David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141

Gambling vs. Investing

February 18th, 2014

For a game widely touted as a matchup for the ages (#1 offense vs. #1 defense), Super Bowl XLVIII was decidedly anti-climactic, with the Seattle Seahawks trouncing the Denver Broncos 43-8.  Another big winner (besides the Seahawks) was Nevada casinos, which reportedly netted $19.7 million in profits on $119.4 million in legal wagers (both record amounts for the Super Bowl).  Part of the reason for this record haul is that the Super Bowl attracts wagers from a large number of fans who don’t usually gamble.  These unsophisticated gamblers are more likely to make sentimental bets based on favorite players (i.e. veteran Denver quarterback Peyton Manning) or hometown teams, rationalizing their wagers as a fun way to make watching the big game “a little more interesting.”

In contrast, casino bookmakers exhibit no sentimentality whatsoever.  The casino’s goal is to limit its net exposure to either side of a bet, targeting a “spread” which will attract a roughly equal dollar amount of wagers to each outcome.  Each side of the bet is given odds which implicitly leave a reasonable commission to the casino for acting as middle-man.  In this way, the casino acts similar to a market-maker in a stock, whose objective is to balance buy and sell orders to ascertain a market-clearing price, and who pockets a small bid/ask spread for his efforts.  Thanks to such diligence and discipline, Nevada casinos have been net winners in 18 of the last 20 Super Bowls. Read the rest of this entry »

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