Could betting on sport become a viable financial investment? You bet – OZY
Innovative sports mutual funds and peer-to-peer betting exchanges offer a whole new class of assets.
When sports betting mutual funds, Nevada Sports Investment Group and Contrarian Investments, received complaints against them in September 2018 by the Securities and Exchange Commission for allegedly violating federal securities laws by hiring unaccredited investors , this seemed to be a setback for an infant industry. It was only two years earlier, in 2016, when more than a dozen sports betting mutual funds popped up in Nevada as the industry was legalized through the proposed State Senate Law 443 the previous year.
But the funds’ encounter with the SEC was just a blow to a larger industry emerging in the form of new investment platforms and tools that look to sports gambling as a viable financial market for their customers across the country. These companies include both hedge fund-like entities that choose betting lines instead of having a fund manager invest in stocks, as well as a growing number of innovative peer-to-peer betting exchanges, which pit punters against each other for an agreed price. on the price and the line, as they would in day trading.
The Supreme Court’s decision last year to overturn the Professional and Amateur Sports Protection Act also helped boost this nascent industry. Many companies see increased scrutiny from regulators like the SEC – such as the action against the Nevada Sports Investment Group and Contrarian Investments, which resulted in settlements – as a way to show that their business is legitimate, even though industry professionals. game still view them with skepticism.
I see this type of trading as the next asset class where people can diversify their portfolios.
Alexander Kane, co-founder, Sporttrade
Mutual funds like 6S Alternatives target not only Americans, but also global investors looking to diversify their portfolios. And although most active betting exchanges such as Smarkets are not operational in the United States at the moment, American startups such as Sporttrade, BallStreet Trading and Fanvest Wagering Exchange offer âdailyâ platforms that allow users to “exchange sports predictions” with each other. None of these companies existed before 2015, and each plans to evolve into a platform where users pit their own money against each other.
Unlike a traditional bet placed with a bookmaker or casino, where a consumer is stuck in their bet until the end of a game, users of these peer-to-peer exchanges can buy and sell their bets in the middle of the game at updated, fluctuating odds. with the probability of a team winning. This allows users to sell high for the right price or try to mitigate their losses with an underperforming asset. The hope is that a less risk averse approach to sports betting will appeal to fans who are leery of the game, such as users who appreciate the stock market through easy-to-use investing apps, such as Robinhood or even. Acorns, which give users the change to invest small amounts of capital for little to no expense. These sports mutual funds and day trading platforms seek to tap a $ 60 billion sports gambling market in the United States.
âSports betting, like options trading, is sort of a closed system,â said Alexander Kane, co-founder of Sporttrade. “I see this type of trading as the next asset class where people can diversify their portfolios and expose 1-2% of their net worth.”
Sports mutual funds – like their traditional financial counterparts – deal with longer-term investors who are often looking for a newer, more diverse set of investment opportunities for their money. âWe have engaged investors and we basically use proprietary data and algorithms to bet and try to generate returns for them, as well as for ourselves,â says Duane Cousins, owner and founder of 6S Alternatives.
But peer-to-peer exchanges are also growing. In early 2018, Sporttrade launched a free application. Starting at the 2019 PGA Masters Tournament, it will be offering real prizes for its users to win, and by the end of the year its plan is to be a fully operational betting exchange in New Jersey.
In their own way, BallStreet Trading and Fanvest Wagering Exchange also turn traditional gambling lines or future bets into buyable stocks, which can then be bought and sold as the value of each stock changes during a match. or a season. âI found a way to logically translate the performance or value of an NFL team on the database into something like a sports derivative or value per share,â says John Culver, founder of Fanvest Wagering Exchange. .
If any of these betting exchanges manage to attract a large user base, it could have significant implications for the betting world. Exchanges generally offer much lower fees compared to traditional sports betting, which in turn creates larger margins for the casual bettor (or investor) and mutual fund manager to make a profit. A swap also largely eliminates the trader’s risk, as it no longer builds up their own capital.
Success is not guaranteed. Much of Nevada’s first wave of sports mutual funds fell back after promising unrealistic returns. And for betting exchanges, how quickly they can build the large pool of punters they need may depend on how the industry is regulated and how professional sports leagues adapt to innovation. . It won’t be easy, at least not as long as the Wire Act prohibits placing bets across state lines.
Kane says he could see US courts resolve this issue as early as 2020, potentially by clarifying the provision in the Wire Act that says there is a “safe harbor” for betting information transmitted from a state where gambling. is legal to another, or by abolishing the law altogether. âBy the timeâ¦ you allow interstate gambling, I think you could see 10-20 exchanges appear by the end of 2021,â he says.
Longtime professional players like Jack Andrews are skeptical that change can or should happen so quickly. As with sports fairness betting, Andrews believes that proper checks and balances are needed to prevent the recreational bettor from getting ripped off. He also says that no matter how user-friendly and simplistic peer-to-peer platforms are, there will always be a learning curve, which can scare off inexperienced gamers.
But even given his skepticism, Andrews still has high hopes for the future. âIn fact, I’m optimistic about the chances of having an exchange and that the public can be educated in a way that makes them a level playing field,â he says. “I am optimistic that there are new innovations beyond what Nevada tried to do.” For him – and for many other Americans – it will come down to how these innovations are implemented.