What’s the difference between betting on sports and investing in stocks?
Not much at all, according to our favourite billionaire entrepreneur in the world.
You almost certainly know Mark Cuban as the colourful owner of the Dallas Mavericks, or as the most entertaining guy on Shark Tank.
What you may not know about Cuban is that he earned a good chunk of his money through some sharp investment choices. You don’t become a self-made billionaire by accident.
But, despite all his successes as an investor, Cuban suggested in a 2004 blog post that it’s actually easier to make money betting sports than trading on the stock exchange.
We certainly agree with him. (You’d probably be an idiot to disagree with Mark Cuban when it comes to theories on how to make money.)
Here are four reasons why betting on sports is better than investing in stocks:
When investing in stocks, it may take months or even years to see a return on your investment.
Betting on sports, however, enables your capital to be much more fluid.
Unless you are betting on futures before the season begins (who will win the championship, over/under win totals, individual award winners, etc.), you will know whether you made money or lost money as quickly as a few hours after you place your wagers. Then you can do it all again the following day.
Here’s an example:
Both a stock market investor and a sports bettor have $5,000. The stock market investor buys $1,000 worth of shares in five different companies, while the sports bettor averages three $100 bets a day for a year.
While the stock market investor watches the value of his shares increase and decrease over that year, the sports bettor is able to reinvest part of that $5,000 every day. In a full year, the sports bettor has actually invested $109,500 ($300 a day x 365 days).
Even if the stock market investor makes an average of 20% ROI (return on investment, a healthy return to be sure), he’s made a profit of $1,000. The sports bettor needs only a 1% ROI on every dollar he bets to make a profit of $1,095.
2. Inefficiency of the market
Who do you think is easier to outsmart — Gordon Gekko, Warren Buffett and the stock market traders, or the average sports fan?
Cuban makes this point and a few more about the sports betting marketplace in his blog post.
“Most casual gamblers, who are the majority of the money spent, go to Vegas expecting to lose money. It’s part of the entertainment experience,” Cuban notes.
“People put money in mutual funds and in their brokerage accounts and pick stocks expecting to make money. They don’t find any value in losing money on a stock, fund or other traditional investment. That changes the opportunity completely.”
The common misconception about sports betting is that bettors are always playing against the casinos or the bookmakers.
That, of course, is not necessarily true. Bettors are often playing against other bettors, may the smarter bettor win, and the casinos and bookmakers collect a small percentage (juice) for being the middleman (similar to a stock broker).
So, again, who is easier to outsmart? The guys whose job it is to buy and sell stocks all day, or Joe Sixpack who just wants to have some action on this weekend’s NFL games and blindy picks all the favourites?
“How efficient can a market be when the majority of investors expect to lose money?” Cuban asks.
No argument here.
3. Knowing the rules
Forget about the rare stories you hear about games being fixed — there have been far more and bigger scandals in the stock market.
Enron, Martha Stewart, ponzi schemes, insider training… and all of this despite a supposed governing agency in the United States — the Securities and Exchange Commission — to prevent it all.
Reputable sportsbooks, meanwhile, clearly state the rules. A bet that wins is a bet that wins, and a bet that loses is a bet that loses. There are no grey areas in constant need of interpretation or monitoring.
And, while there are a few horror stories about online sportsbooks that defraud people out of money, there are still plenty of very, very safe sportsbooks out there to use.
If you place your bets at any of our recommended sportsbooks — many of which are government regulated — there shouldn’t be any unpleasant surprises.
4. Access to information
Regardless of whether you’re going to buy stocks in a company or bet on a game, you need to do your research.
The problem with researching companies is that you won’t always find out what you need to know.
“Public companies play so many games with their numbers, it’s ridiculous,” Cuban writes.
“Should they expense options or not? Per forma vs. GAAP? One-time writeoffs? Buying company after company? Writing down inventories, then reselling them?”
Meanwhile, professional sports is very much transparent and in the public eye:
- Injury reports indicate whether the key players will be performing and at what level you might expect them to.
- You can watch the teams play in person or on television and draw your own conclusions.
- There are all kinds of verifiable statistics that you can study to analyze strengths, weaknesses and trends.
- You can rely on the thousands of news-gathering organizations out there to tell you what you want to know.
Why do you think the NFL provides an injury report each week? Though the league likes to pretend it abhors people betting on its games, it knows the opportunity to bet on point spreads is the biggest lure of Sunday pigskin.
“Reporters are there after every practice to interview the players and the coaches. They ask the same questions that every gambler wants to know, if only so they know who to pick for their fantasy teams,” Cuban points out.
“That’s far better than we get from public companies. Not only can they not disclose material information on a daily basis, they try their very best to hide their actual performance when they are required to supposedly disclose all information.”
There are many negative connotations associated with the terms ‘gambling’ and ‘betting’.
The most prevailing one might be the widespread belief that all gamblers are destined to lose all they have. Yet, stock market traders are somewhat revered as sharp businessmen building an empire.
“Gambling is gambling,” Cuban says. “The question is, which gives the opportunity for a better outcome?”
If you can pick more winners than losers and manage your money properly, you should have more potential to make money betting on sports than you do investing in stocks that you know next to nothing about.