Betting and Investing – Two sides of the same coin?
Sports have always been accompanied by the slightly financially disastrous, yet equally enjoyable counterpart- betting. One would have heard either grand tales of lady luck paving the way to riches or a sob story of poor decisions and money flushed down the drain. With the Indian Premier League, a hotspot for sports betting, back in full swing, it made me think- the act of sports betting and what I do as an investor aren’t very different from each other. Granted, this might be considered a bit of an oversimplification, and there certainly are several factors at play here, but give me a moment to elaborate.
Sports betting, simply put, is the act of predicting an outcome and placing a wager on it, hoping to make a profit. Under the traditional forms of sports betting, a bookkeeper tracks the wagers, payouts, and debts. Alternatively, Fantasy sports betting, the newly emerged, more legally sound option pits players against each other instead of a player against a bookkeeper.
Now, let’s rewind a bit. I mentioned that bettors place wagers on an outcome “hoping to make a profit”. Does the premise sound familiar? That’s because it’s basically a description of what investors do. Investors allocate their resources either in a business or in an asset, with the expectation of receiving income from the investment or the ability to resell their investment at a higher price.
There are several parallels to be drawn as well. For starters, both investors and bettors need to consider disposable income and liquidity before committing their resources. Secondly, both betting and investing warrant research for the purposes of risk management. Most professional gamblers are rather proficient at risk management and research player and team histories, while investors have to evaluate the stock, the management capabilities, competitive edge, EPS, etc. before deciding to invest. Furthermore, both investors and bettors take on a certain amount of risk (one more than the other, perhaps). Just like the bettor, the investor is in a position where the certainty of his investment reaping benefits is not set in stone, and both are out to minimise the risk and maximise the rewards.
Betting and Investing, both working on the same principle – “The greater the risk, the greater the reward”. But is that always true?
At some point in your life, you must have heard the horror stories of large sums of money gambled away, only to receive nothing. This exists because sports betting operates without a safety net. More often than not, bookkeepers “adjust the odds” to their favour, either by accepting an equal number of bets for all possible outcomes or by getting the amounts wagered on each outcome to reflect the odds.
Investing, on the other hand, works within an extensively defined framework under the purview of regulatory authorities, designed precisely to protect the investor’s interests. In India, SEBI has published various measures to ensure investor protection. In addition, it has published several directives, started many investor awareness programmes, and has set up the Investor Protection Fund (IPF) to compensate the investors.
It should be noted, though, that legalizing sports betting has the ability to not just reap the rewards of an age old industry that is frankly, quite massive (the market is worth $100 billion, and is only growing at a rate of 7%), but also bring attention to the sport itself – having a legal framework in place will only serve to draw in people to watch the game.
These are my thoughts on the matter. The similarities between betting and investing struck me as rather uncanny, which prompted me to pen down my thoughts, but I’m quite curious about what you might think. So, what about it? Let’s talk down in the comments!