The fine line between market investment and sports gambling

[Hydrogen]

Sports … hedging?

If you want to bet that oil prices will go up, you can buy oil futures. In the U.S., oil futures are legal and popular and exchange-traded and regulated by the Commodity Futures Trading Commission, and have been for a long time. You can use them for various purposes, but one purpose is just to make a bet on oil prices, which is generally called “speculation.”

If you want to bet that the Bucs will beat the Chiefs in the big football game, you can go to a casino or a sports book and make a bet. In the U.S., sports betting is popular, but its legality is more complicated. It is legal in some states but not others; it was illegal almost everywhere not that long ago; there is no simple national exchange to make sports bets, and in fact interstate sports gambling is illegal under federal law. If you are just making a bet on football scores, that is generally called “gambling.”

What is the difference between these two things? Well, traditionally, one big difference is that oil futures could be used to hedge real business risk. 1  You might use them for pure speculation, just to bet on oil prices, but an oil company might use them to lock in a selling price for its future oil production, or an airline might use them to lock in a purchase price for its future fuel consumption. This sort of real-business rationale meant that commodity futures were legal and accepted business tools even while regular gambling was illegal and immoral. And, sure, some people would use commodity futures just to speculate — to gamble — but those speculators were helpful participants in a broader, socially useful market; they made the market more liquid and more useful for real businesses that wanted to hedge real risks.

Over time, the CFTC allowed more and more futures contracts, and the rationale was less “this is a commodity that someone can deliver in the future” and more “this is a financial contract that can hedge a real business risk.” So futures on volatility and interest rates are not like oil futures, in the sense that you can’t load an interest rate on a tanker ship and deliver it to a customer, but they are like oil futures in the sense that interest rates and volatility are important risks for real businesses and those businesses might want to hedge them. So they are traded on exchanges and regulated by the CFTC, and if you want to bet on interest rates you can do that legally and transparently and as part of standard financial markets.

Meanwhile real normal businesses don’t have costs or revenues that fluctuate based on football scores. 2 So football betting is just gambling; there is no business purpose to it. Some states allow it and some don’t, but financial contracts on football scores are not traded on exchanges or allowed by the CFTC or part of standard financial markets.

Well, but, one kind of business has a real business need to hedge against football scores: sports books! If you are in the (legal in your state) business of taking bets from customers on football games, and all your customers want to bet on the Chiefs, you might want to hedge your risk by buying some financial contracts that pay off if the Chiefs win. Could you go to the CFTC and say “hey, I have a legitimate business purpose to hedge my real risk by buying football-score futures,” and convince them to allow trading of those futures?

No, absolutely not, that is way too cute, but nice idea, good effort. Here is a Wall Street Journal story about Eris Exchange LLC, a cryptocurrency exchange that tried to slip this one past the CFTC:

ErisX’s plan was to list three kinds of futures contracts, with payouts based on the outcomes of individual NFL games, the point spreads in those games, and what bettors call the over/under—bets based on the total number of points scored in a game. …

ErisX’s contracts wouldn’t have been open to small individual investors. ErisX said they were designed to fill the hedging needs of businesses such as sportsbook operators that let bettors wager on games, stadium owners and food and beverage vendors.

For instance, a sportsbook licensed to operate in one state could have used the ErisX futures contracts to address a common problem where its local customers tend to bet on the home team, resulting in an imbalance in the firm’s books. Potentially, stadium operators could have used the futures to hedge against the risk of reduced revenue in case their local team didn’t make the playoffs, ErisX said.

But ErisX’s proposal faced a legal hurdle: Federal law gives the CFTC the authority to prohibit event contracts linked to gaming. The law doesn’t define gaming, leaving it up to the CFTC to determine whether the contracts’ underlying activity fits the classification. Historically, the regulator has been wary of proposals that blur the line between betting and financial derivatives trading.

