How Bookmakers Create their Odds from a Former Odds Compiler

This post originally appeared at and has been reposted here with the permission of Steve from the Daily25 blog. It is written by Matthew Trenhaile who has worked as an odds compiler for many years and is now out on his own taking on the bookies. You can follow Matthew on twitter @CrazedAlchemist and he also has his own blog. Over to Matthew.


Matthew's background as an odds compiler

My name is Matthew Trenhaile and I worked as an odds compiler for six years at the UK Sport Spread Betting division of IG Index. Steve has very kindly allowed me to use his blog to showcase some of my writing and I hope to do that in a series of articles from the perspective of someone who has worked in the betting industry. Firstly I would like to go over some of the phrases I will use in my articles as the names for various things change from country to country and era to era. When referring to a favourite I will use the word “Jolly” and “Rag” for underdog, these are very much UK phrases to my mind. To describe smart punters I use “Sharp” and “Square” for losing punters. These are very much Vegas words and will also be used to describe bookmakers which I may abbreviate to “Books” on occasion. For accounts in another name used for putting on bets I rather like the term “Bowler” I assume this is an Australian phrase and I rather like it. When describing odds I will use decimal odds and when talking money it will be in UK pounds and pence just for my own ease. I am seeing more and more articles by industry insiders not to mention television documentaries and they all seem to generate a lot of heated debate. I am all for this if it is good natured but do please remember these are just my opinions and I happily respect those belonging to other people.


An evolving betting industry

In each of the following articles I hope to tackle the subjects from a past, present and future perspective. First I will look at odds compiling and how it has changed over the past fifteen years and also try to tackle the subject of bookmakers copying prices off each other, which seems to be a hot topic. My perspective on odds compiling comes from spread betting and this is important because the spread betting industry is responsible for every significant change in odds creation of the last 25 years. For those of you unfamiliar with spread betting please go to Sporting Index’s website and go to their training section to get an idea of what is involved. You could oppose an outcome in sports spread betting before you could lay on Betfair and you could bet in-running online on the spreads before any of the fixed odds bookmakers. It was also IG Index who first invented the dreaded close out button on the doomed to failure fixed odds betting product Extrabet. While none of this makes me particularly good at odds compiling compared to another it does mean I was constantly at the forefront of technological advancements in the industry. This was true then and the sports spread betting industry still leads the way now either through employees who have gone on to devise the models of other bookmakers or through companies such as Sporting Solutions, a spin off from Sporting Index where they sell in-running prices to other bookmakers. It is with good reason that many fixed odds bettors take a look at the spread betting firms prices as a secondary check before placing their bets.


How Odds Compiling Works

Odds compiling has steadily become more and more about databases, statistics and mathematical models and less about personal experience, intuition and feel. I was fortunate enough to work with men who had watched thousands of hours of racing and could pick out the smallest of nuances about how a horse was ridden or the strategy of a given trainer however, I was also fortunate enough to work with people who were able to break down sports into their fundamental inputs and turn those inputs into probabilities both before and during events. Odds compilers were initially split on the prospects of Betfair and certainly on its uses with regards to compiling prices. I started working at a time when Betfair had just reached significant liquidity levels and could not possibly be ignored if only because of the ever increasing numbers of arbitrage bettors. Within 6 years we used our Betfair API to price up all our horse racing products with a human simply to oversee the process. Contrast this to when I started and we had a trader for each horse racing meeting and a room of 40 traders in a time when the number of sporting events priced was less than a tenth of the number now. The luxury of being a subsidiary of a large financial firm was that we were better paid than the rest of the industry and had greater resources at our disposal whether it be staff or IT support. All resources were increasingly ploughed into trading more events in-running and developing more and more complex models for generating odds in-running. These odds were generated for our clients but also so that we could provide liquidity to the betting exchanges which enabled us to generate a significant secondary revenue stream.


