Just looked into a website that scans for arbitrage opportunities and some other sports betting related tools, won’t drop the name because I have no clue the legitimacy of the company (although they do look clear and I already bought a plan, haven’t tried it out yet though) and checked out their walk through of the arbitrage tool after an IRL friend of mine told me about it and how he’s been trying it out, with some success so far.
I understand how arbitrage works, but I don’t understand why I wouldn’t just drop like $50,000 into these arbitrage plays if it’s guaranteed? can someone explain why I can’t do that? I’m seeing this guy and he’s doing like $800 total buy ins and making 8 bucks off of it, what is stopping me from putting in 50k and making like 5k per arbitrage play? highly confused here. (don’t dig too deep into my example, I am aware payouts will fluctuate but wouldn’t more always just be better on a guarenteed arbitrage play? why wouldn’t I sell the house and dump my entire net worth into guaranteed plays?)
In: Economics
At least in the US, it can be difficult to actually make money gambling due to the effect of taxes. The Federal Government taxes you on winnings but doesn’t allow you to deduct losses.
Lets take your $50,000 to win $5,000. Assuming that you made two $25,000 bets, then you would have taken a $25,000 loss on one bet and made a $30,000 profit on the other bet. You would not get to deduct the $25,000 loss from your $30,000 profit. As a result, you would pay $7,200 in taxes on the $30,000 profit from the winning bet. After taxes, you would have $55,000 – $7,200 = $47,800.
In other words, you spent $50,000 to lose $2,200 due to the effect of the 24% Federal Gambling Tax. The break even point on your two $25,000 bets is around when you make a profit of $40,000 on one of them. In other words, you don’t break even until you bet $50,000 to make $65,000. And this assumes that you make two even bets – the worse the odds are on the winning bet, the more you need to make to break even.
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