What is Arbitrage Betting and How it Works

Posted by Alex Murphy on Sunday,June 21, 2015 7:05, EST in

If you place bets online regularly, one of the things that you will notice is that bookmakers sometimes don’t agree on the same sportsbetting odds. When this occurs, some bettors take advantage of the situation and use it to make some risk free money, because they are guaranteed to win, by using the arbitrage strategy.

For those that are unaware, the arbitrage betting strategy is a popular system that bettors use to exploit a discrepancy in odds set by bookmakers, because it guarantees them a profit, since the combined odds between the two bookmakers means a profit for the bettor.

To further elaborate on this system, it simply means that if you combine two odds set by bookmakers, you can have it work in your favor and win some money, by betting on both teams playing. For example, the Cleveland Cavaliers and Golden State Warriors are currently playing in the NBA Finals, if two separate bookmakers had different odds on the two teams for Game 1 of the series, this is how you would arb the game.

Basketball Game: Cleveland Cavaliers vs Golden State Warriors

Total Stake: $1,000.

There are two bookmakers with different odds, so you will make opposing bets.

Outcome 1: You place a bet on the Cleveland Cavaliers, the odds are 2.330 with bookmaker 1, you bet $460.65 of the $1,000 stake on this game, and you win $1,073.31.

Outcome 2: You place a bet on the Golden State Warriors, the odds are 1.990 with bookmaker 2, you bet the remaining $539.35 of the beginning $1,000 stake, and you win $1,073.31.

Obviously, you are only going to win one of these two bets, but regardless of the bet that you win, you will make $1,7073.31, which means you will make a profit of $73.71.

 

sports-betting-nba-strategy-2015

 

To some bettors, the $73.71 profit is not considered a good return on investment, because they spent $1,000 on their wagers, but the reality is that it is a low risk way to turn a profit, and they would have been out $1000, if they had lost on the spread, so this is indeed a smart way to bet on sports.

Before you start arbitrage betting, there are a few things you have to understand, one of which is the ability to calculate profits before placing your bets, so you know if the bet is worth placing. This can be done either with an arbitrage calculator, which can be found online easily by doing a quick search, or by calculating it manually.

Your first step is to find the bookmakers that are offering the highest odds on the event that you are planning to bet on, one of the bookmakers should offer the highest odds on the favorite, while the other offers the highest odds on the underdog. Once you have that figured out, the next step is to calculate the arbitrage percentage, this lets you know if you have an arbitrage that is worth betting on or not.

The formula for calculating the arbitrage percentage is pretty simple, all you have to do is divide 1 by the odds provided by the bookmakers, and multiply by 100. This should be done with both odds, and the results added to each other. For example, the Warriors and Cavaliers game we previously mentioned, bookmaker 1 has provided odds of 1.36, while bookmaker 2 provided odds of 5.5.

Using the formula, (1/1.36)*100= 73.529%, and (1/5.5)*100= 18.182%. When added together, the total percentage is 91.711%. Anytime that the total percentage is less than 100%, you have an arbitrage, meaning you should place a bet, if it is higher than 100%, don’t bet on the event.

 

sports-betting-strategy-nba-2015

 

Once you know what your total percentage is, it is easy to calculate your profit. The formula for this is the amount you are planning to invest on the bets, divided by the arbitrage percentage that you calculated, minus the investment amount. So if we are to invest $1,000, and use the arbitrage percentage total we calculated, you can figure out your profit like this: ($1000/91.711%)-1000= $90.38.

The most important part of your calculation is figuring out how much you have to bet on each individual bookmaker, to make the amount of profit that you have calculated. This is simply done by multiplying the investment amount with the calculated arbitrage percentage of each odd, then dividing by the total percentage.

Using the numbers that we calculated earlier, calculating the amount to invest with bookmaker 1 is:

($1000*73.529%)/91.711%= $801.75.

Calculating the amount to invest with bookmaker 2 is:

($1000*18.182%)/91.711%= 198.25.

This is the basic explanation of how the arbitrage betting strategy works, if you don’t feel like you can do all the math that is required, as previously mentioned, you can find an arbitrage calculator easily online.