Creating Statistical Models for Sports

Most statistical odds compiling originated with a simple counting of how often an event happened. Two football teams, count how often the home team won at home in the last 20 games, how often the away team lost away in the last 20 games etc. This was well before my time of course and what gave bookmakers an edge back then was studying the sports more than the punter and comparative odds knowledge. What I mean by that is if a bookmaker calculated a team should win 50% of its home games in football and last time these two teams played you put up 1.83 odds and the punters backed it like crazy the bookmaker then records or remembers this and puts out at 1.75 next time and when the punters come back it again and the bookmaker has extracted extra value from his margin simply by knowing what the punters did and what they were willing to pay for it before.  Odds compiling was more about knowing the punters and their habits than the actual percentage probability of outcomes. Even now this particular area is the difference between bookmaking and punting. Bookmakers have to anticipate money flow whereas the punter has to determine the probability of outcomes and find value. In an online world the odds have come to reflect real probabilities more and more and less public opinion or the narrative of the event. The emergence of in-running betting is what really drove odds compilation to mathematical modelling, it became too hard for a human to quote prices in multiple markets for multiple events in-running all with pen and paper. Bookmakers needed automation, which meant models.

The Possion Distribution for Modelling Sports

Most sports betting models are easily found online and have been around for a while but with many tweaks and refinements over the years and ever improving levels of data. Poisson distribution won out as the way of modelling football not only because with some refinements it can be very accurate but also because it was easy to add time decay to the inputs.

Poisson distribution is commonly used to create models of football.

Poisson distribution is commonly used to create models of football.

You have goal inputs for each team and as the match progresses those goals input in to the model slowly decrease meaning as the simulation is recalculated each second it produces a slightly different set of odds. This went from Poisson distribution to custom distributions per league and we went from working out goals for and against to shots for and against and then turning those in to goals. Now compilers are measuring the quality of the shots and the impact of individual players on the shots to create advanced player based shots models. Or are they? All sports have their equivalent mathematical model and all can be tweaked further as more data is recorded and made available. The question for bookmakers is how far do they go down that route? Do you pay to have people maintain huge databases? Do you pay someone else to provide prices? There are already several firms using the same prices from the same company for in-running football for example. Even if you did the odds in house just how good do they need to be to beat the average punter and can good (using sharp bettors positively) risk management hide a multitude of sins simply by letting your good punters move the prices in to shape for you? Sadly few bookmakers allow for that style of risk management or for the investment in better pricing. Odds compilers are finding out that one pound spent on promotions and marketing can generate a greater increase in profit than one pound spent on their salaries or in software development. Bookmakers want to spend just enough to beat the 98% of punters they need to with the minimum number of staff. Analysing in greater detail actually shows them that paying for decent profiling software and young no experience employees to operate it is even more cost effective than training or acquiring odds compilers of almost any skill level.


How Bookmaker's Business Models and Views on In-House Odds Compiling has Changed

Maybe you are thinking that surely odds are a bookmaker’s product and surely they would be better served by developing that in the long run. This is an incorrect assumption for modern bookmaking. You do not choose which hotel to stay in by comparing the cost of a beer in the minibar. And bookmakers see the odds as about as important as the price of that beer. Their product is entertainment and not the selling of an intellectual contest between punter and bookmaker. It is foolish to think this has ever been the product that bookmakers have sold. They sell an adrenaline rush and anyone who thinks great characters pitting themselves against the punters and taking anyone on in horse racing betting rings is what betting used to be about is kidding himself or herself. Everyone has a story of how great bookmaking used to be. The people I speak to remember betting tax in the UK, huge margins, little choice between bookmakers to use, being refused payment and in fact being threatened with violence when trying to get paid out. I have no idea where this image of the gentlemen bookmaker comes from. Throughout time some bookmakers take your bets and some don’t and some allow you big bets and some don’t and some go bankrupt on you and some don’t. This has been true for both sharp and square punters. All bookmakers expect to win almost regardless of the quality of their odds (not a view held by their compilers necessarily) and better to channel their efforts in to getting punters through the door than lowering the price of the beer in the minibar. I do not like this model but I do not see this model going away.


