Hedge Fund Gambles on Sports
It’s brilliant. A hedge fund for men who love sports. Better yet, a hedge fund for men who have a gambling addiction (yes, it is a real diagnosis– pathological gambling is now defined separately from manic episodes in the DSM IV-TR, many well respected addiction centers across the country offer treatment for it, and Gambler’s Anonymous (GA) has existed for years). But you don’t have to be an gambling addict to take an interest in this new hedge fund venture– because everyone knows gambling is just plain fun! And it’s not gambling if you KNOW you’re going to win! Besides, what’s more genteel and respectable than a hedge fund? It’s not like going to the racetrack and paying your bookie… I’m guessing that was the thinking behind the Galileo fund.
Centaur Group’s Galileo fund makes investments not in traditional stocks, commodities, or derivatives, but rather by betting on the outcomes of actual tennis matches, soccer and cricket games, golf tournaments, and horse races. By all accounts, Galileo is the first hedge fund ever to make bets on sports.
Mark Cuban, owner of the Dallas Mavericks and perhaps more famous for his stint on Dancing with the Stars, caused quite a stir five and a half years ago when he had announced his intentions of starting a similar sports betting hedge fund, but quickly came up against opposition because of U.S. laws. Now Cuban is an outspoken supporter of the Centaur venture– and Tony Woodhams, the managing director at Centaur Group, which operates Gallileo, likewise, has said that Cuban was right on with his instincts that the stock market had more inefficiencies than sports betting. According to CNBC,
Besides emotion, Woodhams said that the sports market has a lot of mispricing, with some bookmakers that don’t often set the best lines for every game. The market isn’t effected by the economy and there’s no intervention from outside parties like a central bank or a government.
Woodhams was quoted in the LA Times as saying,
We put numbers against those things that you and me and everyone in pubs have casual discussions about. That gives us an edge on these markets.
Woodhams claims that Centaur has a proprietary number-crunching system that is data-driven and can make sports bets with far better results than the casual bettor. In fact, the Centaur plans even plans to use fluctuations in odds and point spreads that are affected by amateur bets to its advantage and somehow make money off of it. The exact method is, obviously, proprietary and probably beyond my comprehension anyways because I was never much of a gambler, but we’ll soon see if they can produce results or if they’re just talking a good game.
Though the firm is technically based out of Gibraltar (where the regulatory environment is a little bit more lax), Centaur will have 25 traders working on its London trading floor. According to the LA Times,
The traders will use statistical modeling to place bets on websites such as Betfair, which is popular in Britain but banned in the U.S. The bets will not just be on matches’ final outcomes — Centaur will also wager on items such as the over-under that takes into account the total points scored.
Of course, Galileo is not the kind of “sports bet” you make lightly– and it’s not open to just anyone. The fund requires a minimum investment of 100,000 euros (about $135,000). Not exactly pocket change. But Woodhams has found a few investors (he says there are fewer than twenty), and he has set a goal of growing assets under management to $100 million within the next two years. And Centaur is charging a hefty 3% management fee and 30% performance fee– not the typical “2 and 20″ seen in the industry. Maybe he has a L’Oreal Complex and can justify the exorbinant rates “because he’s worth it”– after all, he is projecting returns of 15-20 percent. For it’s part, the fund promises not to bet more than five percent of assets under management on any one event.
For now, at least, the fund is only open to Europeans– the SEC has yet to confer its blessing. According to the LA Times, Woodhams said Centaur hope to get SEC approval sometime in 2011. In the U.S., online sports betting is generally illegal (as Cuban found out), with horse racing being the major exception. But some gambling experts say Galileo could win approval because Americans who invest in the fund would not be placing bets themselves. So for now, at least, loaded Americans with a gambling penchant are SOL. But there’s always Vegas…
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