Hedge Fund Investing in Sports Gambling?

18 04 2010

Could Chelsea help to make Hedge Fund managers rich?

[A very interesting article in the LA Times (by Nathaniel Popper) is reporting that a London based Hedge Fund is announcing they plan to wager on sports.  What!?!?!?  Here’s what they say…]

Starting on Saturday, the new Centaur Galileo fund in London will be making investments not in the traditional financial playing fields of stocks, oil futures or real estate, but in the actual playing fields of soccer, tennis and horse racing.

Galileo is probably the first hedge fund to make bets on sports events, experts say.

“We put numbers against those things that you and me and everyone in pubs have casual discussions about,” said Tony Woodhams, the managing director at Centaur Group, which operates the fund. “That gives us an edge on these markets.”

It’s not for the average bettor. Galileo requires a minimum investment of 100,000 euros (about $135,000).

Centaur claims to have a proprietary number-crunching system that can make sports bets with far better results than the casual bettor. In fact, the company plans to make money off fluctuations in odds and point spreads that are affected by amateur bets.

Galileo is only for Europeans for now — Centaur can’t offer it in the U.S. without the blessing of the Securities and Exchange Commission. Woodhams said the company would apply for that approval next year.

So is investing in a sports-betting hedge fund about as sane as pouring money into a Nigerian inheritance deal? There are financial folks who believe such a fund could be a good bet.

Entrepreneur, Dallas Mavericks owner and former “Dancing With the Stars” contestant Mark Cuban has long advocated such a fund.

“If they fully commit to a data-driven model, I think they can do well,” Cuban said in an e-mail. “In many respects, stocks are the bigger gamble.”

Others were skeptical, to say the least.

Justin Wolfers, a professor who teaches a class about sports gambling at the University of Pennsylvania’s Wharton School, said there are people who make a good living from wagers. But he’s not sure Centaur is in their league.

“Is it plausible that these guys could be as smart and savvy as professional gamblers? Yes it is,” Wolfers said. “But any time anyone in any realm of gambling tells me they can print money — I’m always cynical.”

Centaur will have 25 traders working on its London trading floor (though the fund’s official address is in the British overseas territory of Gibraltar, which has an easier regulatory environment). Most of the traders come from a financial background. One of them, Woodhams said, left a job at Goldman Sachs to set up a sports book trading on cricket and tennis.

“In the U.S. you would probably say he was a gambler,” Woodhams said. “In the U.K., we are beginning to recognize these people for what they are — they are professional traders.”

The traders will use statistical modeling to place bets on websites such as Betfair, which is popular in Britain but banned in the U.S. The bets will not just be on matches’ final outcomes — Centaur will also wager on items such as the over-under that takes into account the total points scored.

If profit is made, Centaur will take a 30% cut, a hefty premium over the usual 20% for hedge funds.

[I’m seeing a huge shift as far as with trading in general.  With the recent stock declines and a still unpredictable climate that exists, it seems pressure might be put on the SEC and legislatures to consider making sports gambling legal so that it can open the door of opportunity for the real gamblers, brokers.  This is going to get VERY interesting in the future for sure.]


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