There can only be one Pinnacle

Now for the obligatory Pinnacle paragraph. Why can’t all bookmakers be like Pinnacle? The answer to this is simple and it is that there can only be one Pinnacle business model at a time. Others can take bits of it here and there but the exact Pinnacle model can’t be easily duplicated. Pinnacle’s tagline is that they welcome winners and simply put that is because they want to beat all the square books with the greatest sports proprietary trading scheme in the world. By employing the best odds compilers, betting to tiny margins, allowing all arbitrage and sharp bettors and moving your odds in accordance with how sharp they are your odds become the truest representation of the probability of sporting outcomes. You start limits low at your most vulnerable and increase them as your price improves. You spend nothing on marketing but allow absolutely anyone to use affiliate banners and give your API out to anyone you can especially arbitrage and odds comparison services. Your low margins mean you are the other side of arbitrage trades all day and all night and the square book your price is against is so bad at pricing you must be getting the value side of the arbitrage trade. In fact you are getting it over and over again but always moving your price to capture that small bit of value every time. You become the single largest punter that Bet365, Ladbrokes, William Hill etc has and all without opening a single account. Your risk management must be largely automated and you must have the servers of an investment bank. Anyone else trying to setup this model and succeed must do so with smaller margins and better risk management and not to mention a lot of capital. The only one I see really trying this is Marathon and they have not got to the point where they will not close accounts, in fact far from it. What about all those Asian bookmakers accepting winners? Well they are happy to take them on events where they see a huge volume of square money, which are of course all football matches and some US sports and maybe decent level tennis matches. The Asian Handicap model is designed to be low margin, fast moving and high volume and the sharpness of the money once close to the off is almost an irrelevance in some cases and early on limits are low like Pinnacle while the market forms so the risk is low. They are not however running a Pinnacle model but simply have got a large enough square volume to adopt certain aspects of it and are more comfortable to have loss making areas as long as the book as a whole is profitable.


The Future of Odds Compiling

So where do I see the future of odds compiling? Ultimately I believe that odds compilation will become an entirely outsourced function for bookmakers (are they still bookmakers if they don’t make the book?). There will be specialised companies whose primary function is providing odds both pre-match and in-running. There are already several companies that do this and there have long been companies who made it their business to provide liquidity to betting exchanges. You are going to see even more homogenised pricing than you do now. The reason that you see so much “copying” of prices is that the liquidity is such now in certain sports betting markets that there is now what can be deemed a market price much like in the financial markets. In top-level football there is very little incentive for bookmakers to deviate heavily from each other. Believe me when I say that extensive studies have been done that show trading against the market in liquid sports is a loss making proposition in the long term as bookmaker, not necessarily as a punter but when you have to provide thousands of prices across so many events you are better served by following the market. There are increasingly companies that will look at the market and say that a combined price from Pinnacle, IBC, SBO, Betfair (when liquid) and Bet365 for football for example can easily be concocted from API and will be more than solid enough. These operations aren’t going anywhere and see a staggering amount of bets, which keep the prices true.  So why do they put arbitrage opportunities up all the time even in liquid markets I hear you cry. The answer is we are still in a period of transition in the industry and some are still coming to terms with the idea of a market price that should just move on weight of money and not a trader’s opinion.

I actually envisage growing confidence from bookmakers in these consolidated feeds. They eliminate arbitrage or at least with any sharp sources and they are cheap to use. I think they will also outsource all risk management as well. There will always be exotic markets attached to the core liquid ones and if bookmakers have any sense they will raise limits on the core and reduce the limits on exotic stuff to 100 pound takeout which is fine for the average “amusement” bettor. As for horse racing I have no idea where that will end up, SP only maybe? I actually think that pari-mutuel betting with very low margins would be the way forward, a sort of universal Betfair SP. In Asia this kind of pool betting has not deterred punters of either the recreational or professional type. The problem with the UK is the amount of terrible racing that is on but who knows if every bookmaker pooled tickets, and Betfair and the Tote and shared the profits then maybe something of worth could emerge and it would also put pay to some of the rancid SP rigging that goes on. Punting will become about beating the market as a whole and not picking off the sick and the weak prices from bad books. This will require punters and tipsters to understand the strengths and weaknesses of the markets they tip in as much as the sports themselves. Ultimately do not concern yourself with how the price is made or whether all bookmakers are showing the same price, only concern yourself with beating it, as there will always be flaws and edges to be found even if they become smaller and harder to spot. 

Written by Matthew Trenhaile

You can follow Matthew on twitter @CrazedAlchemist and he also has his own blog.

How bookmakers track your every move & how to avoid it (from an industry insider)

This post originally appeared at It has been reposted here with the permission of Steve from the Daily25 blog. It is written by a guest contributor at the Daily25 blog. He works at one of Australia’s biggest bookmakers but does love his job so wishes to remain anonymous. Being one of many sportsbook insiders I converse with on a regular basis, I shall cleverly name him Spinsider. I email with a number of people who work at sportsbooks, they have all stumbled across this site and contacted me. You can imagine that we have a lot in common and a lot to talk about. I have found that all the workers of these big corporations are great guys. I always feel a tinge of guilt when calling out sportsbooks, as I personally know workers there, but it is not the workers who are the issue, it is the way the owners have created a culture in each company much like those seen in the wolf of wall-street. The goal of all employees is to make as much profit for the company as possible and this sometimes leads quite nice people into doing reprehensible things in the name of profit.