Yeah … I … I just think that a contract that lets a sports book lay off its sports gambling risk in a sports gambling derivatives market is pretty obviously sports gambling? Here are the skeptical questions that the CFTC sent to ErisX about this plan (“Do any of these contracts involve, relate to, or reference gaming,” etc.), and the Journal notes that ErisX “withdrew its proposal” as “the CFTC had been poised to reject ErisX’s proposal on the grounds that it was contrary to the public interest.” I don’t know if that’s right as an intuitive matter — maybe sports betting is great and in the public interest? — but as a matter of CFTC rules it is obviously right. The CFTC does not allow futures contracts that are “gaming.” It is clever to argue “no no no, this is not a gaming contract, this is a contract to hedge gaming risk,” and I applaud the ingenuity, but of course it didn’t work.

https://www.bloomberg.com/opinion/articles/2021-03-24/nfl-futures-betting-you-can-t-trade-on-pro-football-odds

....



An interesting question was posed by the author here.

Question: "Market investors and hedge funds bet the price of an asset will increase or decrease by buying or shorting stocks. Gamblers bet one sports team will defeat another by placing bets. Is there a real difference between these two things. Should one be illegalized while the other is not."

I suspect some who have tried their hand at both gambling and crypto exchange trading might identify with these remarks. High risk correlated with high reward ventures such as sports gambling and market investment might both qualify as gambling. There may be many cultural and societal similarities between equity traders and sports gamblers as well. With big data and algorithm based approaches being the most successful innovations of recent times, in both areas.

[Darker45]

In the broad sense of the word, both are gambling. There's not much difference between the two. It's just that there are various interpretations of the word, various contexts on which gambling could be construed differently.

Gambling could refer to placing bets on a game of chance or on a sports team as much as it could refer to taking a risk making a bid order in a stock market or on a crypto exchange platform. However, most of the time gambling in the sense of the former is more on merely having fun and taking blind chances while the latter is oftentimes understood as a serious undertaking which involves a lot of informed analysis.

At the end of the day, I don't think one should be made illegal while the other legal. But both should be highly regulated.

[Wexnident]

I guess the biggest difference between the two is that one is mainly for entertainment/entertaining users, while the other is more of a business-organized type? Can't really find the term so let me just simplify it to being a market investment is like the formal business side while sports gambling is the casual side. They're both gambling ngl, but the intricate details of the two create quite a difference between the two hence why they're separated. I'm not saying to take what I said literally though, I just looked for the easiest terms that can be used to differentiate the two. Both still have users that just willy nilly gamble their money on a stock/team, while some do detailed research on their investments.

As for allowing or banning the two, they should both be allowed, but as Darker45 said, should also be regulated. I don't even think there's much of an issue with sports gambling? I'm guessing it's because of the world "gambling" since the word is frowned upon by most people. It's quite different from Casino gambling since those are mostly games reliant on luck.

[Silberman]

An interesting question was posed by the author here.

Question: "Market investors and hedge funds bet the price of an asset will increase or decrease by buying or shorting stocks. Gamblers bet one sports team will defeat another by placing bets. Is there a real difference between these two things. Should one be illegalized while the other is not."

I suspect some who have tried their hand at both gambling and crypto exchange trading might identify with these remarks. High risk correlated with high reward ventures such as sports gambling and market investment might both qualify as gambling. There may be many cultural and societal similarities between equity traders and sports gamblers as well. With big data and algorithm based approaches being the most successful innovations of recent times, in both areas.

Many of the concepts that traders and sport gamblers use have similar origins so I can see why some people may confuse the two, but the biggest difference is that a sport gambler takes the line the casino, a centralized institution, gives him, while a trader takes can take a trade until it is on his best interest to do so, however taking into account that sport gamblers also wait until the line is more favourable and that now sport bettors can also bet on an online betting exchange like betfair and can even use arbitrage like traders do then the separation between a trader and a sport bettor is becoming smaller with each passing year.

[abderrazak belkhir]

Thats complicated...many peoples think that investment and gambling are the same and i think the idea is not totally right...in the wining situation for example when you make a bet at 2 ods your asset will be doubled once the bet get settled but  investment can have some other situations...in the losing case bettors will dont have any chance to recover their money but investors maybe will recover and make huge profits by holding their investment

[electronicash]

No, absolutely not, that is way too cute, but nice idea, good effort. Here is a Wall Street Journal story about Eris Exchange LLC, a cryptocurrency exchange that tried to slip this one past the CFTC:

they are talking about futures for the game result, which couldn't be considered a fine line. stock can even be manipulated. sports results can be manipulated easily, the teams could just shake hands after and they both win on their futures. CFTC will look at it as sort of a cash cow for the people in NFL and that they say it's cute but No let the sportbookies handle that if you just want to bet on sports.

