Arbitrage Guide

Of all the betting strategies, arbitrage is probably the most difficult to make a significant amount of money with. However, the advantage of arbitrage is that it is 100% guaranteed money.

What is arbitrage?

From a non gambling perspective, arbitrage is simply the idea of buying an apple from one person for a dollar, and then selling that apple to another person for two dollars. In a gambling context, it involves hedging your bet such that you win either way.

Recall, a typical betting line looks like this:

Matt Hughes: +190
Georges St. Pierre: -240

Such a line has no arbitrage opportunity. If you were to put $10 on Hughes and $21 on St. Pierre, you would end up losing $2 if Hughes won, and lose $1.25 if St. Pierre won. It should not be difficult to convince you that it would be irrational to put money on both fighters at this line, unless for whatever reason you changed your mind about a fight and would rather take a guaranteed loss than risk your initial principal.

Imagine instead that a betting line looked like this:

Matt Hughes: +255
Georges St. Pierre: -240

Such a line has an arbitrage opportunity. If you were to put $10 on Hughes and $25 on St. Pierre, you would be ahead 50 cents if Hughes were to win, and ahead 42 cents if St. Pierre were to win. For individuals that are risk averse or risk neutral, such a bet would always be a smart move because it is a 100% guaranteed profit.

The problem is that you will never find a single bookie that offers a line like that at any given time. For every line, the favourite will always be a bigger favourite than the underdog is an underdog. Effectively, the favourite (-) is always a bigger number than the underdog (+), meaning betting on both fighters to make a guaranteed profit is impossible.

However, just because no single bookie will ever offer such a line at any one time does not make arbitrage impossible. There are in fact two major exceptions.

1: Multiple Bookie Arbitrage

While it may be true that a single bookie would never offer such a line, you can arbitrage by betting with multiple bookies, who in conjunction offer such a line.

Shown above are two multiple bookie arbitrage opportunities that existed at the time of the writing of this article. In my personal experience, these opportunities exist far more than a perfect market would suggest (which would be never), and for serious gamblers this is a very effective way to make free money.

2: Single bookie arbitrage

In talking about lines, invariably we think of them as being static. In reality, they often move considerably. Consider this scenario:

Time 1 Line:

Matt Hughes: +190
Georges St. Pierre: -240

Time 2 Line:

Matt Hughes: +260
Georges St. Pierre: -310

Such a shift would occur if significant amounts of money came in on St. Pierre, which forced the bookie to move the line to maintain a guaranteed profit, as explained here. A gambler could take advantage of this if he initially put $25 on St. Pierre at time 1, and then $10 on Hughes at time 2.

The obvious caveat is that arbitrage here is only possible if the bettor can accurately predict that the line will shift. However, when an accurate prediction is made, the reward can be lucrative.

Note how this individual would make $100 if Schaub were to win, or $85 if Filipovic were to win because he arbitraged. Free money is good.

Disadvantages of Arbitraging

1. Arbitrage opportunities are typically rare.
2. In most cases of arbitrage, especially multiple bookie arbitrage, the potential profits on each arbitrage are small.
3. In order to make more money on each arbitrage, you would need to have as much money as possible in each betting account, and that upfront capital may not be available to you.
4. Transaction costs have been ignored. There are often fees associated with depositing and withdrawing money with bookies, and arbitraging is worthless if your profits can not offset those transaction costs.
5. Accurately predicting line movement is really hard. Further, you may actually be right about a certain fighter being undervalued in reality, however if the public disagrees with your analysis, then you are out of luck.

FAQ: Arbitrage Guide