What is Arbitrage?
In simple terms, arbitrage means making a risk-less profit. In finance, an arbitrage profit is acquired by taking advantage of inefficiencies in a given market. We can do the same with gambling on MMA. In fact, it is a perfect vehicle to do so. Due to the fact that the market is thin and the sport is so young, there are numerous chances for arbitrage in MMA that one would not see in other mainstream sports like football or basketball. However, just like with every market inefficiency, it has an expiration date. As more gamblers see the opportunity and try to capture the arbitrages, the less likely they are to show up. When they will start disappearing is unknown, but you can count on the fact that they will disappear eventually.
Anyway, let us take a deeper look at the phenomenon of the arbitrage. For our purposes, we will divide arbitrage into two flavors, and two different ways to weight them.
First up is price arbitrage, which occurs when two different bookies have overlapping lines on the same fight. In layman’s terms, it means the underdog is paying off more than you would have to risk on the favorite. For example:
|Sportsbook 1 (SB 1)||Sportsbook 2 (SB 2)|
As you can see, betting $100 on Fighter A at Sportsbook 1 (SB 1) will payout $52.63, and betting $50 on Fighter B with Sportsbook 2 (SB 2) will payout $100. Therefore, if Fighter A wins, you will earn $52.63 on the bet with SB 1, a loss of $50 on the bet with SB 2, and therefore a profit of $2.63. If Fighter B wins, you will earn $100 on the bet with SB 2, lose $100 on the bet with SB 1, and therefore you will break even. Thus, you can only make $2.63 or break even, it is a riskless profit.
This is, in essence, free money. One caveat though, you will not find price arbitrage opportunities at the same sportsbooks, so you will be required to have accounts with more than one sportsbook (There are other advantages to this than just capturing arbitrage opportunities).
Time arbitrage works much like price arbitrage, but it is not instantaneous, nor does it require two sportsbooks. It occurs when there is a movement in the originally posted line due to the public betting heavily on one fighter and the bookmakers trying to balance their books.
For example, when the lines are first posted, they look like this:
|Fighter A||Fighter B|
After doing you own analysis, you decide that Fighter A has a much higher probability of winning than 60% and you go ahead and place a $100 bet to win $66.66. Several days later, the public has also been betting Fighter A heavily and the bookmaker has to change their prices to both slow the action on Fighter A and entice more action on Fighter B. As such, the line now looks like this:
|Fighter A||Fighter B|
Now there is a chance to bet Fighter B and capture a payoff that is riskless. So, you bet $60 on Fighter B to win $108. If Fighter A wins, you win $66.66 on the initial bet, lose $60 on the second bet, and make a profit of $6.66. If Fighter B wins, you lose $100 on the initial bet, win $108 on the second, and make a profit of $8. It doesn’t matter how the fight ends (except with a draw, which would facilitate a push), you will make a guaranteed profit.
Weighing Your Arbitrage Bet
When you have a chance to capture an arbitrage, there are two ways you can do it. You can either maximize the payout regardless of which fighter wins, or you can weigh the payout towards a given fighter. For example, we have this price arbitrage from above available:
|Sportsbook 1||Sportsbook 2|
If we want to maximize our profit, regardless of who wins, we would put $101.15 on Fighter A and $51.48 on Fighter B, to make a profit of $1.80 regardless of who wins.
However, we could also weight it more heavily toward the favorite, and only make a profit if that fighter wins. We would bet $100 on Fighter A to win $52.63, and bet $50 on Fighter B to win $100, thus making our two potential payouts $2.63 and $0.00. As you can see, $2.63 is higher than $1.80, but you also risk not making any kind of profit if Fighter B wins.
What you decide to do really comes down to a personal preference. If you are very confident after your analysis that Fighter A will win, then the favorite loaded bet will be more attractive due to the extra $.83 to be made. If you are not that confident, it would be best to just take an equally weighted arbitrage and a guaranteed $1.80 payout.
Arbitrage is really just a fancy word for making money without risk. In MMA gambling, it can pop up quite often, you just need to watch for it, and have accounts at more than one sportsbook in order to capture the opportunity when it presents itself. Just for added proof, here is a recent screen shot with arbitrage opportunities circled for you from the closing lines of UFC 125. With accounts at the rights sportsbooks, all of them could have been exploited for what essentially amounts to “free money”.Check out our Arbitrage Calculator.