Wall Street bond trading house Cantor Fitzgerald has a new line of business: sports betting. The company took over the operation of the sports book at the M resort in Las Vegas last March. The first change was cosmetic; they redesigned the room to look like a Wall Street trading floor, instead of the typical Vegas sports book look.
Cantor Fitzgerald also introduced more substantive changes to their sports book. According to an article in the Wall Street Journal, The M Resort sports book uses sophisticated software adapted from financial markets transactions to allow in-game betting on various proposition bets like whether or not a team makes an upcoming field goal attempt. In-match betting on football is common in Europe, but this is the first such betting opportunity in North America. In addition, the software allows the sports book to minimize risk on individual bets by making sure that any of the in-game prop bets are matched by a bet on the other side.
The similarities between sports bets and financial assets like stocks, bonds, and futures contracts are clear. Economists have been using sports betting as a laboratory to study market efficiency for decades. Because of these similarities, it is interesting that this appears to be the first foray by a Wall Street trading firm into sports betting.
I have one bone to pick with the WSJ article, which is worth a read. It contains a number of references to the “balanced book” model of sports book operation. For example:
Cantor makes money by charging a small commission on bets. It tries not to take on any risk itself. That means that a bet that Miami is about to score has to be matched with the opposite wager. But frequently, there isn’t the same amount of money on the other side of the bet, leaving Cantor exposed.
Employees scan a risk-management chart—imported from trading platforms—which shows bets that Cantor still hasn’t been able to match.
When the charts show too much imbalance, Cantor gaming operator Andrew Patterson adjusts the odds to try to persuade gamblers to bet for the other team.
Quite a bit of emerging research suggests that sports books don’t operate that way. Rather than balance betting equally on either side of a game or proposition, sports books appear to take “positions” on games, effectively participating in the betting market rather than passively accepting bets and making a profit on the commission in order to increase profits.
It will be interesting to see if other Wall Street trading houses enter this market. Cantor Fitzgerald plans to market its software to other Las Vegas sports books.