Explaining sports arbitrage betting can sometimes be a challenge. This I’m sure is down to a number of reasons ranging from general misunderstandings of how bookmakers and betting exchanges function, to the fact that low risk betting solutions always seems too novel an idea to ever be believed.
Either way, for someone interested in arbitrage betting to walk away with an unclear vision of how it works would be a crying shame, as the underlying mechanics of this system can open the floodgates to a whole world of profit turning opportunity.
In this post, I’m going to do my best to explain everything you need know about low/no risk betting through sports arbitrage. Come the end you will appreciate its uses and understand why over the years it has become such a popular betting strategy for small, consistent gains.
What Does Sports Arbitrage Betting Mean?
First things first, I’ll hold my hand up and say when I first encountered this term I had no idea either. Unless you’re involved in stocks, shares or some other kind trading, arbitrage isn’t a very commonly used word.
Over on Investopedia, the meaning of arbitrage is laid out as follows:
Arbitrage is the simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.
I think this breaks things down pretty well.
Imagine you’re shopping at Tescos and see they’re selling a coffee maker on offer for £100. You look on eBay and see you can sell the same coffee machine for £150, thus generating you a £50 profit. This is an arbitrage opportunity.
When it comes to sports arbitrage, rather than a physically traded item like a coffee maker, betting odds are the product.
The idea is to “buy and sell” – essentially trade – the odds of a single event in order to lock in a definite, secure profit.
Back and Lay Betting
The most common form of sports arbitrage betting consists of pair of bets between a bookmaker and a betting exchange. The idea is that these bets will cover all outcomes of an event so regardless of what happens in the selected sporting fixture, you lock in a guaranteed return.
So let’s dive deeper into the terminology…
When you place a bet with a bookmaker this is known as a “back” bet. You are staking your money at a given price and backing that your selected outcome will come true.
If you are correct with your prediction then your earnings will be equal to the amount staked multiplied by your given price.
If you bet £100 on Man United to beat Arsenal at decimal odds of 3.0 (2/1) then this bet would return £200 profit if it won. You would also receive your £100 stake back. Total return = £300.
If the match was a draw you would lose £100. If Man United lost then you would lose £100.
In this transaction between player and bookmaker, the bookmaker’s role is to offer the betting odds and “lay” the bet.
When a bookmaker lays a bet they are effectively betting against your selected outcome.
Following on with the above example…
If a bookmaker were to lay Man United to beat Arsenal at decimal odds of 3.0 (2/1) then you they would lose £200 if Man United won.
However, if the match was a draw you would win £100, or if Man United lost you would also win £100.
Peer to Peer Betting
Hopefully now it is clear to see that back and lay betting is the foundation of any regular bet you place at a bookmaker.
The thing is – normally the roles are locked down:
The player places the back bet. A bookmaker placed a lay bet.
This is the traditional betting model where laying bets has always been the business model of a bookmaker. But today it’s not the only way…
Nowadays, through utilising a platform known as betting exchange, we players now also have the option of playing the role of bookmaker and laying off other players’ bets.
This elimination of the traditional bookmaker to allow players to back and lay against each other is known as peer to peer betting.
Rather than build a profit margin into their odds, peer to peer betting exchanges make money by taking a percentage commission from every winning bet.
The major innovator in this space has been a website known as Betfair, who over the years in order to market themselves and help players understand the service they are offering have created a number of videos to explain their offerings better.
This one does a pretty good job at demonstrating how we are able to lay bets through Betfair, and how this type of bet differs from a back bet:
Back and Lay Betting for Profit
The ability to easily lay bets through a site like Betfair allows us to utilise low risk betting strategies such as sports arbitrage.
An arbitrage opportunity arises when the back odds of a selection at a bookmaker are significantly greater than the lay odds available at a betting exchange.
Suppose the odds of Man United to beat Arsenal are still 3.0 (2/1) at the bookmaker. But we also spot that we can lay Man United on Betfair at odds of 2.8.
At the bookmaker we wish to place a £100 bet at 3.0 which will return £300 (£200 winnings + £100 stake) if successful.
