The information contain in this post has been sourced from a research paper carried out to investigageInter-market arbitrage in sports betting.
The authors wanted to investigate the route causes of arbitrage opportunities. They did so by conducting an experiment 5478 football games. They defined intra market sports arbitrage opportunity as a arbitrage conducted in a single market setting, for example, between traditional fixed odds bookmakers.
Previous studies have alluded to the fact that market makers such as traditional betting boomakers have become very efficient at forecasting football markets.
As such, the authors excluded intra market sports arbitrage from their study. This is understandable as they only found 10 intra market arbitrage opportunities in all 5478 games.
Much more interesting was the discovery that inter market arbitrage opportunities are much more common. Inter market sports arbitrage was defined as placing one side of a arbitrage bet at a traditional bookmaker and the other side with a betting exchange, such as Betfair. A typical margin of profit for a traditional bookmaker is between 8 – 14%. They expect this due to a certain amount of risk that they must take on when establishing a betting book. A betting exchange is exceptional in that it is the members not the exchange that carries any risk. As such, commissions charge by Betfair are only up to 5%. This is said to be one of the main reasons why there are difference between bookmaker odds and those on Betfair.
It was cited within the study that previously similar investigations hypothesised that intra sports arbitrage (sports arbitrage within betting markets)is caused by noise. Or due to random differences in the odds.
The authors of this study found something more useful to sports betting enthusiasts. After research into the technicalities of inter market sports arbitrage betting the authors propose that inter market arbitrage opportunities result from different levels of information efficeincy. Not random price differences.
It was shown that the odds set by betting exchange members are a better reflection of the true probability of an event. This can be used to spot value opportunities by betting only at a traditional bookmakers where their odds are markedly different from those of the betting exchange, which as proposed in the study give a better indication of the true odds. Alternatively, sports arbtirage bets can be made betting at the bookmaker and at Betfair to produce risk free profits.
Further analysis as to the cause of the discrepancy in odds and how investor beliefs translate into prices at the bookmakers and betting exchange where called for.