This article will give a small glimpse into the lengths that bookmakers go to profile every single customer and then weed out any that may one day make a profit. This is a major issue in our little sports-betting world, and an important story to get out there to the general public. I’ll hand it over to the Daily25 Spinsider and I’ll be back at the end of the post to add some of my own opinions.


From inside a corporate bookmaker

Sometime back, Steve contacted me privately to write a piece for his ever growing and popular blog I apologise to Steve for the lateness of this as I’ve had a few personal items get in the way in addition to a little overseas trip I had to attend to, but here it is. I don’t usually do this kind of stuff (writing articles) but I can genuinely see that Steve means well in what he is trying to do, is an advocate for fairness, and I know from my brief discussions with him he is a genuinely good guy. That means a lot to me. Who knows I might take up my own blog if I enjoy writing material myself. I guess Steve will tell me if this is a hit.

To introduce myself, I’ve worked in the gambling industry for roughly 4 years here in Australia and am doing so currently for a major corporate. I have, and currently do a fair bit of sports punting myself so I can relate to both worlds very clearly. Sometimes I read tweets and blogs and articles on major newspapers like The Age for instance and get annoyed because only one side of the story is presented. I understand the perspective of the bookie – hey I’ll admit I wouldn’t have a job if losing punters (you guys) didn’t pay my wage, and I understand the frustrations of not being able to get a bet on and getting restricted and getting my account closed. On the flip side, if bookies don’t make profits, you the punter have less options to bet with and hence less promotions and offers. It’s a vicious circle.

Why Bookmakers Limit Winning Players

This brief article looks at how accounts get flagged and hence end up as a dreaded restricted accounts. The last thing any punter wants is to go enter in a stake and be told their business isn’t wanted. Why don’t they want my money? In short: yes, consistently winning punters are shown the door. But let’s understand why that’s the case before I go through typically how it happens.  A corporate bookmakers overall aim is to make profits, because that’s what the owners and shareholders are looking for, nothing else. You don’t make growing profits, you lose your job. Individuals within the organisation get greedy and in-order to meet their individual targets look for ways to make more and more of a margin, an easy way to assist with this is to remove business (punters) who look like they will cut into their margins.  Corporate bookmakers are complex beasts. Many hundred employees, across trading, marketing, IT, finance and so on. They’re all human, they all need to get paid, and so do the shareholders. I’ll be honest with you, there’s a culture of always trying to be unfair with the customer, and there doesn’t have to be.  In other words, trying to deceive the customer, the very guys who pay our wages. As a punter myself it annoys me, because I know other bookmakers are doing it to me. The difference is, I understand it.


How Bookmakers Identify and Profile Winning Players

Anyway, back to the point of this article – how accounts get flagged. The couple bookmakers I’ve worked with have complex risk teams who monitor all customer betting activity, betting trends and so on. When I say ‘all’ betting activity I mean ‘all’ betting activity. Below I will go through a few techniques:

  • IP Addresses are tracked at both an account level as well as a bet level. Even though you try and create a new account under your mums name, if there’s ever a bet or account that has the same IP Address these are flagged immediately. Things like MAC addresses and the like are captured but to my knowledge are not used for filtering purposes. Also if you and “your mum” start betting on similar sports at similar times, your profiles will match.

  • Unique accounts – just like any business there are rules in place to ensure that same people do not have multiple accounts. Things like date of birth, suburb, address, device id of your android or apple device are compiled, and compared against one another on an ongoing basis. When new accounts are created they are compared against to the existing database instantly are these accounts are grouped and monitored.

  • Cookies. No I am not talking about the bad boys your grandmother gives you. Every time you appear at the bookmakers website either logged in or not they know you are there. In Australia these are automatically placed on your browser and there’s not much you can do about it, unless you clear your browser cookies each time. There are no laws like the UK where you have to opt into such behaviour. Everything from time the site was visited, to clicks on a page, to hover over links, to session length is stored and then you are profiled. There’s no hiding. From here you are placed in “user profile buckets” where suitable marketing or promotions or offers are chosen to be applied to your account to keep you engaged.

