||This article contains instructions, advice, or how-to content. (September 2010)|
Betting arbitrage, miraclebets, surebets, sports arbitraging is a particular case of arbitrage arising on betting markets due to either bookmakers' different opinions on event outcomes or plain errors. When conditions allow, by placing one bet per each outcome with different betting companies, the bettor can make a profit regardless of the outcome. In the bettors' slang an arbitrage is often referred to as an arb; people who use arbitrage are called arbers. A typical arb is around 2 percent, often less; however 4-5 percent profit is occasionally obtained, and sometimes even 20 percent. Arbitrage betting involves relatively large sums of money (stakes are bigger than in normal betting), due to large sums of money being required to generate a decent profit. It is usually detected quickly by bookmakers. Arbitrage betting is almost always insufficiently profitable due to detection, hackers, unreliable betting websites, limiting of stakes, and the use of high percentage arb's to con arbitrage bettors into giving security details.
Bookmakers generally disapprove of arbers, and restrict or close the accounts of those who they suspect of engaging in arbitrage betting. Although arbitrage betting has existed since the beginnings of bookmaking, the rise of the Internet, odds-comparison websites and betting exchanges have made the practice easier to perform. On the other hand, these changes also made it easier for bookmakers to keep their odds in line with the market, because arbers are basically acting as market makers.
The best way of generating profit via sports arbitrage, which has been established in Britain, consists of highly experienced 'key men' employing others to place bets on their behalf, so as to avoid detection and increase accessibility to retail bookmakers. This allows the financiers or key arbers to stay at a computer to keep track of market movement.
Arbing is an extremely fast-paced process and successful arbing requires lots of time, experience, dedication and discipline, and especially liquidity.
Arbitrage in theory
There are a number of potential arbitrage deals. Below is an explanation of some of them including formulas and risks associated with these arbitrage deals. The table below introduces a number of variables that will be used to formalise the arbitrage models.
|Stake in outcome 1|
|Stake in outcome 2|
|Odds for outcome 1|
|Odds for outcome 2|
|Return if outcome 1 occurs|
|Return if outcome 2 occurs|
Arbitrage using bookmakers
This type of arbitrage takes advantage of different odds offered by different bookmakers. Assume the following situation:
We consider an event with 2 possible outcomes (e.g. a tennis match - either Federer wins or Henman wins), the idea can be generalized to events with more outcomes, but we use this as an example.
The 2 bookmakers have different ideas of who has the best chances of winning. They offer the following Fixed-odds gambling on the outcomes of the event
For an individual bookmaker, the sum of the inverse of all outcomes of an event will always be greater than 1. and
The bookmaker's return rate is , which is the amount the bookmaker earns on offering bets at some event. Bookmaker 1 will in this example expect to earn 5.34% on bets on the tennis game. Usually these gaps will be in the order 8 - 12%.
The idea is to find odds at different bookmakers, where the sum of the inverse of all the outcomes are below 1. Meaning that the bookmakers disagree on the chances of the outcomes. This discrepancy can be used to obtain a profit.
For instance if one places a bet on outcome 1 at bookmaker 2 and outcome 2 at bookmaker 1:
Placing a bet of $100 on outcome 1 with bookmaker 2 and a bet of on outcome 2 at bookmaker 1 would ensure the bettor a profit.
In case outcome 1 comes out, one could collect from bookmaker 2. In case outcome 2 comes out, one could collect from bookmaker 1. One would have invested $136.67, but have collected $143, a profit of $6.33 (4.6%) no matter the outcome of the event.
So for 2 odds and , where . If one wishes to place stake at outcome 1, then one should place at outcome 2, to even out the odds, and receive the same return no matter the outcome of the event.
Or in other words, if there are two outcomes, a 2/1 and a 3/1, by covering the 2/1 with $500 and the 3/1 with $333, one is guaranteed to win $1000 at a cost of $833, giving a 20% profit. More often profits exists around the 4% mark or less.
Reducing the risk of human error is vital being that the mathematical formula is sound and only external factors add "risk". Numerous online arbitrage calculator tools exist to help bettors get the math right. For example, arb calculators can handle calculations for both book arbitrage (back/back or lay/lay) and back/lay arbitrage opportunities on an intra-exchange or inter-exchange basis, and is free.
NOTE For arbs involving three outcomes (e.g. WIN, LOSE and DRAW) having the odds for Outcome 1, for outcome 2 and for outcome 3 with their respective bids being , and and sum of the bids being B.
