There are many different ways that people invest their money. Many of the common ways include a 401(k), IRA, real estate, and more. One method that has many hedge funds invest money for their clients is through asset classes, or groups of securities.
These groups tend to have similar characteristics, and even behave in similar ways in the marketplace. They are also subject to the same laws and regulations. There are five main categories of asset classes: shares or equities, bonds, commodities, cash, and property.
Considering these shared qualities, finance enthusiasts often wonder: do asset classes include sports betting? Let’s look at a few similarities.
The Cyclical Nature
Many people that work in the financial industry believe that things are cyclical. Different systems can be profitable for a length of time, but at some point it stops being as effective. It may come back around or it may not.
There are some systems that have been used in the past that are not profitable now and likely never will be again. However, not everyone believes that is true in all cases.
Innovative Hedge Funds
There are two trading companies that are trying to prove this theory wrong: Priomha Capital and Strategem.
Priomha Capital is a firm based in Melbourne which claimsit is world’s premier sports hedge fund. They focus on betting on various sports such as cricket, golf, and European football. The firm was founded in 2010, and currently manages about $20 million. Strategem is their rival based in Britain. They focus on making money off of the technology business and are trying to raise around $25 million from individuals with a lot of money to invest.
The two firms are saying that they are using techniques from the investment world so that they can turn sports betting into an asset class that no one has ever seen before. They can determine the odds of a profitable bet just like companies currently do with choosing stocks.
Is It Recession Proof?
One of the reasons these firms are focusing on this new type of asset class creation is because, according to the founder of Priomha Capital, Brendan Poots, sports events are not likely to be impacted by political and economic issues that are so prevalent around us in the world today.
As Poots puts it, these bets are actually the “ultimate uncorrelated asset class”. As a result, these sports outcomes should also be recession proof. This allows people who wish to invest, or buy or sell based on an outcome, to hedge their bets over time.
Skeptics in the Market
There are others that say this is not the best idea available. In fact, a sports hedge fund that opened in 2010 named Galileo closed only two years later after they lost $2.5 million on these types of bets.
One of the reasons many companies disagree with using sports betting as an asset class is because they see these sports trading markets as a lot less liquid than any of the financial markets are.
There are only a few different markets where people who gamble their money are actually safe from some of the risk. According to Adam Kucharski, a mathematician from London, it is rare that gamblers can place large bets and cause the odds to move against them, making this a less than ideal type of asset class.
The Core Problem
Beyond all of this, there is a bigger problem at play. The people who are trying to create these predictive models are spending copious amounts of money to do so, meaning that their confidence may not be in the right place. While a lot of time and money can be put towards trying to determine how things will play out, there is still a large chance that anything can happen.
Plus, if a lot of casual betters jump in on a single game or bet, it could skew the odds. When that happens, the focus must be turned to minimizing risk instead of forecasting. In the end, these predictive models may even be contradictory.
Regards,
Ethan Warrick
Editor
Wealth Authority
