Anyone "investing" in the sports futures market?

Pretty interesting idea and its exploding in popularity, just began dabbling myself. I was wondering if anyone was getting into this new "market" and what sort of results they were having...

Somehow I lost the link and author's name, but this seems to be a fairly good assessment of whats going down.

Sports Event Futures

Let the market decide what the odds are, have an open market in futures contracts on sporting events. For example, you may buy a contract from me in which I promise, on November 1, to pay you $1 if the New York Yankees have won the 2000 World Series, and which otherwise is worthless.
How much would you pay for such a contract? Ten cents? Five? If I think the contract is worth five cents and you think it is worth seven, then you can buy a thousand such contracts from me for sixty dollars, and we have a bet. If the Yankees win, I owe you a thousand dollars, and if they lose, I keep your money.

What makes this more interesting than regular betting is that contracts are exchangeable. We can have a market. People with better information about the Yankees' true chances to win will be able to exploit that knowledge, and the price of contracts will converge on the true value.

To see why this is, let's take a simple example: Suppose that I could buy a `heads' contract that would pay me $1.00 if the Super Bowl coin flip next January came up heads, and let's imagine similar `tails' contracts. In a free market, the two prices you must pay for these two contracts will always sum to $1.00. Why? If the two prices are each less than $.50, then it's easy to see how to make money: Buy one of each contract, wait until January, collect your inevitable dollar, and pocket the difference. In a well-run market, lots of people will do this immediately, and the prices for both contracts will rise, because many people are trying to buy contracts. If the two prices are both greater than $.50 each, it's also easy to to make a profit: Sell a lot of contracts, in pairs. Each pair sells for more than $1.00 total, so after you pay off the lucky winners in January, you have some money left over.

Many people trying to sell contracts will force down the prices. If one contract sells for more that $0.50 and one for less, you can still make money with a slightly riskier strategy: Buy the cheap contract and sell the expensive one. You might lose this year, but your expected earnings are positive, so over the long run, you'll win. Lots of people buying the cheap contract and selling the expensive one will force the prices closer toegther, since demand for the expensive contract will drop and demand for the cheap contract will rise. The equilibrium point in the coin flip market is when the price for each contract is exactly $0.50, and prices will tend to converge to this point and stay there. Taking advantage of price inconsistencies in financial markets in this way is called `arbitrage,' and people make lots of money doing it on the stock market.

The Las Vegas odds for sports events are always some round number like 100-1 or 50-1, never anything weird like 73.6-1. But of course there's no reason why the real odds should be round numbers. A sports even futures market would gather as much information as possible to arrive at a truer estimate of the real odds.

Arbitrage becomes possible: If you've sold a thousand Yankees contracts at seven cents each, and then the Yankee's star pitcher breaks his arm and contract prices go down to six cents, you can get rid of your risky contracts, which might cost you a thousand dollars in November, in an easy way: Buy a thousand six-cent contracts. You're left with an immediate profit of $10. If the Yankees lose, all the contracts are void; if the Yankees win, you get $1000 that you can use to pay off the contracts that you sold.

FInally, you can use sports event futures the way manufacturers do: As a hedge fund. Suppose you're a Yankees fan and the Yankees are facing the Philadelphia Phillies in the World Series this year. Buy a few contracts on the Phillies. Then if the Yankees do lose, at least you have valuable Phillies contracts as consolation.

 

Here is a better (I hope) explantation of what's happening, this is already a multi-billion dollar form of gaming.

Futures defined:

Futures are contracts to buy or sell a particular asset (or cash equivalent) on a specified future date. Around the world, futures contracts are traded over commodities such as gold, wool and soybeans, financial instruments such as government bonds and currencies, and equities.

Trading sports futures works the same way except your buying contracts on how well you believe certain teams will perform over a given period. When you buy an Future, you agree to ‘buy’ the index (make the bet) underlying the futures contract on a specified date in the future. When you sell a future, you agree to ‘sell’ the index at that time. At maturity of the contract a cash settlement takes place.

Whether you make a profit or loss at maturity depends on how the index (or in this case the performance of the bet you've made) has moved in the period since the futures contract was traded. The full value of the futures contract is not paid or received when the contract is established. Instead both buyer and seller pay an initial margin, which is a small percentage of the value of the contract and then the buyer continues to hold "shares" of whatever futures they own.


Here is an article from Slate:

What Weird Futures Can You Buy?
A guide to online prediction markets.
By Brendan I. Koerner

The Pentagon has scrapped its plans to operate the Policy Analysis Market, which would have allowed online traders to wager on the likelihood of future terrorist attacks. Aside from commodities like pork bellies, what sorts of futures can wannabe brokers buy and sell?

A whole galaxy, thanks to the proliferation of Internet-based prediction markets, also known as decision markets. These online bazaars allow punters to plunk down money, real or imagined, on the potential of films, ideas, or the U.S. military's success in snagging Saddam Hussein.

It may sound like nothing more than glorified sports gambling, but many economists believe that such markets can suss out vital, hidden information about future events—much in the same way that a soaring stock on Wall Street can indicate that good things are afoot for the company in question. That's why the Defense Advanced Research Projects Agency has been funding so much research on the topic, hoping that prediction markets can assist military planners.

The granddad of online prediction markets is the Iowa Electronic Markets, which was started in 1988 to forecast the fortunes of presidential candidates; the market now covers the Fed's interest rate decisions as well. IEM participants can use real money, with starting accounts capped at $500. The market is regulated by the Commodity Futures Trading Commission.

Sports fans can take advantage of their nightly SportsCenter viewings on the Athletic Stock Exchange. Not much money to be made here, as the entry fee is $10 and the athletes trade for just a few pennies. But sports aficionados may enjoy grabbing a share of Bobby Labonte (Ticker symbol: LBNT) or Hideki Matsui (MATS) and seeing where fortune takes them. There are also veritable athletic indexes, jock versions of the S&P 500, like the Quarterback Pool, which aggregates the fortunes of all National Football League signal callers.

If news rather than sports is your informational pastime of choice, check out the current-events section at TradeSports.com, an Ireland-based betting service that made a name for itself when its market more or less predicted the date of Saddam Hussein's ouster. A future on a Saddam arrest this month just went up three points, in light of the capture of one of his chief bodyguards.

The Foresight Exchange Prediction Market allows traders to bet on the likelihood of a range of events, from the resignation of Donald Rumsfeld by October to a devastating earthquake in the western United States by 2010. (A celebrity version of the Foresight Exchange is Long Bets, where pundits are encouraged to lay down a few thousand bucks on such outré prophecies as whether there'll be a four-day work week in the year 2070.)

At first glance, the trading of weather derivatives on the Chicago Mercantile Exchange may seem like a prediction market of sorts—after all, weather forecasting seems ripe for such wagering. But these investors are using the market to hedge their bets, not to get rich off hunches about upcoming weather. For example, an energy company that craves a long, hot summer in a certain city—the better for folks to run their air conditioners incessantly—will manage risk by purchasing futures that predict a cooler than anticipated summer. That way, they won't get burned so badly if Mother Nature doesn't comply. Since these investors are interested parties whose betting strategies are designed solely to manage risk, the weather derivatives