[Kong Hey Pakboy]

I do think that there is a fine line between hedging and betting but I think that it is enough to know that they are going to be different from the other, there is no odds in shorting stocks and you have to rely on making connection in order to make the stock you are planning to short to go down unlike in betting where you directly bribe the person involved or the management of the team, you can't do that in stocks because the company doesn't want to go down.

[avikz]

If you want to bet that oil prices will go up, you can buy oil futures. In the U.S., oil futures are legal and popular and exchange-traded and regulated by the Commodity Futures Trading Commission, and have been for a long time. You can use them for various purposes, but one purpose is just to make a bet on oil prices, which is generally called “speculation.”

US has another very interesting derivatives available for the common people, called - weather derivates! Here you can speculate if there will be a rain in a specific region, amount of rainfall and so on. That betting in another sense but on a different event.

Question: "Market investors and hedge funds bet the price of an asset will increase or decrease by buying or shorting stocks. Gamblers bet one sports team will defeat another by placing bets. Is there a real difference between these two things. Should one be illegalized while the other is not."

In essence, both are gambling but with a fine line as author mentioned. It's just a matter of legality. But I believe there's another important reason why sports betting has not been legalized in many countries is that a common man can't have control over oil price as it is controlled by a mixed body of oil producing nations. However, a group of common man can influence the outcome of a game using their money power, thus giving them an extra edge over others. Match fixing is real and happened many times in the past. Since such ill practices exist, governments are still hesitant to make sports betting legal in many countries.

But by nature, all are speculation only!

[traderethereum]

Thats complicated...many peoples think that investment and gambling are the same and i think the idea is not totally right...in the wining situation for example when you make a bet at 2 ods your asset will be doubled once the bet get settled but  investment can have some other situations...in the losing case bettors will dont have any chance to recover their money but investors maybe will recover and make huge profits by holding their investment

I think that is not complicated as if you have calculations about the investment, that will not be the same as gambling.
Both gambling and investment are not the same because in gambling, the result will be losing money, but you can make money, and that chance will not be bigger than losing money.
And in the investment, even if you see the investment can down, you still have a chance to make a bigger profit, and the best part is you are not losing your initial money. So you get both initial money and the profit in the future.
As long as you know how to select the right investment, you will profit in the future.

[Latviand]

In the broad sense of the word, both are gambling. There's not much difference between the two. It's just that there are various interpretations of the word, various contexts on which gambling could be construed differently.

Gambling could refer to placing bets on a game of chance or on a sports team as much as it could refer to taking a risk making a bid order in a stock market or on a crypto exchange platform. However, most of the time gambling in the sense of the former is more on merely having fun and taking blind chances while the latter is oftentimes understood as a serious undertaking which involves a lot of informed analysis.

At the end of the day, I don't think one should be made illegal while the other legal. But both should be highly regulated.

I agree with this, both have risks which can really make you earn profits or lose money.

Gambling is fun especially that you are playing different games, while in the market investment you are just observing the market.

But prioritizing market investment is a must, especially that it will make you somehow secured and safe compared to gambling that make you lose your money in a short period of time.

[swogerino]

I have tried both and let me tell you that market investment or trading like they call it is way more dangerous than gambling.A gambling event for example sport game takes time like 90 minute a match and gives you time to reflect while the market changes every minute and if you become addicted you can cause yourself a lot more damage than gambling and this in a very short time.

[Poker Player]

-snip

I had thought a similar thing about Poker. In fact, I became interested in the stock market after I started playing Poker. A chart of a winning Poker player is similar to a chart of the S&P 500 or similar. Sports betting is similar as well. They are games in which one can make a profit, unlike the other casino games which are inexorably EV-.

None should be outlawed in my opinion. Everyone is old enough to know what they are doing and today there are many tools for problem gamblers.
 

[uneng]

The point used to criminalize gambling is that the results from this activity are totally based on luck, while market trading is based on strategy and market knowledge skills, while gambling is much more accessible to everyone than market investments. Probably that is the reason why the concern towards gambling is so high by authorities, because the impact over the common citizen's life is much bigger.

