Back in 2004, Mark Cuban wrote a blog post that shocked a lot of people in the business world: he announced (but only somewhat seriously) his interest in Mark Cuban starting a hedge fund based on sports betting. The logic was ironclad, and still is…. there is a better rate of return for smart money in sports
gambling investing than in the stock market.
Cuban’s idea had a lot of sound logic behind it: the return at a casino is roughly the same as in certain funds for breakeven purposes (but less expensive), and sports betting is different in that there is an expectation of loss, whereas in traditional investing there is an expectation of profit. This changes the way the money is handled, and smart bettors can expect better returns by having more information. And in this, Cuban argued, sports work out far better than the market: most people have much, much more information about their sports teams than the companies in their hedge funds.
Still, traditional investors scoffed (probably more out of personal offense than actual analysis): could a group of successful sports bettors actually have a better rate of return than market hedge funds? Two groups have tried, and one group has survived, and even moved to the UK to expand. Both are instructive in that they can show us exactly how sports bettors succeed and fail.
The fund that made the most noise from Cuban’s idea, Centaur Galileo, made headlines as they proceeded to set up their fund. Spectacular wins at the outset led to the idea in the media that Centaur Galileo was the fulfillment of Cuban’s vision– but the reality underneath was very different.
The firm spread out quickly, and its team of analysts became too focused on singular events. They opened a training center to large fanfare for sports bettors. Yet in the end, they lost everything. Perhaps the process of betting conservatively got lost among newly trained analysts– or maybe they just didn’t have as good system of financial management as was previously assumed. Whatever the case, the fund collapsed under $2.5 million in losses in 2012.
Meanwhile, another sports hedge fund in Australia that opened in 2010 made a lot less noise, and took a much quieter route of investing in sports. In contrast to Centaur Galileo, Priomha Capital Group made much smaller claims of success (while still claiming a 16.5% total return rate over the past seven years) and continued with steady, conservative growth. Unlike Centaur, they hadn’t made wild claims of success– they’ve simply been successful overall by applying a conservative bank management strategy. And Priomha’s braintrust is nothing to sneer at, containing experts in capital markets and bookmakers in its arsenal.
In the end, perhaps the flash that was Centaur Galileo versus the success of Priomha Capital can educate us a little more about Cuban’s ideas for investing. As always: diversify, study your bets, make educated wagers, control your pocketbook, and don’t pay too much attention to the media hype. Successful wagering is not an event– it is a process. And that is the way investors think, as opposed to gamblers.