Sports Betting Hedge Fund (NPR)
Update 6/13/12: They’re busto; see end.
The marriage of financial arbitrage and sportsbook operation has never been closer. From an exchange between Marketplace’s Steve Chiotakis and Tony Woodhams, managing director at Centaur Group (itself a subsidiary of Gibraltar-based Quay Financials Ltd.) and founder of the sports-wagering fund:
CHIOTAKIS: How does this work?
WOODHAMS: This works in a very similar way to lots of different funds that you might find in the financial markets. We just analyze sports probability and statistics. What we’re looking for is [patterns of] numbers that give us an indication of what’s going to happen in the future in terms of one team playing another or one person playing another, for example with a tennis match.
The introduction to the fund, from their site; mind the British punctuation:
Galileo Managed Sports Fund (“Galileo”), launched in Q1 2010 is the worlds first regulated sports exchange traded fund with a range of unique investor benefits. Galileo targets absolute returns built on a solid foundation of rigorous and comprehensive risk management coupled to sports intelligence, statistics and probability.
The sports exchanges have grown hugely in the past 10 years and have now become major markets. Investor benefits in these markets are numerous. The sports markets unlike the financial markets are emotionally driven due to the underlying product; “sport”.
Emotionally charged counterparties provide opportunity for low risk/high reward profit taking. Patriots and sport fans are rarely price sensitive and often lack investment discipline. Galileo operates unemotionally and clinically in these markets.
By “sports exchanges,” they’re talking about online sportsbooks like Pinnacle, Ladbrokes, Betfair, and the like, which—outside of the Puritan States of America*—are well-accepted and hyoooge. The old days of calling around to bookies to get multiple game lines in the hopes of finding an odds inequity (a “middle”) are gone. Now, professional gamblers can harness their computers and the Internet to scroll through a multitude of game quotes to get the best value for their dollar, using mathematical theory to minimize their risk.
What this fund does is effectively assume this duty, not unlike a mutual fund manager buying the instruments he or she feels would best meet the fund’s investment objective. And in the abstract, 401(k) or odds of the NY Jets winning another Super Bowl, it’s all risk and reward:
CHIOTAKIS: Why don’t we just call this gambling or sports betting?
WOODHAMS: I’ve had this conversation a lot. You can call it gambling if you’d like, as long as you apply the word gambling to the process that Goldman Sachs apply when they’re trading currency. It’s the same process. You can call it gambling, you can call it betting, you can call it trading; It’s whatever word you chose to apply.
The one thing I should stress about that is that gambling is not a word that should apply to one industry, i.e. sports betting. Gambling exists in the financial markets as we’ve discovered. My background is derivatives. I’ve traded futures in the City of London and in the U.S and over in Europe for 20 years. I’ve worked with hundreds of different traders in the financial markets. Some were brilliant, some were risk averse, some were just shooting from the hip and taking big risks and were effectively week [in] week out gambling.
And don’t discount the ability of “emotionally charged counterparties” to mismanage their money. From Hunter S. Thompson, in his “Fear and Loathing at the Super Bowl” article:
There was not much to do on the [press bus to the stadium on Super Sunday] except drink, smoke and maintain a keen ear on the babble of conversations behind me for any talk that might signal the presence of some late-blooming Viking fan with money to waste. It is hard to stay calm and casual in a crowd of potential bettors when you feel absolutely certain of winning any bet you can make. At that point, anybody with even a hit of partisan enthusiasm [cf. Quay quote above w/r/t “patriots”] in his voice becomes a possible mark—a doomed and ignorant creature to be lured, as carefully as possible, into some disastrous last-minute wager that could cost him every dollar he owns.
The fund may operate “unemotionally and clinically,” and sets a high bar by requiring investors to pony €100,000, but even then, you can still get profit-hungry/risk-averse participants sweating every twitch of the fund, lacking only a Daily Racing Form to smack their thighs with as their horses enter the final turn. (In that vein, I’ll differ with their claim that the financial markets aren’t emotionally driven. It all appeals to the same bit of brain tissue wherein risk avoidance rules the roost. Markets can be quite irrational if their participants take leave of their senses and obey their fight-or-flight instincts. But that, too, is a moneymaking opportunity.)
I recently spotted a flush opportunity to profit on the unholy union of emotions and money. The left/progressive Netroots Nation convention was held in Las Vegas in late July. Counterprogrammed to that event was a right-wing conclave called the RightOnline Conference, also in Vegas. In the spirit of Sanjuro in Yojimbo and The Man With No Name in A Fistful of Dollars, I dreamed of following clusters of attendees from both gatherings to poker tables, tilting them with the rhetoric of the side they opposed, and inducing them to spew their chips into my stack in an emotional frenzy. Lather, rinse, repeat, cue Morricone music.
I guess with this hedge fund, I’d be hiring Sanjuro or Clint to do my wet work for me. Better for staying on an emotional even keel, perhaps, but a lot less more fun. Many bettors are drawn to the atmosphere surrounding gambling, the ability to rub shoulders with the demimonde. What gambler doesn’t relish a diner meetup with his numbers or sportsbook runner on settle-up day, awaiting a thick envelope of winnings wrapped discreetly in a newspaper … or the walk to the poker room cage with four racks of someone else’s chips? Can’t have gambling become too sterile, now.
UPDATE 6/13/12: The fund has gone under. From Wagerminds:
Tony Woodhams, managing director for Centaur, told CNBC “We have unique software we’ve written over five years that ensures we purely trade on statistics and probabilities. The process is very clinical, which is our edge.” Woodhams also indicated the hedge fund’s projected rate of return was 15 to 25%.
Well, if Centaur ever had an edge, it appears to be gone. And the actual rate of return for investors looks like it will be about minus 100% as The Journal is reporting that angry investors have lost $2.5M and the fund has filed for liquidation. The fund’s website has been stripped of all information as the liquidation unfolds.
While re-reading past comments Centaur management provided to the media in light of today’s news, the Centaur Galileo fund has the feel of a tout operation wrapped in a Wall Street brand. In particular, Mr. Woodhams claimed The Centaur Sports fund had returns in excess of 40% per year over the past 5 years. Obviously, that seems to be very unlikely.
*Thanks to the UIGEA, this fund is closed to investors in America. Clearing its path would also require SEC and possibly CFTC approval, and this is a touchy time for proposing new and unusual derivatives markets. The recently passed financial regulations brought the hammer down on Cantor Fitzgerald’s efforts to convert its Hollywood Stock Exchange play-money site into a box-office futures market, thanks to the major studios’ lobbyists.
