Investing vs. Sports Betting

Stock trading and investing is a very complex process that requires ongoing learning and constant strategy planning. We wrote not long ago about the idea of journaling to improve as a stock trader, and at the end of the day this is just one of innumerable personal tricks and practices you can put into place to do a better job in the markets. It’s a meticulous lifestyle, and one fraught with complications, risks, and, when you’re doing it right, rewards. Despite all of the work and preparation that goes into stock trading, however, many like to compare it to the far less precise art (perhaps a generous term) of sports betting. On the surface, the idea makes sense: both activities involve placing your own money on the line in the hopes that you can make it grow by predicting a given outcome. In that most fundamental sense, investing and sports betting can more or less be called equal. However, there’s more to it than that. Now - why is this relevant? Basically, it’s because the U.S. is on the verge of legalizing sports betting on a very large scale. With the Supreme Court having basically ruled that sports betting isn’t illegal, states have been given the go ahead to pass legislation specifically making it okay for sportsbooks to operate. Now, a few American states already had legalized sports betting, but they represented a significant minority. Now, more are joining the club. We read recently about Ohio introducing a bill to legalize sports betting, and Pennsylvania has taken similar steps. New Jersey has opened a new sportsbook just outside of New York, pressuring its neighbor to hop board or lose would-be profits to people crossing the Hudson River to place bets in New Jersey. It may take some time, but ultimately these and other states are getting in on the action. We have no crystal ball for the near future of sports betting, but logic dictates that as more states legalize the practice, tens of thousands if not millions of amateur bettors will get in on the action. People like to feel involved in their favorite sports, and they already follow them obsessively. And, believe it or not, Americans generally like to obey the law - and so do young people in general - meaning many have been waiting for this to happen before starting to bet (though there are also numbers suggesting huge numbers of illegal sports bets being placed year by year). The interesting and problematic aspect of this is that a percentage of those thousands or millions of new sports bettors will undoubtedly look at this as an opportunity rather than additional recreation associated with sports spectating. In other words, they might look at it as an investment. And this is why, moving into the near future, we need to be clear about the distinction between betting and investing. Three main factors define that distinction: odds, diversification, and projection. Odds - When you bet on sports, you’re doing one of two things: betting with the odds, which has minimal profit potential, or betting against them, in which case you know you’re mathematically likely to lose. This is the setup because you’re ultimately betting against a sportsbook, which is an entity designed to win your money. In effect, you have an all-knowing opponent who may be wrong occasionally, but will always be right more often than not. In the stock market, a vaguely similar model applies in that you can make a low-risk investment for a more modest payout (betting with the odds) or a high-risk one with more earning potential (betting against them). But there’s no “House” trying to beat you. There is no trickery in projections. Diversification - You can diversify your sports bets. You can bet several contests in a single night, or place bets on numerous sports at once. But this doesn’t quite match the strategic diversification of stock investors, who can spread their money out across different assets wholly unrelated to one another. In sports betting, you’ll basically be taking a bunch of shots and hoping that more pay off than don’t; in stock market investment a strategically diversified portfolio can come fairly close to ensuring a net gain. Projection - Sports betting is actually getting more precise. Math and analytics are more closely tied to sports than ever before, which leads to more exact projections and more consideration of trends. A mathematically sophisticated sports bettor may have a better shot at success. Stock market projections, however, can be based on past models, industry precedents, observable trends and chart patterns, and all kinds of other factors. When you invest, you’re doing so because your methodology tells you to expect a win. Most sports bettors place wagers thinking that they might just have an idea what’s going to happen. Basically, one is more precise than the other. None of this means it’s impossible to profit on sports betting, but it’s important to remember the differences as sports betting becomes a bigger part of our lives.