Slot machines at Las Vegas airport. Photo: Yamaguchi. Source: Wikimedia.
They sure seem to have a lot in common. When folks have paid for all the goods and services they need, they may use what’s left over to express their opinion. In the investing world, they buy stocks or bonds or a derivative, like ETFs or mutual funds. In the gambling world, they go to a casino or buy a ticket at the racetrack or take a position on a sports team.
Most sports betting is just recreation – a way for fans to show their team spirit and have a little fun. And the coming Super Bowl will turn America into a giant sports book. Last year Nevada bookies registered more than $100 million in Super Bowl bets – and kept over $7 million for themselves. Bookies describe their job similarly to stock-brokers: a little math, a lot of gut feel, and a premium on customer service.
But the Nevada sports book is a zero-sum game: for every winner, there’s a loser. Actually, it’s a negative-sum game: the bookies’ take a 10% cut. No expansion team ever raised capital by setting up an over-under line at the Wynn Las Vegas. For all its hype, our $400 billion sports-betting business is just part of the global entertainment industry that grows as our leisure time increases.
By contrast, capital markets are a positive-sum game. When new businesses go public they raise money to expand, and a public stock price allows them to offer long-term incentives to thousands of key employees. Also, public markets for stocks and bonds allow investors to get our money out of these investments if we need it for any reason. There’s a reason why healthy capital markets are an important part of a healthy economy.
Still, the thrill from a winning an NCAA bracket or a Super Bowl bet can feel like a double in the stock market. In both cases “you pays your money and you takes your chances.”
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”