the exact opposite – for example, the odds of the England win in international football matches are usually shorter than the real probability (based on the statistics/form over the years) making them poor value because a disproportionate amount of money is expected to be placed on them winning because punters are usually patriotic.  This shows two good points – firstly, if you ever fancy a small wager then look at the opponents of England who will always offer good value for their odds, and secondly, it shows how, through the use of international bookmakers on the internet, you can tap into these market forces to secure arbs.

 


That's your lesson now finished.  Don't forget that you need to follow a couple of tasks before the next lesson:

 

  • Have a look on ourodds comparison site  at any Premiership match and look at all the markets available!!!
  • Pinnacle should be the very first bookmaker you need to join - do this right now by following our link and remember no deposit is necessary.
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