How Sports Arbitrage Trading Works

Here we’re going to show you the basic nuts and bolts behind sports arbitrage trading and how you can get started.

Why arbitrage trading occurs in sports markets

Sports books each have their own opinions on the outcomes of events. They reflect the opinion of the public in the form of odds. These odds are always at fixed prices.

E.g. Roger Federer is paying $2.80 to win his next match at Wimbledon. Every $1 invested returns $2.80.

Investing on one player is "gambling" but investing on both is "trading"therfore removing all risk - Whoever wins the match becomes irrelevant.

To understand arbitrage trading, you must first understand a basic premise about bookmakers. Bookmakers think in percentages but display fixed prices to the public because that’s what they understand. Prices are really just percentages though.

E.g. $2.50 really means 40%. In other words the bookmaker thinks that the player has a 40% chance of
winning. The equation is simple – 100 divided by the price = the percentage. (100/$2.50 = 40%)

Bookmakers and totalisators (TABS) make money through the total turnover on the event (the money wagered on an event). They always win because they set the “frame” for the event.

How do betting frames work?

Sports books work on really tight margins as they have global competition (of 1800 agencies, worldwide), therefore frames are usually set near 105%. They still do well as each event provides them with 5 percent profit on every sporting event in the world. Even better, sport is on 24 hours a day and 365 days a year.

	Hewitt vs.	Roddick
Pinnacle	$2.50 (40%)	$1.50 (66.6%)	= 106.6% frame = Bookie Profit of 6.6%

Now have a look at a typical horse race frame. The TAB would typically set the frame to 118% which means 18% revenue for each race, regardless of which horse wins or which punter wins. Don’t even try to make money here – margins are so high and prices fluctuate.

Horse	Price	% Price
1	5.50	18.18%
2	3.10	32.25
3	14.50	6.89
4	4.6	21.73
5	4	25
6	20.4	4.9
7	11.2	8.92
	Total	117.84%

How to beat the frame

Making an investment on each side through the one bookmaker is impossible to beat the frame. However, by using multiple bookmakers the frame can be beaten. This represents an arbitrage opportunity. To do this, you need to get a price for each player, calculate the percentage and ensure it remains below 100%. See below for an example:

Book	Hewitt	Roddick
Betfair	$1.90	$1.90
TAB	$2.00	$1.85
Ladbrokes	$1.85	$2.00
Pinnacle	$2.05	$1.90
TAB NZ	$1.90	$2.05
William Hill	$1.87	$2.03
Centre Bet	$2.02	$1.87
Sporting Odds	$1.90	$2.03
Stan James	$2.00	$1.87

In this example we have beaten the 100% frame with a couple of combinations however the best return is with the two highlighted.

Pinnacle	Hewitt	$2.05	48.78%
TAB NZ	Roddick	$2.05	48.78%
			= 97.56%

The Maths Behind It

Trade 1 Invest $1000 with Pinnacle on Hewitt @ the fixed price of $2.05
Trade 2 Invest $1000 with TAB NZ on Roddick @ the fixed price of $2.05

The Outcome of the Arbitrage

Total Outlay = $2000
Total Return = $2050
Profit = $50 or 2.5%

This resulted in zero risk of you ever losing your capital.

It’s that simple. All you need to make the process that little bit easier is the world’s most sophisticated software: CarbonA.

How Much Can Sports Arbitrage Make You?

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