During our investigation into horse lay betting strategies another entirely different idea cropped up. It’s the idea of betting exchange and bookmaker arbitrage. A strategy that exploits the differences between the bookmaker odds and betting exchange odds. It’s something that can be repeated over and over which is what makes it attractive.
Specifically this type of betting is called back lay betting. A back bet is made with a bookmaker with a corresponding lay bet being made at a betting exchange like Betfair (Betfair FAQ). The rule is back high and lay at lower odds.
Bookmaker odds compared to Betfair odds
There is always a difference between bookmaker odds and Betfair odds. The reason for this is that Betfair odds are set by the market and not by a bookmaker who needs to protect profit margins. In general the odds on Betfair are always better than those at the bookmaker. Some bookmaker’s are very competitive, like Pinacle Sports, who try to compete with Betfair. Pinacle Sports are an online only bookmaker, as such they have low overheads, and are able to compete on price. The difference between bookmaker and Betfair odds are not large enough to generate arbitrage opportunities, in part, due to the commission that Betfair charges on profits. Betfiar commission is normally 5%.
So, when do Betfair back lay arbitrage betting opportunities occur?
Whilst investigating horse lay betting strategies on Betfair something our researchers observed was that the odds on certain horses tend to shorten suddenly by quite large amounts. Horses who’s odds do this are called steamers. If the odds shorten it creates an opportunity to back the horse with a bookmaker and lay the same horse at lower odds on Betfair.
What causes a horses odds to shorten?
It could be a number of things. A tipster or perhaps people acting on insider information resulting in an influx of money on the exchange. Either way what tends to happen is that people somewhere, who have this information, make large bets using this information. Either one Betfair, at a track side bookmaker or a traditional bookmaker. What happens is the information filters through to Betfair and the odds shorten. This leaves a profitable gap in the odds between Betfair and all the other bookmakers who haven’t been involved with these bets.
What can happen sometimes is that the odds on Betfair reverse because bookmakers actually use Betfair to hedge some of the bets they take. If they take an unusual amount of money on a particular horse they may lay it on the exchange to hedge their loses if that horse wins.