Hello everyone!

Bit of a rant today on sports betting, plus what I would do if I was 18 years old with some summer job income.

Also, half way through Red Roulette, a story about the Chinese Communist Party, Billionaires, Corruption, and Kidnapping, as the country exploded into a superpower. Very good. Here’s a quote:

“Basically, the Party said, give us your freedom, and we’ll let you make money. That was the trade.”

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Personal Finance

The Sports Betting Epidemic

Last week I caught up with a buddy, talking about inheritances, windfalls, and what to do with his sudden money. That’s a whole other issue I’ll write about later. But he did bring up an important topic, something I have written about before, and worth revisiting again: the sports betting epidemic. 

Last weekend I was ensconced in the ever entertaining Ryder Cup Golf tournament. Europe owned the US team. Pretty vivid battle not usually seen in golf with the fans acting like soccer hooligans going to town on Rory Mcilroy, who mostly held his cool during play save for few “f-off’s” thrown at the crowd. Then Rory followed up after his well deserved win in a somewhat retaliatory way for the mal treatment by the host country’s fans, targeting the President on Instagram, shouting “Are you watching Donald Trump!” There may be some hurt feelings and awkward relationships after what we all saw transpire.

Moving on. Apart from the entertainment, I kept noticing about every 30 seconds all these ads for sports betting, and even commentators discussing the betting odds, highlighting “if you sign up for DraftKings today get $200 in free bets.” Classic…hook, line, & sinker.

I went and found some interesting data online about the proliferation of this gambling industry, and two stats caught my attention:

• The global sports betting market is projected to reach ~US $187 billion by 2030, growing at about an 11% CAGR.

• In the U.S. in 2023, Americans wagered a record US $119.84 billion on sports bets (up ~27.5% over the prior year).

These are incredibly big numbers. And scary. Why? Because of how great the business model is.

The sportsbooks keep what’s called a “hold”, essentially keeping 9% of the total money wagered. This is their revenue. And someone’s revenue is someone else’s expense (loss).

In other words, the average bettor loses 9 cents for every dollar wagered. Doesn’t just imply the house usually wins, the house always wins.

This is what’s called a negative expected value. Any business or finance grads would remember calculating the expected value of an investment, based on assigning probabilities of future results which leads to the E(V). In this gambling world, the E(V) is negative.

No investor in the world would move forward on a negative expected value. But gamblers do.

That’s not by accident. Bookmakers set odds tilted in the house’s favor, so over time, the bettor is guaranteed to lose. But they also understand that preying on people that have an emotional attachment to a game increases profits. So they steer the gambler into believing they are investing—which we just proved, makes no sense.

Therefore they have entire teams, mathematicians, behavioural psychologists, algorithms, and ad managers, sitting in a room designing ways to make sure you keep coming back to bet some more.

You’re not a customer, you’re a gazelle. Literally, prey.

Look, I’m not 100% against gambling. I like the odd Vegas trip, betting on my own golf game or throwin’ some money on the Super Bowl. Mostly I lose. I chalk it up to Entertainment, being sure not to get into the vicious cycle of doubling down.

What to do instead?

Take the $100 you were going to bet on a game this weekend and put it into an S&P 500 ETF.

$100 a month for 20 years, invested at a 10% return, turns into ~$76,000.

What is the same $100 a month wagered on sports worth?

Absolutamente nada.

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Stock Markets

If I was 18 and just got a summer job, here’s what I’d do.

1. Open Wealthsimple account.

2. Contribute at least $100/month now that I have some income.

3. Buy $75 worth of SP500

4. Buy $25 of a company who’s products I use a lot (ie Apple, Netflix, Nike, Coca Cola, etc).

5. Spend 5 minutes each month buying more of each.

6. Then I’d start automating it.

7. Watch it grow.

You get both the diversified approach to investing (SP500) while learning what it’s like to own an individual business of which you are a frequent customer.

If you’re going to spend on products and services, you at least offset those expenses by participating in the profits these businesses generate.

Pro tip, start cold. Making your first investment might seem nerve racking, like putting your money in a black box.

But every good investor started cold at one point too.

When I started in 2008, I didn’t know much. I bought $500 of Scotia bank stock, the bank that I got my first debit and credit card from. Easy enough to pick that one.

If I’d waited until “I thought I knew everything”, I’d have missed out a lot of future investing returns.

Overtime, you can adjust your allocations as you learn more about investing and more about yourself.

Young boys and girls, time, is your greatest advantage.

1 Quote

"Hoping to recoup is what ruins the gambler."

-anonymous

A Question

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