Inside Edge Magazine - Sports-Arbitrage Article
Arbitrage traders, or arbsters as they’re known, make serious money, risk-free, from exploiting the price differences between bookmakers. Roland de Wolfe reports on this wiliest of betting strategies.
Serious gamblers should always be on the look-out for new ways to profit from their passion and if you haven’t yet got into sports arbitrage trading, now is the time to give it a try. If you know what you’re doing, you literally can’t lose.
Arbitrage trading has been around as long as bookies offering competing odds have been around. It involves using a number of bookmakers to take prices that differ so much that you’re able to bet on several outcomes and turn a profit irrespective of the result.
In its simplest form, an opportunity for an arb arose in the betting for the last US presidential election, when George Bush was 6/4 in the US and Al Gore was 6/4 in the UK. This meant you could back both to the same stake and guarantee a 25 per cent return, whatever the result. If you’d put ?1,000 on both to win, you’d have lost the Al Gore bet but the George Bush one would have returned ?2,500, eliciting a nice ?500 profit.
Thousands of opportunities for exploiting a sports arb are created every month too. The opportunity to spot and exploit an arb arises whenever a bookmaker’s overround is below 100 per cent, not just when both are better than even money. So, if Tim Henman is 3/1 to take a tennis tournament and Lleyton Hewitt is any longer than 1/3 you’d have the arb, provided you knew what stake to place on each.
The possibility for making profitable arbitrage trades exists in many markets, but is most commonly used in the financial markets. Here, arbs occur when the same instrument is traded in separate markets. For example, the Bund Futures Contract used to trade both in London on LIFFE (the London Financial Futures and Options Exchange) and also in Germany on the DTB (Deutsche Terminborse). Although their prices are mostly the same, there are also times when they are out of line, and this is when arbitrageurs, or arbsters as they’re now more commonly known, would step in to buy at the lower prices, then immediately sell at the higher price. More complex arbitrage opportunities occur between interest rate markets and derivative markets, where a relationship can be synthesised and then arbitraged if the conditions are correct.
While arbitrage in financial markets tends to be dominated by large investment houses and banks, sports arbitrage is available to anyone with the capital, the tools and the time. With a bit of study about how this form of betting works, you can become an expert on identifying and profiting from opportunities that are created every day among the large number of sports bookmakers around the world.
However, although sports arbitrage trading is risk-free, it’s not effort-free. Your success depends on your own level of commitment and hard work. Individual arbitrage prices don’t last for long and there’s a steep learning curve for all new traders.
The man with a system
Sports arbitrage trader Jason Thompson found that he was spending too long finding arbs and not finding enough of them to make decent profits, so he teamed up with City whizzkid Rajeev Shah who devised a computer program he has called ArbAlarm. This system scours bookmakers worldwide for arbs and then instantly delivers them to the inbox or mobile phone of subscribers.
The internet has made finding arbs much easier. Now you can see prices updated instantly on websites and track your money in electronic accounts. However, it’s still a time-consuming business. Arbs don’t last longer than a few minutes, as the weight of money moves the prices and there’s only so much research you can do in the time it takes to identify and exploit the arb.
ArbAlarm changes all that. While a trader looking for arbs manually might have managed to find 200-300 arbs himself last year, this new software regularly uncovers several thousand trades each month.
Shah used to be a currency & futures with a large American bank, but then he swapped stocks for soccer and his trading jacket for a keyboard. His book, Sports-Arbitrage – How to Place Riskless Bets and Create Tax-Free Investments, is considered the reference work in this field of investment.
His website www.sportsarbitrageworld.com has a loyal group of subscribers paying a monthly subscription for exclusive access to the information the software uncovers.
‘I was involved with financial market arbitrage for a number of years and saw how technology was rapidly changing the way deals were done. A year after I left the City, LIFFE moved to a completely automated, computer-based system. This was around the same time that the internet was becoming mainstream and I noticed a large number of bookmakers springing up on the web, which created arbs all over the place.
‘I started searching for and trading these arbs on a daily basis, and once I’d verified that this free money was really what it seemed, I started development on my software, which now scours over 100 online bookmakers across 25 different types of event.’
Arbitrage is normally done on sporting events where there are a small number of outcomes, such as football, tennis or baseball. The average arb value on ArbAlarm is just under 3 per cent. This means you tend to stake a lot for a number of small but guaranteed returns. The more capital you have, the more money you make, but if you’re clever you can make your money behave as though it were five times greater in amount than it is.
According to Thompson, ‘The power of leverage can make your profits increase sharply. If you cover enough arbs in short-term markets, £1,000 can be turned over three or four times in the month. Speed of turnover is the key - low percentages don’t really matter,’
Some bookmakers require a credit card deposit, and deposit fees may be incurred. ‘If you have the capital to leave money in the accounts, then you can get the bet on as the arb occurs and you won’t have to keep paying credit card fees,’ he advises.
He estimates that a trading base of £5,000 will easily net you about £600 tax-free profit every month if you use ArbAlarm for 1 hour each day. Data from surveys of the loyal customer-base of Shah’s website confirm that sports arbitrage traders are well-used to profits amounting to around 12% per month.
The armchair arbster
Paul Hammond, an estate agent from Hackney, got into arbs after seeing how much a colleague was making. He works during the day, so does his arbitrage trading mainly in the evening and has done so for the past two years. He says he makes an extra ?350 in an average month for, on average, just one hour’s work a day.
‘There are more arbs than ever with the explosion in internet betting. You learn when the bookmakers change their prices and get to know which firms tend to offer top price on any given sport. If you look at the odds comparison sites (such as oddschecker.co.uk), you can see what is the high and low end of any market,’ he says.
Hammond doesn’t want to take arbitrage up full time, but it now occupies a place in his spare time that was once filled by more traditional betting methods.
‘I used to bet a lot on football, golf and horses. Now I rarely bother, as then I was a mug punter looking for thrills, whereas now I’m recouping the money I lost. It’s kind of weird to watch a football match now, knowing that I’ve backed both teams to go through.’
The bookmaker’s view
As people who continually make money from betting, it’s logical to conclude that arbsters are the scourge of the bookmakers. However, if you do get involved in arbitrage trading, it appears the bookmakers will be happy to accommodate your bets.
Gary Pearce, sports trading manager at SportingOdds, told InsideEdge: ‘My philosophy is that whenever there’s an arb, there’s always someone laying the other side. We have expert traders who determine the prices we offer, and as long as those prices are true or slightly under the true price, then I’m happy to take bets from accounts we believe belong to arb traders.’
Pearce believes it’s not bookmakers but regular punters who lose out to the arbsters. ‘When we make a selection, we have a safety net of how much we’re prepared to lay on that selection. If we’re top of the market and one half of an arb, the arbitrage money will get us closer to that limit than it otherwise would be, but regular punters may not be able to get on that price.’
So, with state-of-the-art software at your disposal and the government tacitly confirming , via its legislation on betting duty, that it intends to allow sports arbitrage traders to continue enjoying their profits free of tax, risk-free bets seem to be the way to go for anyone wanting to make extra money in their spare time.