  • Social media – the two bookmakers that I’ve worked at have complex CRM (Customer Relationship Manager) systems that are constantly evolving. Risk and Customer Service teams are constantly trolling Twitter, Blogs, Facebook, employees from other bookmakers as well, tipping service subscriptions and people with industry knowledge and these are all noted on the customer’s account. Reports are generated daily basis on all betting activity (bets placed, profit/loss and so on) and these people are closely monitored. People who tweet together are put into “pools” and are known as “syndicates”, official or not. This is why some accounts get banned the very few minutes after they create an account. It’s because they get flagged via mechanisms above before they even create an account. I’ve seen accounts pre-created for people and restricted just in case they turn up some day. My favourite is when people post pictures of their accounts/betting slips on Twitter, it makes the job so easy to flag accounts.

  • Staking – when you create an account everyone has the same staking level. Once you start “winning” on a daily, weekly, monthly basis (everything is reported) your staking level starts to change or get reduced. If you are really crap at a particular sport the amount you can stake increases. This can be achieved per bet type or sport, or competition or split between racing and sport. This is why you see sometimes you can bet big stakes on cricket (it’s because you constantly lose here) but small stakes on racing (because you constantly win here). Why ban you completely? Bookmakers might as well restrict or ban you when you’re winning and let you lose where you’re losing. Most of this is manually performed at the moment, however the intelligence to make the decision is all automated.

  • Trends betting – If you and a few of your mates are betting on the same type of selections at the same time of the day, it will be noted. One of the two bookies I’ve been involved with have an engine that compares bets (exact bets) between different customers and looks for trends. This runs 24/7. If a whole bunch of people bet at the same time on the same selection, it’s obvious they are from the same tipping service. Do you think that bookmakers aren’t subscribing to these services themselves? You’re a bit naïve if you think they aren’t.

  • Tipping – ah, another favourite. Ever created a personal tipping competition between your mates? Well it is your lucky day you have all been grouped together, similar to the staking item above, if one punter within the tipping group is really good at Sport X, this may reduce the amount that can be bet by any members of the group.

  • Betting Back – don’t be fooled into thinking that every “good punter” is restricted or banned completely. Why would any bookmaker do that? Most of the really good guys have their bet taken, then the bookmaker will place the same bet at a better price back into Betfair (or at least hedge it for a loss), or place the same bet onshore or offshore at private bookies. I’ve heard things like bookmakers have systems to check arbers on particular Betfair markets but I’ve never witnessed or are aware of this system myself.


Why Believing You Are Better Than the Bookmaker is a Bad Idea

Bookmakers have got really sophisticated in the past few years because they know the Australian market is growing and will continue to grow over at least the next 5 years. They all want a piece of the massive market share pie. Don’t be put off by the promotions and special odds, they’re all for show. When Tom Waterhouse tells you to “take him on” that’s because he knows with a high degree of certainty that whatever selection he’s offering the enhanced odds on will lose. These bookmakers have models and systems in place that will provide them the result of a race.  The guy sitting behind his computer at home has no chance against the 50 traders who work around the clock who do this stuff day in day out with complex modelling. You’ll never win. Bookmakers only exist if they take your money. On the other hand, they are not a charity, they’re a business.

How Bookmakers Will Identify Winning Players in the Future

The monitoring activities briefly listed above are just the tip of the iceberg. I’m sure in next to no time personalisation software will be able to map out every customer touchpoint or interaction that they have at any point so they can predict your next move before you even do it. My advice is – Big Brother is always watching. Do you want to keep out of the bookies eyes? Don’t make multiple accounts, clear your cookies, keep off social media or do it anonymously, throw the bookmaker off every so often with a really stupid bet. Everything gets reported. Everything is automatic. Everything gets monitored. I could ramble on all day really about a plethora of topics however I’ll leave it there. Hope to touch base again in the future.

End Comments by Steve from the Daily25. 

Firstly a big thank you to our industry insider. While this is not everything that is done, it is a very handy list to have. Now that you know some of the rules of the game, you can now take measures to game the system. Luckily for me I have a background in IT and have been in the punting arena for over 15 years (10 doing casinos, 5 with sports). Creating new clean accounts is a science and sadly a necessity in today’s world of limited accounts. If you really want to get a bet on you have to work pretty hard at staying under the radar. Things like IP and MAC address can be easily spoofed. Cookies can be turned off by using incognito mode in your browser. Social media is another issue, as if you or even a friend ever likes or follows a bookmaker, then the amount of information available is immense. My longest lasting accounts all have no social media presence.

