Horse Racing Arbitrage Explained

And here are the reasons for not arbitraging all bets:

Firstly, the odds on the selected horse might remain fairly constant.

As a result, arbitraging a bet may not be possible due to the lack of movement in the odds and the initial bet may need to be honoured.

Secondly, the odds on the horse may move in the opposite direction to the one anticipated.

As a result, arbitraging a bet may not be possible and the initial bet may need to be honoured.

Thirdly, if a bet is arbitraged, there is a penalty to be paid because we can’t have something for nothing, not in this world and certainly not in horse racing!

The penalty that must be paid is that most of the profit potential on a horse must be sacrificed in order to secure a smaller arbitrage gain.

Again, this is best explained by way of an example.

Let us suppose that ‘Arbit’ is running in the 3:30 race at Southdown.

Let us further suppose that the odds on Arbit on one of the betting exchanges is 5.0 and a £5 bet is placed on Arbit to win.

The odds on Arbit then fall to 2.5.

A second (lay) bet of £10 is then placed on Arbit, this time to lose.

Now let’s look at the maths:

Bet 1

If Arbit wins the race, the profit will be £5 x (5.0 – 1) = £5 x 4 = £25.

If Arbit loses the race, the loss will be £5 (the stake).

Bet 2

If Arbit wins the race, the loss will be £10 x (2.5 – 1) = £10 x 1.5 = £15

If Arbit loses the race, the profit will be £10 (the stake).

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Now let’s look at the net effect of the two bets:

Arbit wins the race:

Profit on bet 1 = £25.

Loss on bet 2 = £10.

Net profit = £25 – £10 = £15.

Arbit loses the race:

Loss on bet 1 = £5 (the stake)

Profit on bet 2 = £10 (the stake).

Net profit = £10 – £5 = £5.

From the above, it can be seen that if Arbit wins the race, the profit will be £10 and if Arbit loses the race, the profit will be £5.

The situation is such that, irrespective of Arbit’s performance in the race, a profit will be made.

Now let’s change the situation slightly.

Let us suppose that a £5 bet is placed on Arbit to win at odds of 5.0 but a second lay bet is not placed when the odds on the horse fall.

In other words, the bet is not arbitraged.

If Arbit loses the race, £5 will be lost. If, however, Arbit wins the race, £20 will be won.

Had the bet been arbitraged, a potential £20 win or £5 loss would have been replaced by a certain £5 win.

This is a case of ‘is a bird in the hand worth two in a bush?’.

Is a certain £5 win better than a potential win of £20?.

Only you can answer this question.