
How a sports betting hedge fund works - nsoonhui
http://www.businessweek.com/magazine/content/10_29/b4187069936116.htm
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jrockway
The legality of betting is interesting. Why is it illegal to financially
speculate on the outcome of sports games? Why is it illegal to pay someone to
play badly? I can see how sports leagues would prohibit the latter, but I
don't see how the Federal government has the authority to control that. As
long as you pay taxes, I don't see a problem for society. (Except that
professional sports would suck, but that's not the government's problem.)

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roel_v
The main reason betting itself is illegal is for moral reasons. In many
societies, betting is considered a vice just like drinking alcohol, presumably
because of its non-serious nature and the general atmosphere of lewdness that
usually surrounds it.

Apart from that, the addictive aspect of gambling is in many places a major
argument to prohibit or severely restrict gambling.

As to why paying someone to play badly is illegal, it's because the
information asymmetry distorts 'normal' trade relations. It's a consumer
protection mechanism. Of course it could be dealt with by a civil claim, but
that may not have enough of a deterrent effect.

Sports leagues don't have much power in this matter. They can only influence
the player being bought off, not the one paying the player.

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arethuza
While in other societies drinking alcohol is not considered a vice,
speculating on the outcome of sporting events is considered a relatively
harmless pastime and "gambling" on arcane financial events (and the associated
lewd behavior) is considered by most to be immoral when those who benefited
get bailed out with taxpayers money.

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seanos
Betfair has an api, <http://bdp.betfair.com/>, if you're interested in writing
your own trading bot - although the free version doesn't allow you to place
bets.

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russss
Yes it does, but it limits you to 100 per minute.
([http://bdp.betfair.com/index.php?option=com_content&task...](http://bdp.betfair.com/index.php?option=com_content&task=view&id=36&Itemid=64))

We (<http://www.smarkets.com>) are about to launch our own free RESTful
trading API.

~~~
seanos
Thanks for the correction. How do you plan to compete with Betfair?

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russss
We want to make betting on a betting exchange easier to understand for the
average punter. Loads of people (at least in the UK) still use high-street
bookmakers with bad odds. Betfair is a bit of a mess (don't view source if you
value your sanity).

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yummyfajitas
It's absolutely untrue that Galileo is the first sports betting fund. There
are quite a few market makers on Betfair.

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bayes
But I would imagine a lot of those market makers are betting their own money.
This is a fund i.e. they're betting other people's money. I won't be
investing!

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limmeau
So they simply bet on sports results after thoroughly researching the odds?
Where is the hedging in that?

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greyman
It works like this: for example, you bet before the football match that the
result will NOT be a draw. Then, when favourite scores a goal, you can place a
second bet, this time you bet that it WILL be a draw. But after the favourite
scored a goal, the odds for draw moved up (since it is now less likely that
the game ends in a draw). So no matter what will be the result, you win (it's
exactly the same principle as with stock trading or forex, where you sell when
the price is high or buy when the price is low).

Of course, it might happen that as the match going on, the draw is more and
more likely, so the odds for a draw is getting lower. Then at some time, the
trader can still bet on a draw (like in the first example), but this time he
will have a loss, but a lot lower loss as if he would place just only one bet
and lost. And that's I think is called hedging, you bet on all outcomes in
different time points.

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andrew1
The process you've described isn't really hedging, it's effectively closing
out a trade, either through booking a profit, or mitigating a loss. The
equivalent in the equities world is roughly these two cases; today you buy
some shares in Acme Oil Company, tomorrow they announce that they've
discovered a massive oil well and their share price rockets, so you sell and
book a nice profit; or today you buy some shares in Acme Oil Co, tomorrow they
announce they've sprung a leak off the coast of Florida and their share price
falls, you sell your shares to mitigate the losses you've suffered (and the
potential for more losses).

That is not hedging; hedging is the process of considering (at the point of
purchase) how you can protect your investment against unquantified events. For
example you might decide that Apple as a company is undervalued so you want to
buy some of their shares, but the markets seem volatile at the moment so you
want to hedge yourself against large movements in the index.

You can do this by selling short on the index at the same time as you buy your
Apple shares. So suppose you're correct about Apple (that they're undervalued)
and the market realises this and their share price increases by 1% relative to
the index, without your hedge this could see your investment say gain 4% if
the index goes up 3%, or lose 2% if the index falls by 3%, so you get either
+4% or -2%.

Now suppose that you have your index hedge in place, if the market rises by
3%, you get 4% on Apple -3% on the index = 1%, if the market falls by 3% you
get -2% on Apple and 3% on the index = 1%. So either way you get the 1% profit
through your Apple intuition. By selling the index you've hedged yourself
against movements in the underlying market.

So to hedge a bet on something like Roger Federer winning against Rafael Nadal
in a match today, you need to try and find something else to bet on at the
same time. I can't really think of how to do this though.