I hope this article enlightened you a little about the amount of effort bookmakers go into to make sure no winners ever get a chance. They spend millions a year on staff and tech to make sure they only have losing accounts. So much for the Australia ethos of a fair go. As most of these bookies are British they don’t understand that concept and are slowly realising that it won’t stand here.

Written by a guest contributor at Reposted here with the permission of Steve from the Daily25 blog.  

Exploiting arbitrage opportunities: From trading stocks to sports.

"Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies"

- Investopedia

How high-frequency trading firms exploit arbitrage opportunities in the stock market

With today’s technology, the pricing of stocks is updated within a few milliseconds of real-time. This is way faster than a human is able to perform calculations, which makes it difficult to find arbitrage opportunities in financial markets. As a result, firms who are performing day trading are now using computers to perform algorithmic electronic trading at a speed that is impossible for humans to match. The way this works is that you give the computer a set of instructions, which will trigger it to buy or sell stocks. These instructions can be related to price, timing, volume or a mathematical model. For instance, you write an algorithm that tells the computer to buy 1000 Tesla stocks whenever the price goes above $200 and sell if the stock price increases by 10% above the purchase price.  For more reading on arbitrage and algorithmic trading, check out the links. 

The non-fiction book “Flash Boys” by Michael Lewis, tells the story of how high-frequency trading (HFT) firms used a super fast fiber optic cable that connected the financial markets of New York with Chicago to perform arbitrage trading. This $300m cable reduced the journey time for data from 17 to 13 milliseconds. An advantage, which enabled the HFT firms to obtain better prices on their trades compared to their competitors.

To illustrate how this works in practice let’s imagine that a hedge fund wants to buy a 100 000 shares of Tesla stock. This purchase will be spread out on multiple stock exchanges to ensure that they get the best possible price on their purchase. As a result 60 000 shares are purchased on Nasdaq for $200 per share, but once someone buys stocks in a company, the price will increase. Thus there are only a limited amount of shares are available for $200. Once the purchase has been made the stock price of Tesla increases to $202 on Nasdaq. Therefore the hedge fund will look at buying the remaining 40 000 shares at a better price on a different stock exchange. At the London Stock Exchange (LSE) Tesla is still trading at $201 because the price has not been updated yet. What happens is that the HFT firm will notice that someone has purchased a large amount of Tesla shares on Nasdaq and therefore they will leverage their faster cable connection to purchase Tesla shares at the London Stock Exchange before the price increases to $202. So let’s say the HFT firm manages to buy Tesla shares at $201 per share at LSE. They then sell the stocks to the hedge fund for $201.99 and pocket a 99 cent profit per share. All of these events take place within a couple of milliseconds and are enabled by the firms using complex computer algorithms to perform their trading. In reality, the pricing difference is more likely down to 1 cent or less, rather than the 99 cents used in this example. However, if the HFT firm is able to perform thousands of trades like this during a day, then the profits will add up to huge sums in the end. According to the article at Harvard Politics, the HFT market produced profits of $5 billion in 2009, but declined to 1.25 billion in 2014. Also, HFT trading accounted for 73% of the total daily market volume on U.S. exchanges in 2014. A possible explanation for this decline can be found in the macroeconomics principle of perfect competition, which states that the existence of economic profits within an industry will attract new firms to the industry. The increased competition will result in diminishing returns for the firms and in the long run the industry will reach the state of perfect competition, an equilibrium where the industry profits equal zero. A second possible explanation is that the stock exchanges have improved their own connections, which reduced the relative edge that the faster connection provided the HFT firms.

According to Investopedia’s definition, arbitrage opportunities exist as a result of market inefficiencies, which allow investors to exploit price differences. Therefore it is not limited to just investments in stocks, but really any market where such opportunities exist. As a result the HFT firms also trade other types of securities such as bonds, futures and foreign exchange contracts. The rest of this article will focus on price inefficiencies within sports markets.

Arbitrage opportunities in sports markets

Within the world of sports betting there exists bookmakers where you bet against the house and betting exchanges where you bet against other people. The latter can be compared to a regular stock exchange, the main difference being that the traders buy and sell bets on the outcome of events such as a football game rather than stocks. What makes the sports market interesting from a trading perspective is that it is more inefficient than the financial markets, which in turn creates arbitrage opportunities. At the free site, one can compare the odds of a game provided by different bookmakers and betting exchanges, which enables you to see the inefficiencies that exist within the sports market with your own eyes. I’ve included a screenshot of the odds from different bookmakers on the Liverpool – Manchester United game that was played on 17.10.2016.