Using these figures we are able to calculate an optimal lay bet stake by dividing the potential return (£300) by the available odds (2.8), minus our Betfair commissions (default rate is 5%):
£300 / (2.8 – 0.05) = £109.09
Now we have our lay stake we can also work out the expected return on our bets.
Let’s look at all three match outcome possibilities:
Man United Win
Bookmaker: £100 x (3.0 – 1) = Win £200
Betting Exchange: £109.09 x (2.8 – 1) = Lose £196.36
Total P/L: £3.64
Man United Draw
Bookmaker: Lose £100
Betting Exchange: £109.09 – 5% = Win £103.64
Total P/L: £3.64
Man United Lose
Bookmaker: Lose £100
Betting Exchange: £109.09 – 5% = Win £103.64
Total P/L: £3.64
As you will note – it doesn’t actually matter what happens in the match. Regardless of the outcome we will turn a profit of £3.64.
Dutch Betting (or Dutching)
Another form of betting which is often mentioned in tandem with arbitrage betting is dutch betting, or dutching, as it is more commonly known.
Dutching is the act of covering all selections of an event to lock in a profitable return no matter what.
If you have any experience with betting in the past then I’ve no doubt that a thought similar to this one at some point may have occurred to you…
“What if I bet on Man United to win, Arsenal to win, and bet on the draw? Would I win any money?”
As you will have perhaps realised, the answer is typically no, as bookmakers who calculated odds in this way would be on a sure fire road to ruin.
Where it does become a possibility however is if you are to combine selections across a number of bookmakers in taking advantage of the differing odds between each.
For example: at Bookmaker A you bet on Team A. At Bookmaker B you bet on Team B. At Bookmaker C you bet on Team C.
To understand how this can be requires a short lesson in bookmaker mathematics.
Arbitrage-Like Dutching Explained
Betting odds are a tool to express a probability of an event happening. In a fair book, combining all probabilities would give us a round total of one hundred percent.
But in order to stay in business, bookmakers build margin into each of their bets meaning the combined probabilities equal are greater than 100%.
We can see this in action by looking at any bet at a bookmaker and converting the odds to implied probabilities.
|Norwich to Win
|1/5.0 = 0.2
|1/4.0 = 0.25
|Chelsea to Win
|1/1.57 = 0.64
On this event the bookmaker has a built in over-round edge of 9%, meaning if you were to stake £109 across all selections you would make £100 back. Not very useful.
Dutching – from the perspective of a sports arbitrager who is looking to lock in a guaranteed return from an event by betting on all outcomes – is useful when bookmaker odds are found whose combined implied probabilities are less than 100%.
Profitable Dutching Example
As I write this now, in a football match between Danish teams Skive and Brondby, many bookmakers have contrasting odds.
Taking the best odds from three separate bookmakers on Skive, Brondby and the Draw allows us to calculate implied probabilities as follows:
|Skive to Win
|1/17 = 0.0588
|1/5.50 = 0.1818
|Brondby to Win
|1/1.48 = 0.6756
As you can see here, through utilising three different bookmakers and taking advantage of the out of sync odds between them, we are actually able to create an edge for ourselves of around 8.38% over the bookmakers.
Thus – if you were to stake £91.62 across these selections you would make £100 back – give or take a few pence for sake of decimal rounding.
As you might imagine, comparing odds between three separate bookmakers can be a bit of a headache. But the good news is this method is applicable to two way markets as well such as Over and Under markets, Asian Handicaps and so on.
How-to Use These Risk Free Betting Strategies
The idea behind these two methods is that you are never relying on a specific sporting result to make money from your bets.
In both betting demonstrations above, event outcomes are irrelevant. In fact – we always know exactly how much money we are going to make from our bets before an event has even started.
Through my own personal experience I find back and lay methods far easier to find bets and run with as opposed to dutching, but both have their benefits.
Overall, both arbitrage betting and dutching methods can be used as independent means of making consistent gains from betting, although they should be used with care with understanding that risk free betting strategies generate wealth at the speed of a marathon as opposed to a sprint.
In my arbitrage tips post found here I discuss and walkthrough back and lay betting further, identify how to find bets, and also reflect on the usefulness of this method as a standalone strategy.
If you have any questions, please feel free to ask them below and I’ll do my best to answer.