What is arbitrage and value betting?

What is arbitrage and value betting?

What is an arbitrage?

In general, an arbitrage opportunity appears when the same product has a much different price in different markets. Arbitrage is the act of simultaneously buying and selling the same product on different markets for a guaranteed profit. In the world of finance, the most common examples of arbitrage are in trading with currencies, stocks, or commodities.

What is arbitrage in sports betting?

Arbitrage opportunities in sports betting are very similar to the ones in stock trading. In the industry of sports betting, we are buying different outcomes on sports events. The price in this case is the real probability of the outcome in odds format.

Odds are the decimal format of the probability of an outcome.

For example, if a tennis player has 50% to win the match, the decimal odds for that outcome without the profit margin would be 2. Arbitrage betting is based on finding odds that are not representing the true probability of an outcome.

Often times bookmakers are making mistakes and they are offering lines, odds, or prices that are higher than the average at other bookmakers.

These overpriced bet opportunities are some kind of loopholes for making a guaranteed profit on them.

Smart bettors are taking advantage of these wrong odds by placing bets on them and covering the other outcome at another bookie or exchange.

This betting technique is called arbitrage betting.

What is sports betting and what are the odds?

The purpose of this article is to help you to make money from sports betting.

Even though approximately 98% of people who are betting on sports events are losing money in the long run, there are a lot of ways to make decent money from it.

With dedication, learning, patience, and a well-proven working strategy you can make a lot of money and you can do it even for a living.

In sports betting, odds are representing the statistical probability of a particular outcome. Depending on what country you are from, you may be familiar with the following, most common odds formats:

Fractional odds:

These kinds of odds are commonly used in the United Kingdom and Ireland, and you can also meet them on horse racing bets.

Fractional odds are expressing the net payout you get relative to your stake. As an example, the odds of 3/1 would mean that if you win the bet you get a profit of 30$ if you placed a 10$ stake.

With another example, an odd of 1/5 would mean, that your profit would be 20$ after a stake of 100$.

Decimal odds:

These are most commonly used in other parts of Europe, Canada, Australia, Singapore.

These odds at the payout are including your stake too, so for example with odds like 1.90 you place a stake of 100$ and if you win, the payout would be 190$, including your stake too, so with a profit of 90$.

Decimal odds are easy to understand and to use because they are the direct inverse of the probability of the outcome (an odd of 2 for example has the probability of 1 / 2 = 50%).

In the world of smart betting most of the time the decimal format is used so in my examples I will stick to it too. Down below you can see some examples for fractional, decimal odds, and their percentage format.

Fraction Decimal Implied Probability
1/5 1.2 83.3%
2/9 1.22 81.8%
1/4 1.25 80%
2/7 1.29 77.8%
1/3 1.33 75%
4/11 1.36 73.3%
4/9 1.44 69.2%
1/2 1.5 66.7%
1/1 2 50%
5/4 2.25 44.4%
9/1 10 10%
10/1 11 9.1%
20/1 21 4.8%

Bookmakers defining odds

While learning about smart betting and being profitable in it, we have to understand how bookies are defining odds.

The base starting points to get the real probability of an outcome are historical data and any additional information about teams and players.

From these probability percentages, they are generating the odds. The key point of being profitable in most of the smart betting techniques is somehow knowing if the bookies are right in defining those odds or they made a mistake.

Mistakes made by bookmakers mean free money for smart bettors. I’m giving you the most simple example known under the name of value betting.

Example for arbitrage betting and value betting

There is a tennis match between player A and player B. Both of them have very similar experiences and physical conditions, so the real chance of winning would be 50% – 50%, which would mean odds of 2 without the juice of the bookie (profit margin).

But let’s say, that a bookie is thinking that player A is the favorite and they are giving him an odd of 1.78 and an odd of 2.10 for the underdog.

Having in mind that the real probability for player B winning is 50%, so the odds of 2.10 would mean a good value. In a long run, these kinds of values are adding up and are giving you a good advantage against bookies.

Giving another simple example:

if you flip a coin there is a 50% – 50% chance of winning your choice, so the odd for both would be 2.

But what if you would be so lucky, that someone would be offered to you, that if you win you get the odds of 2.10 for your bet.