Furthermore in market investments you aren't forced to trade stocks and assets for profit. You can just hold them and earn dividends, so you aren't forced to *gamble* in that category of investments, while in gambling games it's a must.

[fiulpro]

Market Investments
Crypto Investments
Investments in things that does not give the investor an assurance of 100% returns and profits. These things are nothing but gambling.
What is Gambling in the first Place ? It's just placing a bet and hoping for the best , I do think when government try and criminalize the gambling they do not understand the fact that 99.99% of the things in the market are based on sheer luck and one should actually educate people about their financial stability and well being rather teach them how they should not do this things because I Know for sure that when you tell someone to not do a thing they will do it for sure. !
Rather normalize reaching out for mental health helplines and at the same time strategize! Plan! Its all a Game and you do need your skills and knowledge for everything including gambling and other investments.
P.S. the Government started to normalize gambling during the pandemic because it was earning them a lot of revenues lol. They are literally using it according to their own Accord and then telling people not to do it ?

[BTCLiz]

For me personally the "fine" difference between market investment and gambling is knowledge about the evaluation of factors that determine the outcome. E.G.: You can never predict the number in roulette, but you can predict some makret environment regarding preferences of potential buyers. In this case you can lower the risk and get a state of a +EV decision.

[johhnyUA]

Question: "Market investors and hedge funds bet the price of an asset will increase or decrease by buying or shorting stocks. Gamblers bet one sports team will defeat another by placing bets. Is there a real difference between these two things. Should one be illegalized while the other is not."

I suspect some who have tried their hand at both gambling and crypto exchange trading might identify with these remarks. High risk correlated with high reward ventures such as sports gambling and market investment might both qualify as gambling. There may be many cultural and societal similarities between equity traders and sports gamblers as well. With big data and algorithm based approaches being the most successful innovations of recent times, in both areas.

You're definitely right about comparing gamblers and traders, man. Very, very much right 

Trading in most cases is just a gambling in long term. In the other ways, "investment" is a little different, because in that case (if we are not talking about venture investments) you're investing in things which already proved to be trustworthy,

[paxmao]

...

An interesting question was posed by the author here.

Question: "Market investors and hedge funds bet the price of an asset will increase or decrease by buying or shorting stocks. Gamblers bet one sports team will defeat another by placing bets. Is there a real difference between these two things. Should one be illegalized while the other is not."

...

Yes it is different. Many people think that the stock market is a casino - and you can certainly play it as such. Most retail investors from the new generations are using low cost trading platforms such as "Robinhood" to place bets and play it as games.

However, once you get proper financial education and you bother to understand the principles of investing, you will see that there is some order in the chaos. I guess you could argue that it is also true in games once you get to know the teams and understand the sport, but then you should say that "gambling is like investing" not the opposite

[dothebeats]

I couldn't see any differences in their essences, though. Investment in the market and sports gambling are both high risk, high reward activities, except that the former is favored legally by the government since they also peruse this to make money, plus the bulk of the tax money that they are getting are from companies that invests in a specific market. I have nothing against traders and investors in well-ironed suit-and-tie combo, it's just that I believe that they are, in essence, the same, and they only differ in the methodology and the environment to which they achieve their end goal.

[magneto]

I would say that if you're speculating without basis, without rigorous stop-losses and limits, then you are gambling.

And I've seen plenty of people who suffer from this sort of delusional behaviour. They think that they are making investments into futures and options when in reality, they're throwing themselves into a -EV game that will cost them money in the long run.

Vice versa, if you are making educated bets (through modelling or knowledge) on sports, then that should count as an investment.

[Fundamentals Of]

I couldn't see any differences in their essences, though. Investment in the market and sports gambling are both high risk, high reward activities, except that the former is favored legally by the government since they also peruse this to make money, plus the bulk of the tax money that they are getting are from companies that invests in a specific market. I have nothing against traders and investors in well-ironed suit-and-tie combo, it's just that I believe that they are, in essence, the same, and they only differ in the methodology and the environment to which they achieve their end goal.

The same understanding here. In essence, they are both the same. There is risking involved in both of them. So they are both gambling to a certain extent. But then each of them is referring to two different areas. They are in essence similar but they are not completely the same. In terms of which one should be made legal and another illegal, I think both could easily be made legal. After all, both of them could be done within the bounds of the law.