Could sports betting become a viable financial investment? You Bet – OZY
Sports mutual funds and innovative peer-to-peer betting exchanges offer a whole new class of assets.
When sports betting mutual funds Nevada Sports Investment Group and Contrarian Investments were the subject of complaints filed against them in September 2018 by the Securities and Exchange Commission for allegedly violating federal securities laws in engaging unaccredited investors, it seemed like a setback for a fledgling industry. It was only two years earlier, in 2016, when more than a dozen sports betting mutual funds popped up in Nevada following the legalization of the industry through Bill 443 of the State Senate the previous year.
But the funds’ encounter with the SEC was only a blow to a larger industry emerging in the form of new investment platforms and tools that look to sports betting as a viable financial market for their clients. Across the country. These businesses include both hedge fund-type 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 bettors against to each other for an agreed period. on the price and the line, as they would in day trading.
The Supreme Court’s decision last year to strike down the Professional and Amateur Sports Protection Act has also helped boost this fledgling industry. Many companies see the closer scrutiny from regulators like the SEC — like the action against the Nevada Sports Investment Group and Contrarian Investments, which resulted in settlements — as a way to show their business is legitimate, even if the Gaming professionals 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 such as 6S Alternatives target not only Americans, but also global investors looking to diversify their portfolios. And while most active betting exchanges such as Smarkets are currently not operational in the US, US startups such as Sporttrade, BallStreet Trading and Fanvest Wagering Exchange offer day trading platforms that allow users “to exchange sports predictions” between them. None of these companies existed before 2015, and each plans to evolve into a platform where users put their own dollars against each other.
Unlike a traditional bet placed with a bookmaker or casino, where a consumer is locked into their bet until the end of a game, users of these peer-to-peer exchanges can buy and sell their in-game bets at updated odds, which fluctuate with a team’s probability of winning. This allows users to sell high at the right price or try to mitigate their losses with an underperforming asset. The hope is that a less cautious approach to sports betting will appeal to fans who are wary of gambling, as well as users who enjoy 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 or no cost. These sports mutual funds and day trading platforms seek to tap into a $60 billion sports betting market in the United States.
“Sports betting, like options trading, is a kind of closed system,” says Sporttrade co-founder Alexander Kane. “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. “We’ve engaged investors and we’re basically using proprietary data and algorithms to bet and try to generate returns for them, as well as ourselves,” says Duane Cousins, owner and founder of 6S Alternatives.
But peer-to-peer exchanges are also growing. In early 2018, Sporttrade launched a free app. Beginning with the 2019 PGA Masters Tournament, it will offer real money to its users, 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 in-game lines or future bets into buyable shares, which can then be bought and sold as the value of each share changes during a match or event. a season. “I found a way to logically translate an NFL team’s performance or value based on data into something like a sports derivative or a per-share value,” says John Culver, founder of Fanvest Wagering Exchange.
If any of these betting exchanges are able to attract a large user base, it could have significant implications for the betting world. The 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. An exchange also largely eliminates trader risk, as it no longer contributes its own capital.
Success is not guaranteed. Many of the first wave of Nevada sports mutual funds retreated after promising unrealistic returns. And for betting exchanges, how quickly they can build the vast pool of bettors 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 Wire Act provision that says there is a “safe harbor” for betting information transmitted from a state where gambling is. legal to another, or abolishing the law altogether. “By the time … you allow interstate gambling, I think you could see 10 to 20 exchanges popping up by the end of 2021,” he says.
Long-time professional players like Jack Andrews are skeptical that change can or should happen so quickly. As with sports equity 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 players.
But even given his skepticism, Andrews still remains hopeful for the future. “I’m actually optimistic that it’s possible to have exchanges and that the public can be educated in a way that makes the level playing field,” he says. “I’m optimistic that there will be new innovations beyond what Nevada tried to do.” For him — and for many other Americans — it comes down to how these innovations are implemented.