Odds comparison

Odds comparison

The odds of a game’s outcome reflect what the bookmaker believes to be the probability of that outcome. The probability of an outcome equals the inverse of the odds, in addition one has to adjust for the bookmaker's payout rate, which is the amount of money that they pay back to their customers. For instance Mybet has a 90% payout rate, which means that they take a 10% cut of the money that is placed on this game. Next let’s compare the odds provided by two different bookies.

Sharp vs Soft Bookie Odds and Probability

Sharp vs Soft Bookie Odds and Probability

What we can see here is that the two bookies differ greatly in what they believe will be the outcome of the game. Now this leaves us with the question of which bookmaker is right and are either of them able to accurately predict the game’s outcome? The earlier screenshot above shows that Mybet’s odds for a home win is 2.40, while the closest bookmaker is at 2.27. This large deviation from the rest of the market indicates that Mybet is the bookmaker who underestimates the probability of a Liverpool win. The consequence of Mybet having mispriced the probability of a Liverpool win, by placing their odds at a higher level than the rest of the market, is that it creates an arbitrage opportunity. More specifically it makes it possible to put money on the outcome of a draw and an away win at two other bookmakers with a guaranteed ROI of 2.62% as can be seen in the screenshot below.

Arbitrage Bet / Surebet

Arbitrage Bet / Surebet

This is what is referred to as a surebet. The advantage of surebets is that in theory you are guaranteed a profit without any risk. Surebets are also called arbitrage bets and have been covered in even more detail in this article. While this article covers some practical experiences of using arbitrage betting from Vida, a guest contributor at the Trademate blog

However, the majority of surebets will occur at the soft bookmakers (will be defined later), which can lead to several practical disadvantages:

  1. Soft bookmakers limit sports traders who are able to win consistently.

  2. You need to find high enough odds on all of the outcomes for it to add up to a surebet.

  3. If the odds deviate too much from the rest of the market, bookmakers are able to void bets placed on that game. Imagine the following scenario: you are following the recommendation in the screenshot above, by placing money on a home win at Mybet, a draw at Vulkan bet, but when you are trying to place a money on an away win at Leonbet, you are limited to place a maximum of $1. You are now unable to complete the surebet, which results in a huge negative expected value on the bet. (If you are unfamiliar with the statistical concept of expected value (EV), read this short article) Now whether you are investing in stocks or sports the most important principle is to avoid loosing money, because if you loose 50% of your capital ($10 000 → $5000), you will need to increase it by 100%, just to return to the starting point ($5000 → $10 000).

  4. You will need to distribute your capital and thus tie up your capital across a very wide range of bookmakers to take advantage of the surebet opportunities.

Difference in estimated probability between soft and sharp bookmaker

Difference in estimated probability between soft and sharp bookmaker

Because of the disadvantages with arbitrage trades (surebets) listed above, a better strategy is to place a high volume of +EV trades. An example of a value trade would be to place money on a home win to Liverpool, which has a +6.06% EV. Over a large sample size placing +EV trades should be a profitable strategy in theory. This is based on the assumption that the Asian Bookmaker's odds accurately reflect the true probability of a game’s outcome, which is covered in this article. 



A rational investor will attempt to maximize returns while minimizing risks. This implies that they will invest in the markets or financial instruments where the potential return / risk ratio is the highest. Investors in financial markets can broadly be divided into two categories: Long-term oriented investors who rely on fundamental analysis and short-term oriented investors who follow a trend or technical analysis. The former are often referred to as value investors, which means that they try to identify assets that are underpriced by the market. They also require the asset to be significantly underpriced, which provides a margin of safety, before they purchase a given asset. What I view as the main disadvantage for the value investors is that, because they are oriented towards the long-term, which can be anytime between 3-10+ years, it means that they will tie up their capital in investments for a long time before potentially reaching a positive return on investment. In the meantime, you do not know whether your hypothesis that the asset is underpriced holds true.