The amount required to bet on each possibility in order to ensure profit can be calculated by
Back-lay sports arbitrage
Betting exchanges such as Smarkets have opened up a new range of arbitrage possibilities since on the exchanges it is possible to lay (i.e. to bet against) as well as to back an outcome. Arbitrage using only the back or lay side might occur on betting exchanges. It is in principle the same as the arbitrage using different bookmakers. Arbitrage using back and lay side is possible if a lay bet on one exchange provides shorter odds than a back bet on another exchange or bookmaker. However, the commission charged by the bookmakers and exchanges must be included into calculations.
Back-lay sports arbitrage is often called scalping or trading. Scalping is not actually arbitrage, but short term trading. In the context of sports arbitrage betting a scalping trader or scalper looks to make lots of small profits, which in time can add up. In theory a trader could turn a small investment into large profits by re-investing his earlier profits into future bets so as to generate exponential growth. Scalping relies on liquidity in the markets and that the odds will fluctuate around a mean point. A key advantage to scalping on one exchange is that most exchanges charge commission only on the net winnings in a particular event, thus ensuring that even the smallest favorable difference in the odds will guarantee some profit.
Bonus sports arbitrage
Many bookmakers offer first time users a signup bonus in the range $10–200 for depositing an initial amount. They typically demand that this amount is wagered a number of times before the bonus can be withdrawn. Bonus sport arbitraging is a form of sports arbitraging where you hedge or back your bets as usual, but since you received the bonus, a small loss can be allowed on each wager (2–5%), which comes off your profit. In this way the bookmakers wagering demand can be met and the initial deposit and sign up bonus can be withdrawn with little loss.
The advantage over usual betting arbitrage is that it is a lot easier to find bets with an acceptable loss, instead of an actual profit. Since most bookmakers offer these bonuses this can potentially be exploited to harvest the sign up bonuses.
By signing up to various bookmakers, it is possible to turn these 'free' bets into cash fairly quickly, and either making a small arbitrage, or in the majority of cases, making a small loss on each bet, or trade. However, it is relatively time consuming to find close matched bets or arbs, which is where an arb / close matched bet service is useful. Additionally as many bookies require a certain turnover of the bonus amount, matching money from different bookies against each other enables the player to in effect quickly "play free" the money of the losing bookie and in effect transfer it to the winning bookie. By avoiding most of the turnover requirements in this way the player can usually expect a 70-80% return on investment.
As well as spending time physically matching odds from various bet sites to exchanges, the other draw back with bonus bagging / arb trading in this sense is that often the free bets are 'non-stake returned'. This effectively reduces the odds, in decimal format, by 1. Therefore, in order to reduce 'losses' on the free bet, it is necessary to place a bet with high odds, so that the percentage difference of the decrease in odds is minimised.
Arbitrage in practice
While often claimed to be "risk-free", this is only true if an arb is successfully completed; in reality, there are several threats to this:
Disappearance of arb: Arbs in online sports markets have a median lifetime of around 15 minutes, after which the difference in odds underpinning them vanishes through betting activity. Without rapid alerting (Surebet Monitor services or software) and action, it is possible to fail to make all the "legs" of the arb before it vanishes, thus transforming it from a risk-free arb into a conventional bet with the usual risks involved. High street bookmakers however, offer their odds days in advance and rarely change them once they have been set. These arbs can have a lifetime of several hours.
Hackers: Due to the large number of accounts that have to be created and managed (containing personal details such as email, name, address, eWallet, credit card information and often even a copy of the bettor's ID/passport or driver's license), arbitrage traders are highly susceptible to cyber fraud, such as bank account theft. While making deposits is usually made easy and quick, making withdrawals always requires proof of identity in the form of passport/driver license, copies of which need to be shared with the bookies via fax/email or even postal mail, which causes additional identity theft risks. It is estimated that at least 20%-30% of all arbitrage bettors fall victim to some form of cyber crime. Traders are often attracted to high odds comparison sites that yield high percentage profits per stake (5-30%); this is often used by hackers to lure a high number of arbitrage bettors that then place large sums of money on these arb's, only to lose all of the profit and even entire savings in bank accounts to hackers or untrustworthy websites, which may further use the gathered data to sell personal data to criminals.
Making errors: In the excitement of the action and due to the high number of bets placed, it is not uncommon to make a mistake (like traders on financial markets). For example the appropriate stakes may be incorrectly calculated, or be placed on the wrong "legs" of the arb, locking in a loss, or there may be inadequate funds in one of the accounts to complete the arb. Those errors might temporarily have an important impact. In the long term, the benefit will depend on the odds. For example one could actually make more money by placing the "wrong" bet where the outcome happens to be beneficial, though not justified by the arbitrage calculation. However, repetition of this stroke of luck is unlikely, assuming the bookies have calculated the odds so they make a profit.
