Assembled in the USA from 100% Chinese parts.

Um.

Just to forestall the scorching you may be about to get from angry Irish:

"Dublin, Ireland-based exchange", not "in the UK".

(On the other hand, if you're discussing Ladbrokes and such, "never mind".)

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mentalapse.livejournal.com

Sorry, I'm still feeling that ancestral oppression. English suck!

Dammit, I just remembered I'm 3/16 English. Curses!

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mentalapse.livejournal.com

Also, I'm pretty tired, so pardon me fellow Irishmen. And remember, never trust the English, because they're just waiting for the right moment to annex us with the support of the Bush administration and a Coalition of the Willing to Screw the Irish.

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skreeky

I have absolutely no idea what a "futures contract" is.

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Don't know if this helps but the article goes on to say:

"Futures are agreements to buy or sell assets at a set date and price; futures on events are paid off in cash."

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That's right, but maybe an example will make it clearer. In a futures commodities market, you'll buy a contract which will say:

"On Jun 1st, 2005, deliver 50 tons of live cattle to the owner of this contract."

You buy that contract for $1000 right now. You get the cattle next summer. If those cattle are worth more than the $1000 , then you made money, and if not, then you lost money (inflation and risk-free returns aside).

What TradeSports did is change this to (in a famous example last year):

"On Mar 31st, 2003, this contract is worth $10 if Saddam Hussein is out of power, and $0 if he still is in power."

The more likely you thought that the war was over before the end of March, ther more you were willing to pay for that contract.

Tradesports, of course, does sports, and in a certain sense, it's just gambling: people risk money on the outcome of sports games. Yet, the actual process is a whole lot more interesting, since the entire process is market driven: there's no bookie that sets the odds of the Red Sox winning at 5:2. People put out, just like a real futures market, bids (requests to buy) and asks (requests to sell). Assuming $10 contracts ($10 if the Red Sox win, $0 if they lose), I put out an offer into the market saying: "I'll pay $4 for up to 10 contracts." Other people in the market decide whether to take my offer or not: if they do, I'm not betting against tradesports, I'm betting against someone else's exposure. Furthermore, in probably the most interesting part, you can take the exposure you have and get rid of it at any time. I buy my 10 contracts pre-game at $4 (paying $40, with a payoff of $100). As the Sox starts winning, the market starts moving up: by the time it's 8-1, those contracts are going for $9.50, and when Pedro comes in and gives two runs up, they dart back down to $9. I can sell off the 10 contracts I have for $9 and lock in $50 in profit.

Here's how the Rams vs Patriots superbowl traded on Tradesports, as the game was going on: http://www.tradesports.com/jsp/tradesports/help/HTML/Superbowl.htm

Why people get excited about futures markets is that they are a way of combining people's information together in ways which aggregate knowledge: the idea is that the people willing to bet on with their own money whether Kerry or Bush will win are going to be smarter than those without the financial interest. There have been plenty of examples of this being the case: Weather futures markets in Florida made up of oranges farmers are better at predicting the weather than meteorologists; the Iowa Electronic Markets (a fully legal futures market sanctioned by the US), has been better than polls at predicting presidential outcomes.

The current big use is as just mentioned, predicting the election: the community of Tradesports put the Bush presidency as 60% likely to win; the IEM market puts it at 57%. The great thing is that if you disagree with those odds, just sign up, and you can make money.

--stu

PS: Tradesports makes money by charging $0.04 per contract bought or sold.

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neat. so it is a zero-sum game like the stock market.

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totient

So the thing about futures traders is that they're in there because they think the market is not 100% efficient, and they want to take advantage of any inefficiencies they can find. In sports, the obvious inefficiency is that individuals have inflated ideas of the capabilities of particular teams; this is probably more true of the Red Sox than anyone else and is reflected by the odds being only 40:1 rather than the 62:1 you'd expect from historical evidence. Bookies suffer from the same inefficiency since their job is not to reflect the actual chances but to set the odds such that no matter what happens they can pay out. If 90% of everyone is betting the same way on a coin toss, the bookie has to adjust the odds so he won't get burned.

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It sounds like it's basically a 'sports stock market'. So really, the question is 'how is the stock market not gambling'? On some level, any investment is a gamble -- but does that make it gambling? I suppose by the definition, yes. . .but what's wrong with sports gambling?

It's different from the stock market in that, afaict, the teams don't see any of the money. I wonder if it's a zero sum game, like the market; I bet not.

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but what's wrong with sports gambling?

So, I have nothing against gambling in general, and while people have pointed out the problems with sports gambling in particular they seem to be a variation on the insider trading problem, which is a well-understood problem.

My questions are: what is it about gambling that makes it socially more acceptable when we dress it up with the look of high finance? And, even more importantly, why is one legal and the other illegal?

(I have my own thoughts on this--mostly having to do with class and the capitalist system--but I try not to bore people unnecessarily.)

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By the way, I think the difference between futures market gambling and traditional bookie gambling is the level of transparency: futures markets aren't just dressed up versions of the sportsbook, but rather are mutual transactions between two people: there's no worrying about unfair lines, or people going under and not paying, or people breaking your legs: it's a clearly defined transaction that depends on two people entering into an equal relationship.

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I think the difference between futures market gambling and traditional bookie gambling is the level of transparency

I will not argue with you about the benefits of transparency. As I said, I'm all for efficient markets, and transparency is important to efficient markets. However, the solution to lack of transparency is to make the market more transparent, not to ban the market.

