Monday, January 17, 2011

Sports Betting Arbitrage (and more)

I was going to post this at a later date, but the Billy Walters appearance on 60 Minutes last night, complete with its references and analogies to stock trading, made me reconsider.  As I explain in Gaming the Game, big-time sports bettors often rely on far more than solid handicapping to succeed.  Often times, this means they obtain inside information (a subtopic I find as fascinating as anything else I have discovered during the research for the new book), and on many other occasions arbitraging is involved.  Though I am an avid sports fan who knows plenty of bettors, I had never heard of sports betting arbitrage before this project.  A common definition of arbitrage is "The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy."  Another site similarly explains, "An arbitrage opportunity is the opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price."

Importantly, consequential sports bettors apply these principles to their craft with equal alacrity.  One particular pro gambler highlighted in GTG made an incredible living just by arbitraging, particularly before the advent of the internet (which made real-time odds from multiple sportsbooks widely available, thus negating the benefit certain pro gamblers had who maintained a network of sportsbooks and bookies constantly providing real-time odds changes over the phone).*  As one web site explains re: arbitrage in sports betting, "An arbitrage is available when pricing discrepancies between betting sites allow [bettors] to place bets that will yield a guaranteed risk-free profit." Though there are several forms arbitrage can take, the most common among the pro gamblers I interviewed is often referred to simply as "One Good, Two Markets" and is summed up as follows:

One Good, Two Markets Arbitrage in Sports Gambling

Arbitrage of the "One good, Two markets" variety is quite common in the world of sports gambling. Arbitrage on the sports market exists because different betting agencies often post different odds on the outcome of a game. Suppose the White Sox are playing the Red Sox. Bookmaker Billy is giving even money on the game, so a $100 bet placed on either team will earn you $100 if the team you picked wins. Sportsman Steve has the White Sox at +200, which means if you place a $100 bet with Steve on the White Sox to win, you will get $200 if they win, and $100 if they lose. You can guarantee yourself a profit if you make the following bets:
  1. Place a $300 bet on the Red Sox with Billy at even odds.
  2. Place a $200 bet on the White Sox with Steve at +200.
In baseball there are no ties. So either the Red Sox will win, or the White Sox will win.

Profit if the Red Sox Win 

If the Red Sox win, Billy pays you $300. However since the White Sox lost, you lost your bet with Steve and must pay him $200. Your profit is $100, as that's the difference between what Billy pays you and what you must pay Steve. 

Profit if the White Sox Win

Since the bet you made with Steve on the White Sox was at +200, Steve pays you $400 for your $200 bet. Since the Red Sox lost, you must pay Billy $300. Again your profit is $100, represented by the difference of what Steve pays you and what you must pay Billy. 

There are a number of gamblers who try to exploit differences in odds from bookmaker to bookmaker. It's not quite as profitable as it seems, as the odds do not generally differ as much as they do in this example, plus you have to pay the bookmaker in order to place the bet as that's how they make their money. 

*The pro gambler I am referencing also employed a host of other non-handicapping approaches to sports betting.  Among the numerous resources available in books, articles, etc., the best free and credible source I have located to date that explains the sorts of methods used by pro gamblers like the one I am discussing is here.  Pay particular attention to the section "Betting Blind = Big Money" and its subsections "Find 'Positive Subsets'" and "Learn what a 'point is worth'."  Also see "Beware the Sharp Book" and "Scalps and Middles".