Furthermore, websites and bet placement interfaces differ between bookies, so that arbers need to be familiar with different web interfaces. In some sports different bookmakers deal with outcomes in different ways (they differ in their handling of - for example - player withdrawal due to injury in tennis, overtime in ice hockey), meaning that both "legs" can lose. Matching terms for all bookmakers is time consuming, requires lots of expertise and experience, while still being fairly error-prone.
Detection: There are only very few bookies who openly tolerate arbing (such as for example pinnaclesports.com). Many bookmakers may now be using shared security servers in order to pinpoint people suspected of arbitrage betting; they can simply limit stakes to make arbing unprofitable and even close accounts without honouring a bet that was placed. Loss of deposited money into a bookmaker could occur. This usually leads to unprofitable arbing as the most successful bookmakers are so adept at identifying arbitrage bettors, without these countermeasure the gambling industry would not be able to generate a large overall profit consistently every year.
Stake reviewal: Some bookies are known to accept only very small stakes by default, while requiring larger stakes to be manually reviewed before being accepted, which basically makes it difficult for an arber to determine if a leg was completely accepted or not, until it may be too late.
Bet cancellation: If a bettor places bets so as to make an arbitrage and one bookmaker cancels a bet, the bettor could find himself in a bad position because he is actually betting with all the risks implied. The bettor can repeat the bet that has been cancelled so as minimize the risk, but if he cannot get the same odds he had before he may be forced to take a loss. In some cases the situation arises when there are very high potential payouts by the bookie, perhaps due to an unintentional error made while quoting odds. Many jurisdictions allow bookmakers to cancel bets in the event of such a "palpable" ["obvious"] error in the quoted odds This is often loosely defined as an obvious mistake, but whether a "palp" in fact has been made is often the sole discretion of the bookmaker.
- Bookmakers who encourage responsible gambling will close accounts where they see only large losses, unaware that the arb trader has made wins at other books.
- Capital diffusion is serious; many bookmakers make it very easy to deposit funds and difficult to withdraw them (requiring lots of additional information, and documents as proof of identiy, i.e. a passport/ID copy). Making a return involves many bets spread over typically many bookmakers so keeping track is a considerable challenge, and requires excellent record-keeping and discipline.
- Responding to an available arb, may require funds to be transferred from one bookie to another, going through one or more eWallet accounts - often, withdrawals require reviews before being approved.
- While there are commercial software products and web services available to help with some of these tasks, these are usually still fairly complicated tools which also further lower the total RoR because of the initial investment required, or even the monthly subscription fees involved.
- Arbers using software tools or web services to find arbs, will often make an existing arb even more prominent and obvious to the bookie because of the number of arbers placing bets on the same outcome, so that the lifetime of an arb found via such tools is often even much shorter than the average 15 minutes. Thus, the risk of seeing bets revoked is also often much higher for arbs found via such tools than for arbs found manually, that are not shared with other arbers.
- In addition, arbing often involves making use of bookie bonuses; these, however, usually need to be turned over a number of times before a bettor becomes eligible for withdrawal, which may further reduce his total liquidity.
- Foreign currency movements can wipe out small percentage gains and can make quick calculation of stakes difficult.
- Transferring funds between bookmakers and eWallets may create additional costs at some point; most bookmakers and/or eWallets limit deposits to certain amounts per month.
- Withdrawals are often limited to a certain amount per month or to a certain number of free withdrawals per month
- Withdrawals are often charged for, not just on the side of the bookie, but sometimes also on the eWallet side (transfer to the bettor's bank account).
- In some countries, additional costs are imposed by government taxes, so that the final profit is further reduced by a fixed percentage of say 5% (Germany/Europe).
- Professional arbitrage betting may eat up considerable time and energy and requires lots of experience and liquidity, as well as sufficient funds to recover from inevitable losses that will happen sooner or later due to the aforementioned reasons.
- Typically, arbs have a profit margin of only 2-5% - many other arbs are so called "high risk" arbs ("palps"). Accordingly, profits accumulated through 20-40 successful arbs can be lost on a single failed arb.
- Won arbs realized via betting exchanges are typically subject to a commission fee of about 4-5%. However, frequent punters may be subject to a discount of up to 60%, ie a minimum commission rate of 3%).
- Smaller betting exchanges may not be able to deal with consistently winning punters 
- "How quickly is temporary market inefficiency removed?" Ben R. Marshall The Quarterly Review of Economics and Finance 49 (2009) 917–930