And when you look at the underlying business, it's functionally the same. TradeSports.com and Ladbrokes (one of the big bookmaking houses in the UK) have substantially the same business model. Yet, because one has a futures market focus, and the other has an old-style bookie focus, we as a society treat them very differently.

there's no worrying about unfair lines, or people going under and not paying, or people breaking your legs: it's a clearly defined transaction that depends on two people entering into an equal relationship.

Many of these problems are the result of gambling being illegal. Unfair lines could be greatly reduced with competition from other providers; people going under and not paying could be enforced through existing small claims and bankruptcy law, and the breaking your legs problem can be dealt with by making gambling debts collectable through the usual collection agency channels.

I will note additionally that Ladbrokes conducts its business with the clear definition of a modern bookmaking house.

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Well, the difference between the stock market and, say, real estate in particular and forms of gambling such as casino games or lottery is that the stock market is a zero sum game. Casino games are such that the house always wins, the people making the profit are on one side of the table.

Meanwhile, with 'investments' (or socially-acceptable gambling), someone has to buy in order to sell.

I can't buy a house unless someone is selling it; same with stock. However, as many people that want to can bet on a sports team.

I'm not sure if the 'futures trading' falls under the stock market scenario (ie, if it's like a bonds thing) or if it's just gambling gussied up.

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Well, the difference between the stock market and, say, real estate in particular and forms of gambling such as casino games or lottery is that the stock market is a zero sum game.

This is an interesting definition but I think it doesn't actually distinguish between "gambling" and "speculation" very well, particularly in this case. TradingSports.com makes its money on commissions. Conceptually, you're betting against everyone else, not "the house", and TradingSports.com is taking a fee for providing the venue and the service.

This is a lot like playing poker at Foxwoods; the house gets a cut--for providing a table and a dealer--but you're actually playing against the other players.

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Conceptually, you're betting against everyone else, not "the house", and TradingSports.com is taking a fee for providing the venue and the service.

Right, like a stockbroker. Although then I have to wonder why poker falls under gambling and not 'stock market' stuff.

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Although then I have to wonder why poker falls under gambling and not 'stock market' stuff.

Yup, exactly.

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Well, it does in some respects, and not in others. This isn't black or white to any extent: The stockmarket is less like gambling than the IEM, which is less like gambling than Tradesports, which is less like gambling than LadBrokes, but there are still many meaningful ways in which picking stocks is gambling, and some in which I'd say that picking stocks is more gambling than playing poker.

Other reasons why tradesports gets a boost: we reward services that use markets as a medium, because in some areas, they manage to be more efficient, transparent, and cheaper to use than relying on focused power, like LadBrokes. Tradesports only cares about providing an environment in which people will want to use tradesports a lot, and therefore rack up transaction fees; LadBrokes wants an environment where they can maximize their vig while minimizing their risk.

Considering that at ladbrokes right now, you're paying about 8% vig either way on tonight's game 7, while at Tradesports, the market spread is about 1% (plus .4% transaction fee), maybe there's some good use for that heuristic.

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Considering that at ladbrokes right now, you're paying about 8% vig either way on tonight's game 7, while at Tradesports, the market spread is about 1% (plus .4% transaction fee), maybe there's some good use for that heuristic.

Sure, and by rights either market pressure should force Ladbrokes and other bookmaking services to lower their spreads, or face going out of business.

I think you're focusing on something I agree with you about: that we should encourage transparency and efficiency of markets. My question is why there are legal sanctions against gambling and why when you call it investment, or even speculation, it's suddenly ennobled by this renaming and those legal sanctions vanish, even when fundamentally the activity is the same.

It's a social question, really, and one which I find intriguing.

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Well, I agree with you, the grey areas that ideas markets are starting to inhabit are interesting, and I'd need to be less busy at work to deal with this in any depth, but:

1) Tradesports is by no means legal in the US; at best it's dark grey.

2) Stock market investing for some people, and in some situations, is just a way for people to risk money in order to make more, but the stock market serves many many other intrinsically valuable purposes with regards to how our economic system fundamentally works. The gambling part of it is integral to how it works, but not so integral to its goals.

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I think you've hit the point I was looking for.

Tradesports is by no means legal in the US; at best it's dark grey.

While Tradesports is dark grey, the Iowa Electronic Markets seem a lot less grey.

the stock market serves many many other intrinsically valuable purposes

From http://www.biz.uiowa.edu/iem/about/:

"The Iowa Electronic Markets are operated by faculty at the University of Iowa Henry B. Tippie College of Business as part of our research and teaching mission...

"We, and many of our colleagues at other institutions, use the markets in classes as a pedagogical tool. We have found them to be an excellent way to focus attention and give hands-on experience with real-world markets.

"As a research tool, the markets provide us with an unparalleled laboratory in which we can study individual trading behavior as well as market level performance.

"The quality of our data is improved by interested traders participating in the markets."

So, if I generalize correctly, the argument is: "We're not gambling for the sake of gambling. The gambling is essential to our operation, but isn't the intrinsic purpose of what we're doing. Therefore, it's okay."

It does seem that if the Iowa Electronic Markets were doing millions of dollars worth of trading every day, they might start rethinking things.

By this measure, Tradesports.com is in a much darker grey area.

Thanks! This is helpful.

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ceo

This reminds me, I wonder how the bookies fared. When the Patriots won the Super Bowl for the first time, a lot of bookies found themselves unable to pay off their bettors because there were so many people betting on the Patriots, with the odds strongly against them, that they couldn't get enough coverage on the other side. (And, of course, bookies who don't pay up tend to get ratted out by their bettors.)

Bet some people placing bets on the Sox after Game 3 made out like bandits.

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