You would place 100$ on every bet, and after for example 10 flipping your winning would be at least 50$. (5*100$*2.10 of lost bet = -500$, and 5*100$*2.10 of winner bet = 550$).

This kind of betting is called value betting. The other type of betting strategy would be when you place bets on both possibilities.

For example, at the first bookie, the tennis player A has an odds of 2, and the player B at the other bookmaker has 2.1.

You place a stake at the first bookie with 100 euros on odds of 2 and at the other bookmaker on the second player, you place a stake of 95 euros on an odd of 2.10.

Regardless of who wins you will end up with a profit of approximately 4.5 euros. This kind of betting is called arbitrage betting. For more details click here.

arbitrage bet example

Do bookies allow arbitrage betting?

Most bookmakers are not allowing arbitrage betting. This betting technique is based on generating guaranteed profits by taking a rather low risk (human errors).

The profit we can gain from this means a loss for bookies. The fact that bookmakers are profit-oriented companies makes arbitrage betting a not too welcomed action.

Every smart betting activity that will generate profits at least in the long run will decrease the profits of the bookmakers.

So, at the moment you are flagged as an arber, you will face the limitation of your maximum stakes, or even blocking of your account.

Only a few bookmakers are allowing this betting technique. They are sharp bookmakers or exchanges.

Arbitrage betting at sharp bookmakers

Sharp bookmakers have developed their strategy of offering odds in a different way than soft bookies.

Some are adjusting them after almost every bet they get. If an outcome gets too much attention, that could mean that is overpriced.

Sharp bookies are dropping these odds in a more proactive way than the others, this way creating lines and prices that are closer to reality.

Adding a profit margin to these so-called sharp lines and sharp odds will generate profit for them. Arbitrage bettors are covering bets at these bookies because they are not getting limited here.

The more stake they are placing here the more a price gets closer to the reality.

This way sharp bookmakers can offer higher and higher odds by lowering their profit margin and still making money.

Exchanges and their role in smart betting

Exchanges are following a different business model. They are stepping back in the process of offering odds.

Their first intention is to build an interface that is allowing bettors to offer lines and odds.

Basically, every bettor will offer and accept odds from other bettors. This business model is creating a flow of bets where arbitrage bettors and smart bettors, in general, are not hurting their profitability.

The income for exchanges is generated from the commission gained from every winning bet.

You, as a bettor, have the chance to place bets against other bettors. For offering this interface, you have to pay a commission to the exchange bookie after your winning bets.

Most of the time this commission is between 3% – 6% of your winnings.

How Does a Bookmaker Know You Are Arbing?

Placing bets on wrong odds is not a new thing. A lot of bettors made a fortune after the year 2000.

It took a while for bookmakers to start spotting smart bettors, because back then the algorithms were not so well developed.

Their best chance of limiting or banning arbers was only in the moment when they already made a lot of money. At present, bookies have way more tools to filter out smart betting activities.

One of the biggest signs of being a smart bettor is using a market that is getting too many bets from others in the same time. An overpriced outcome will be noticed not only by smart bettors but the bookies too.

If you are taking advantage of these obviously wrong odds too many times, your account will be flagged. The biggest signs for bookmakers are:

  • betting on small leagues
  • placing stakes that are not rounded
  • placing bets multiple times on the same outcome
  • if not a generally accepted bettor: an account from a woman is already a red flag, but one with an age above 50-60 years old will automatically flag an account for suspicious activity.

For more details, you can read the following article about how to avoid being banned or limited at a bookmaker.

FAQ

What is arbitrage in sports betting?

Arbitrage opportunities in sports betting are very similar to the ones in stock trading. In the industry of sports betting, we are buying different outcomes on sports events.

Example for arbitrage betting and value betting?

Placing bets on overpriced odds and covering the outcome is arbitrage betting. Not covering the other team or player is value betting.

Do bookies allow arbitrage betting?

Only sharp bookmakers like Pinnacle Sports and Exchanges like Betfair are allowing arbitrage betting.

How Does a Bookmaker Know You Are Arbing?

They can spot bettors placing bets only on overpriced odds. They are using algorithms for this.

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