Horse Racing Arbitrage Explained

Not long after the bets have been placed, you receive another text from your friend.

The text says that he has received a tip from a stable lad at another yard that a horse called ‘Getting Better’ will win the race in which Purple Patch, Bank Balance and Dun ‘N Dusted are also running.

When Getting Better last ran, his performance was well below par. Hence, the horses’ current odds of 12.0 on the betting exchanges.

A visit from the vet, following the race, revealed that Getting Better was suffering from a virus. The horse is now completely virus-free and has been putting in some stunning performances on the gallops lately.

This information is known to few people. Hence, the horse’s odds.

From this latest information, you conclude that Getting Better’s odds will fall dramatically when the information begins to circulate and that the odds on Purple Patch, the current favourite, will increase.

You, therefore, place the following bets on a betting exchange:

Bet 7: £5 win bet on Getting Better at odds of 12.0.

Bet 8: £10 lay bet on Purple Patch at odds of 3.0.

It is now 5 minutes before the start of the race. The odds on Getting Better have fallen to 2.0 and the odds on Purple Patch have increased to 6.0.

You, therefore, place the following bets on a betting exchange:

Bet 9: £10 lay bet on Getting Better at odds of 2.0.

Bet 10: £5 win bet on Purple Patch at odds of 6.0.

Now let’s look at the net effect of the latest four bets and the profit made on each of the two horses:

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Getting Better wins:

Profit on bet 7 = £5 x (12.0 – 1) = £5 x 11 = £55.

Loss on bet 9 = £10 x (2.0 – 1) = £10 x 1 = £10.

Net profit = £55 – £10 = £45.

Getting Better loses:

Loss on bet 7 = £5 (the stake).

Profit on bet 10 = £10 (the stake).

Net profit = £10 – £5 = £5.

Purple Patch wins:

Loss on bet 8 = £10 x (3.0 – 1) = £10 x 2 = £20.

Profit on bet 10 = £5 x (6.0 – 1) = £5 x 5 = £25.

Net profit = £25 – £20 = £5.

Purple Patch loses:

Profit on bet 8 = £10 (the stake).

Loss on bet 10 = £5 (the stake).

Net profit = £10 – £5 = £5.

Now let’s look at the overall effect of the 10 bets.

Again, the amount of profit depends upon which horse wins the race.

If Purple Patch wins, the profit = £25 + £5 (because Bank Balance lost) + £5 (because Dun ‘N Dusted lost) + £5 (because Getting Better lost) = £40.

If Bank Balance wins, the profit = £25 + £5 (because Purple Patch lost) + £5 (because Dun ‘N Dusted lost) + £5 (because Getting Better lost) = £40.

If Dun ‘N Dusted wins, the profit = £15 + £5 (because Purple Patch lost) + £5 (because Bank Balance lost) + £5 (because Getting Better lost) = £30.

If Getting Better wins, the profit = £45 + £5 (because Purple Patch lost) + £5 (because Bank Balance lost) + £5 (because Dun ‘N Dusted lost) = £60.

If any other horse wins, the profit = £5 (because Bank Balance lost) + £5 (because Purple Patch lost) + £5 (because Dun ‘N Dusted lost) + £5 (because Getting Better lost) = £20.

Notice again that the arbitraging profit is cumulative in that the overall profit is the sum of the arbitraging profits made on the individual horses concerned.

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So, no matter what the race outcome is, a maximum of £60 and a minimum of £20 will be won, depending upon which horse wins the race.

Selections should be arbitraged when the odds have increased to the point where the arbitrage profit requirements have been satisfied, rather than waiting for the odds to increase, or decrease, still further. That way, the profit is secure.