A little over 7 years ago, billionaire entrepreneur Mark Cuban wrote a blog post on his personal blog titled ‘My New Hedge Fund.’ The blog post wasn’t outlining plans for another me-too stock trading billionaire hedge fund. No, Cuban used his blog to suggest, somewhat radically, that he wanted to launch a sports gambling hedge fund.
And this from a guy who owns a NBA team.
Now, Cuban never did launch a sports gambling hedge fund. And since he generally likes to be provocative, it may be that his post was primarily directed at highlighting the challenges of stock investing (and he simply used sports betting as a convenient foil to the stock investing market). But Cuban made a very good case for why sports investing can rival stock investing so we wanted to revisit his core argument.
For purposes of this argument, let’s stick with legal sports betting in Nevada
Cuban rightly points out that in sports gambling, everyone knows the rules. They are spelled out clearly at every sports book in Nevada. The Nevada Gaming Commission enforces these rules. In stock market, however, it’s nearly impossible for individual investors to keep up with all the rules. And the watchdog agency in stocks is the SEC – the agency that whiffed on Bernie Madoff and countless other stock trading scandals.
Beyond clearer rules and better enforcement, Cuban points out that sports bettors have better access ¬†to information than stock investors. And smart investing is about using information and analysis
to make proper conclusions. In Cuban’s words:
When you think about betting on sports, there really is far better information about your local sports team than
there is about any local business in your market. The local papers cover the team every day. The localTV
station gives a report about every game. There areradio stations who cover them for hours at a time. That‚Äôs far
more information than you get aboutTyco orComputer Associatesor NFI.
In sports, when someone does something wrong, they pretty much tell you the next day or two. Someone suspended -¬†You know it. Someone hurt – They report it, and do a better job of policing that than any industry watchgroup.
And stats? my goodness. There is no comparison. You can tape everything and create your own stats, which I‚Äôm sure¬†every ‚Äúsmart money‚ÄĚ gambler does. There are public play-by-plays of every game.There are websites that
analyze every which way from sunday every action and inaction of every player in the game.
Cuban wrote this post in 2004, before Twitter. While sports bettors had great information then, it’s even better now. Anyone can follow every team’s beat writer on Twitter – for free – and know more about that team than any stock analyst can know about the companies they cover.
Better yet, sports teams, unlike public companies, don’t have the luxury of hiding or obfuscating ¬†their results. Every day, the box scores come out whether a team’s coach wants it to happen or not. ¬†Stock investors, on the other hand, are sitting around waiting for quarterly disclosures as to how ¬†the company has performed.
And about the ‘efficiency’ of the sports betting market, Cuban makes the following points:
¬†How efficient can a market be when the majority of investors expect to lose money? The ¬†sportsbooks know this. They¬†know the difference between smart and stupid money.
They set odds in order to attract as much emotional, stupid money as it possibly can. It also knows that
this emotional money will skew the odds and bring in the ‚Äúsmart money.” As a result, they have learned to lay
off their investments so that they arejust taking their cut off the dollars invested rather than trying to
outsmart the smart.
To me, this suggests the smart money is better than just good. It‚Äôs very good.
Cuban is a billionaire for a reason. He’s a smart guy and he makes very astute points about the relative attractiveness of investing in stocks verse sporting events. And while there still is no American-based hedge fund that bets on sports, a London-based sports betting hedge fund did launch just last year. So yes, Cuban was ahead of his time with his 2004 blog post.