No, not arbitrage. The "insight" was that the odds offered by bookies are remarkably accurate predictors of the outcome. Averaged across a number of bookies the small variations cancel out. In other words, you can't beat the house.

However, there are two additional details to consider. 1: Bookies may incorporate information at different rates and delays, so every now and then you can have a couple of outfits who are behind the trend, and where the odds for a given outcome are better than the industry consensus. And 2: sometimes a bookie may choose to offer over-the-odds opportunities to invite bets on one side of the market to balance out their net exposure for a lopsided game.

If we ignore the bookie's commission structure, let's say that a game has seen lopsided betting activity. Out of 1 million as placed bets 80% have been placed for the home team, so their exposure from home win is at least 800k. If they calculate that the away team has 13% probability of winning, the bookies may want to offer odds above that (ie. the payout of a bet is above than its fair value). That will invite some sharper bettors to put their money on the away team win, and the bookie gets more money on both sides of the book.

In other words, they try to reduce their net exposure to the game. In an ideal world for a bookie, the bets placed across all three outcomes cancel each other out, and over time they make their money from the commission.

In the real world, the bookies will identify sharp clients and prevent them from playing. They will also use the winning clients' trades as a pricing signal for themselves - and will hedge out accordingly on the exchanges when the same mispricing opportunity presents itself.

I don't think it counts as arbitrage, strictly speaking, because from what I can tell, the authors are not making offsetting bets with different bookies to expose themselves only to the difference in odds.

They are, however, finding opportunities where one bookie has odds much longer than others for the same outcome, and betting on that. This means they expose themselves both to the difference in odds and the outcome of the event, but opportunities are plentiful enough that on average it is possible to show a reliable profit in a few months, apparently.

What surprises me about this is that some bookies still offer odds out of line with others. The article mentions that they might do this to counterbalance the risk of large amounts of bets on another outcome, which makes sense. But! I was under the impression bookies placed bets with each other to even out those risks, specifically to avoid creating arb opportunities.

I'd say it's a type of arbitrage.

The typical arbitrage in bookies (scalping I think they call it), hedges one bet against the other.

But in the case of the paper, as I understand it, they just take the bet unhedged for some reason. Which unlike most other forms of arbitrage is sustainable.

If you were buying commodities you would also need to sell the commodities, but since these pseudo-securities coalesce into money, they don't need to make the inverse trade to sustain their alpha-seeking fund.

With that difference aside, I'd say it shares many of the same properties of arbitraging, I don't know how translateable it would be to stocks, but many of those assets coalesce into cash as well, especially fixed income (at a much slower rate), and options (albeit in more complex manners).

I imagine that with the amount of new currencies that exist, a big part of the job is going to be moving currency of one form into another and essentially forming a new circuit, for example buying crypto with fiat to bet in a crypto sportsbook, and the selling that crypto to buy more fiat.

In essence there's also the risk of becoming a money launderer doing this, whether trading stocks, currencies or betting, it's a form of arbitrage and you are getting money from ???.

> I was under the impression bookies placed bets with each other to even out those risks, specifically to avoid creating arb opportunities.

Doesn't that just mean they don't lose money? You can still make money as a punter in that scenario?

My intuition is that it would mean these underpriced outcomes would go away.

Not quite arbitrage; sometimes bookies adjust prices depending on how bettors are placing their bets to avoid over exposure, etc. When this happens the price is no longer reflective of the estimated probability and that's where our savvy players come in to try and take advantage of that..