I often see misunderstandings arise over bookmakers’ vigorish (vig), the profit or commission the layer makes on his book. You don’t have to look too hard around the web to find people claiming that sports arbitrage trades cannot exist once the Vig has been taken into account.
In fact, the vig is not relevant to sports arbitrage traders because it is built into the prices offered by the bookmakers. If those prices create an arb, the trader will place his bets. If the don’t, then he won’t.
Here is an example.
When a bookmaker sets his prices like this:
Team A: -110
Team B: -110
A customer has to risk £110 in order to win £100.
The sportsbook’s vig, or profit-margin in this case is 10% – if he gets 2-way action on the match, with different customers betting on different teams, for every £110 he receives, he pays out only £100.
You see, the vig is not a separate fee – it is a margin that is built into the sportsbook’s prices
Let’s look at an example of a sports arbitrage trade, whilst keeping an eye on each bookmaker’s vig:
Sportsbook 1:
Team A: -110
Team B: -110
You can see that Sportsbook 1 has a vig of 10%
Sportsbook 2:
Team A: +150
Team B: -233
At these prices, Sportsbook 2 also has a vig of 10% but a very different opinion of the likely outcome of the match.
By taking the price of +150 on Team A from Sportsbook 2 and the price of -110 on Team B from Sportsbook 1:
Team A: +150
Team B: -110
We have an arbitrage of approximately 8% – that is, for every £100 invested and staked in the correct proportion, the guaranteed return is approximately £108, even while each bookmaker has his vig.