onlinesportgambling476963385

It was summer 1998 and I was in a central London pub with a few friends steadily getting slightly the worse for wear while watching a game of World Cup football on a big flat screen TV. What the game was, I can no longer recall. But I distinctly remember one thing about it: I was long corners in my spread betting account.

At first, I kept my delight at every newly awarded corner pretty much under wraps. But by the second half – and being a few beers to the good – I couldn’t help myself: “YES!” I almost shrieked as the linesman blew up for the corner that would put my bet in the money with a full 20 minutes left to play. My friends (none of whom worked anywhere near a trading floor) were baffled. “You can bet on corners?” they asked, disbelievingly.

I then had to explain the – to them – arcane terminology and practices of spread betting. Eventually they understood but still couldn’t really see the attraction: “Who gives a shit how many corners there are?” they asked, reasonably. No one without money riding on it was the truthful answer.

Eighteen years on and it sometimes feels like pretty much the entire adult population of the UK gives a shit about corners. You can’t watch a sporting event on TV without seeing a succession of adverts for various companies that allow the average man in the street (and from the adverts, the product seems to be aimed squarely and exclusively at men aged between 18 and 35) to bet on virtually every aspect of every sport, in real time.

They can bet on goals and corners and throw-ins and red and yellow cards and minutes to the next goal. They can bet on runs and wickets and no balls and boundaries. They can bet on multi-legged accumulations of various results and, I have learned from endless adverts, take out insurance on just one leg of this complex bet not working as planned. They can even cash out of their bets as games are in progress – a facility simply unthinkable in 1998.

This steady progression in the complexity of betting products (an arms race of new features, it seems) and the widening reach of the customer base which uses them reminds me powerfully of the progression of complexity of financial derivatives in the 1990s and 2000s. And for good reason – it is advances in computer power that have enabled both trends.

In the first days of spread betting (early to mid 1990s) the prices were clearly made unaided by human beings. It was possible to outsmart the companies by use of fairly rudimentary analysis using spreadsheets and a limited set of historic data. Specialist expertise was pay dirt. One friend of mine (who had become a banker after jettisoning a career as a just-sub-Tour-de-France level cyclist) was so successful at betting against one firm’s cycling prices that, in despair, they phoned him up and invited him to join them as a price setter.

But the firms got cleverer; statistical databases were built up or acquired and used to inform companies’ price making. Increasingly, making prices was automated: this stopped silly errors from occurring and allowed prices to adjust correctly in real time to events (such as a goal being scored) or simply to the weight of money being wagered.

Along with the ability to create better, real-time, automated prices came the ability to distribute them to customers and to accept their bets via the Internet.   In a progression of events that closely resembled the process involved in automating FX, this led to an explosion of volume (that is, bets made). The Blair government’s 2005 Gambling Bill, which relaxed restrictions in the law against advertising gambling services, added impetus to the growth.

Now, in a mirror of the way that automated financial markets have become the playground of sharp, fast money (High Frequency Traders and their ilk), the world of sports betting has as well. A world of APIs and algorithms and low latency has emerged, just as it did in mainstream finance.

At a recent conference I sat next to an engaging 28-year-old mathematician whose sports-betting fund – which places money exclusively on football matches – is successful enough to afford him a golden-era banking level income. A son of a friend of mine (also recently graduated in mathematics), rather than pursue a career in conventional finance, has become the chief price maker on Peruvian football matches as a starting position in another fund.

I have nothing against all of this. I like a bet myself and have, at times, (for example, during the 2006 World Cup, armed with a homemade Monte Carlo model of the entire tournament) acted as a bookmaker to my banking colleagues in a way I am not entirely sure was – even then – within the very laxly applied bank rules on gambling. Why shouldn’t others join in the fun? I feel that most people are fairly sensible with money and I’m sure the vast majority of people simply gamble moderately to help them enjoy watching sports more. God only knows that, these days, if you watch my football team (West Ham) you need all the help you can get.

But really my insouciance is based on my feeling that, no matter how Byzantine the world of sports betting gets, it can’t end up endangering the stability of the broader economy  – unlike the way complex finance did. So why worry?

That said, I cannot help but feel that after a decade or more of steady growth, the entire industry could be in for a rougher ride in the future. There will always be folk whose gambling habits get the better of them with the resulting trail of human misery. The wider the reach of gambling, the more of these unfortunates there will be. This will create more pressure for politicians to ‘do something’. The presence of (and here you should imagine a disdainful sneer) ‘professional hedge funds’ in the supposedly smile-filled, laddishly amateur world of gambling for fun certainly won’t help matters if there is a sudden upsurge in moral outrage.

We have already seen, or are seeing, the beginnings of a regulatory backlash in the related arena of retail FX and financial spread betting. Today, the FCA tightened the rules on the latter with a resultant plummet in spread betting firms’ stock prices by as much as one third. The regulators had noticed, it seems, what everyone who has ever been associated with the sector in any professional capacity has known for years: most retail punters lose money; 82% of them is the number being bandied about today.

While this shouldn’t surprise anyone (who has ever seen any market, anywhere, where someone with no natural edge has made long term positive returns?) what are the odds that, sooner or later, regulators will affect to notice the very same thing about sports betting?   If that is the case then, like derivatives in 2008, sports betting could be near the top of its long upwards run.