Mark Cuban to start Hedge Fund Based on Gambling

[lu_hawk]

Mavericks Owner Cuban Will Start Hedge Fund Based on Gambling

By Scott Soshnick
Nov. 30 (Bloomberg) -- Dallas Mavericks owner Mark Cuban, a
billionaire who made his fortune by co-founding Broadcast.com and
selling it to Yahoo! Inc., said he's starting a hedge fund based
on gambling.
There's more information available on sports teams than most
publicly traded companies, and the gaming industry is more closely
regulated than the equity markets, Cuban wrote in an e-mail
interview.
``This is purely about setting out to see if the market for
gambling on events and games of chance is more efficient and more
trustworthy than the stock and bond markets,'' Cuban wrote in the
e-mail. ``In the current regulatory environment, I think they
are.''
Cuban said the stock market is riskier than traditional
gambling as most corporate earnings reports are ``massaged'' to
meet earnings estimates. His planned fund comes in the wake of
several high-profile corporate scandals, including those involving
the collapse of Enron Corp. and the bankruptcy of WorldCom Inc.
Hedge funds are being more closely regulated. The Securities
and Exchange Commission will demand that fund managers register as
investment advisers starting in Feb. 2006. That opens the funds to
periodic audits by the agency.
National Basketball Association Commissioner David Stern has
said while the league isn't opposed to gambling, it is against
betting on sporting events. NBA spokesman Tim Frank declined to
comment on Cuban's plan.
Cuban wrote about his hedge-fund plan in a Nov. 27 entry on
his Web log, http://www.blogmaverick.com. Cuban said he wouldn't
pick gambling opportunities, and didn't say what the fund would be
called or when it would begin making bets.
The executive is looking for experts in statistical analysis,
not ``sports geeks,'' to run the fund.
Cuban and Todd Wagner co-founded Broadcast.com. They sold the
company, which provided live and on-demand audio and video
programs over the Internet, to Yahoo for about $4 billion in 1999.
Cuban is ranked 437th on the Forbes magazine list of richest
people.

[jakethebake]

He clearly doesn't understand basic finance. If, in fact, sports has more information more widely available, and is therefore more efficient, then this would make it harder, if not impossible for him to earn a profit over time.

[ThaSaltCracka]

seeing as how he may be one of the few people to actually try this, he has the potential to make a lot of money before people jump on the bandwaggon. He is just looking for untapped areas where he can go in and strike first. Seems smart, especially since he isn't diving right into it, gambling away like a mad man.

[lu_hawk]

[ QUOTE ]
He clearly doesn't understand basic finance. If, in fact, sports has more information more widely available, and is therefore more efficient, then this would make it harder, if not impossible for him to earn a profit over time.

[/ QUOTE ]

I wonder what is more efficient the financial markets or the gambling market? I guess it depends on what area of the markets you are in and would change through time. But smart people in gambling do well and smart people that trade in the financial markets do well so there is clearly enough inefficiency in both markets to make money if you are good at it. The big question is how big is the fund going to be? A $10million fund would probably not have any problems deploying it's cash. But I doubt Cuban is going to start a $10million fund. A $1billion fund would have lots of problems trying to deploy it's cash without influencing the market heavily.

[jakethebake]

[ QUOTE ]
I wonder what is more efficient the financial markets or the gambling market? I guess it depends on what area of the markets you are in and would change through time. But smart people in gambling do well and smart people that trade in the financial markets do well so there is clearly enough inefficiency in both markets to make money if you are good at it. The big question is how big is the fund going to be? A $10million fund would probably not have any problems deploying it's cash. But I doubt Cuban is going to start a $10million fund. A $1billion fund would have lots of problems trying to deploy it's cash without influencing the market heavily.

[/ QUOTE ]Agreed. My point wasn't whether he could or couldn't make money. My point was that the article seemed to think an efficient market was a better thing for someone trying to make money. You're other comment is interesting. I wonder just how much he could deploy w/o cmpletely ruining his odds. Also, if he does well does it get harder to makes bets?

[lu_hawk]

[ QUOTE ]
Also, if he does well does it get harder to makes bets?

[/ QUOTE ]

Well if he does well then more smart money would tend to get drawn into gambling making the market more efficient. That's just in theory though because as you can see in the financial markets people don't always act like that. Warren Buffett is the 2nd richest man in America and explains his investment strategy every chance he gets but very few people actually invest like him and prefer to be stupid with their money. There are just as many idiots in gambling to counteract any additional smart money.

This would seem like a job that Slansky should apply to.

[Lazymeatball]

Any chance that the huge amounts of money Cuban would be betting could comprimise the integrity of professional sports? As soon as the money made from gambling on sports starts to rival the amount of money made on advertising revenue, ticket sales, and merchandising it's going to become more difficult to keep players and officials honest. This is based on the assumption that currently gambling revenue is small in comparison to the major sources of revenue for professional sports, I could be wrong.

[Stupendous_Man]

[ QUOTE ]
The big question is how big is the fund going to be? A $10million fund would probably not have any problems deploying it's cash. But I doubt Cuban is going to start a $10million fund. A $1billion fund would have lots of problems trying to deploy it's cash without influencing the market heavily.

[/ QUOTE ]

This is THE question, IMO. Hedge funds "typically" require minimum investments of $1MM (some start-ups will go as low as $500M) and investors have to be accredited. A $10MM fund seems like it would be too small, though easier to deploy money. A $100MM fund, while a more "reasonable" size, I would think - would find it more difficult to deploy money. If successful, it really won't matter too much how big Mark's fund is, as people will quickly jump on the bandwagon and create new funds. Assuming continued success, the funds would ultimately influence the sports betting market, no differently than hedge funds do in their respective markets.

It would be interesting to get the quarterly reports to see what wagers the fund made and how it worked out. Seems like a sizeable fund could also juice the returns by arbitraging various books.

IMO, it's an interesting concept - creating a hedge fund for sports betting. I'd think Mark would not be able to "invest" personally in the fund (I say think, as I have no idea what the NBA rules are exactly). Another question is, would he set up various funds (say, 1 for football, 1 for basketball, etc.) or 1 fund and then allocate the $100MM to the different sports. Typically, funds have a specialty, so I'd think separate funds.