The opposite of strategy would be day trading, taking advantage of short-term price discrepancies in the market. Day traders apply different methods such as looking at chart patterns or technical indicators in order to predict future market movements. Now the main disadvantage with being a day-trader is that computers are superior to humans in performing statistical analysis and for discovering patterns in large datasets. Thus gaining an edge in the market when you are competing against HFT firms is very difficult. The gap in access to information held by hedge funds compared private investors have increased dramatically in the last decades. Today hedge funds can rely on real-time satellite images of the parking lots of JC Penney to predict their quarterly returns, while private investors rely on historical financial statements. The result being that it is very difficult for private investors to compete against the professional hedge funds, especially if they rely on technical analysis. This is because, if there does exist price inefficiencies in the stock market it will be exploited by the HFT firms way faster than any private investor is capable of, returning the market to an efficient state. Thus in practice, the day trader performing technical analysis is competing against HFT firms, with access to less information and using inferior methods.

To manage risk the principle of portfolio diversification is followed by both groups of investors. The short-term investor will typically mitigate risk, by making a high volume of smaller trades with low risk and low returns that add up and provide a positive ROI. In comparison, value investors will make a lower volume of investments, but with a higher potential ROI on each of them. Similar to the day trader a sports trader will perform a high volume of smaller investments on the sports market. With any strategy, it is important to set up a feedback loop that provides you with data on how your strategy is performing. Within sports trading, the natural benchmark is to measure whether the odds you are putting money on is able to consistently beat the closing lines of the sharp bookmakers. If so, you will have a positive expected value, which in theory should lead to profits over a large sample size of sports trades.

Poker players will be familiar with the difference between the short and the long term. In the short term is possible for anyone to win, regardless of skill. Because luck or randomness has a large impact on the outcome. While in the long run, the random variance will even out and the players who have an edge will be the ones making a profit. The same holds true for people who trade in both the stock and the sports markets. Anyone can make a profit in the short term, but in the long term only traders who make decisions with a positive expected value will be profitable.

How price differences occur in the sports market

The reason that computers running algorithms are used to trade in the financial markets is because in these markets prices are updated so fast that it almost impossible for humans to exploit. In the stock market the difference in price that you will be able to obtain when purchasing Tesla stock at Nasdaq versus LSE is close to identical since the updates happen within milliseconds across exchanges in different markets. While in the sports markets the same asset, the outcome in the game between Liverpool and Manchester United is priced differently at different bookmakers or exchanges. In addition, these inefficiencies are not necessarily corrected in real-time. For instance, in the game between Chelsea vs Manchester City on February 21st, 2016 it took the bookmaker Norsk Tipping almost 30 minutes to adjust their odds compared to the Asian market, as seen in the image below. You can read more about how value occurs in the sports market by clicking the link in the previous sentence. 

How value occurs in sports betting markets

How value occurs in sports betting markets

Now compare this to the stock market, where the price would have been adjusted within milliseconds. These market inefficiencies create arbitrage opportunities that can be exploited by smart sports traders.

Being a sports trader

For professional sports traders, the majority of work is put in during the weekends because this is when the majority of games are played. In a given weekend you can potentially run through your bankroll multiple times by placing a high volume of sports trades. Trades are typically placed within a couple of hours before the game starts to reduce the variance that may occur between the opening to closing lines of the bookmakers. Thus the capital of the investor is tied up in the investment for a shorter period of time. The result being that you can grow your fund much faster, than for long-term investments in the stock market.

For example, if your bankroll consists of $10 000 and you place sports trades with an average of + 3% EV per trade. +EV being the trades where you get a higher odds than the closing lines of the sharpest bookmakers. Now let’s assume that you place your trades with a flat structure* of $100 per bet and that over the weekend you place 100 bets. Then your expected profit would be: 100 (trades) x $100 * 1,03 (EV)  - $10 000 = $300. Now obviously, whether you endure winning or losing streaks will have an impact on your actual profits . If we assume that there is no variance in the 100 trades we placed or in other words that we are neither lucky nor unlucky, our actual profits would be equal to our expected profits of $300. In reality, the variance will only even out if you are able to place a high amount of +EV trades

*Your bet sizing is an important topic when trading in the sports market. You can read more about bet sizing in this article


To sum it up there are 3 main advantages of trading in the sports market compared to the stock market:

  1. Market inefficiencies enable arbitrage opportunities.

  2. Shorter investment cycles provide a higher potential for profit growth and reduced capital tied up in investments.

  3. Faster feedback loop on strategy performance.

Written by: Marius Meling Norheim

Disclosure: Neither I, nor Tradematesports have any affiliation or receive any form of compensation what so ever from any of the bookmakers, websites or companies mentioned in this article.