Betting on the Future: Online Gambling Goes Mainstream Financial

Centre for the Study of Financial Innovation, Number 68, ISBN: 0-9545208-5-8, 34 pages, 2004

32 Pages Posted: 11 Dec 2020

See all articles by Z/Yen Group

Z/Yen Group

Z/Yen Group

Michael Mainelli

Gresham College; Z/Yen Group

Sam Dibb

Z/Yen Group Limited

Date Written: December 1, 2004

Abstract

This new CSFI report is written by two former accountants – Michael Mainelli, an expatriate American who now runs Z/Yen (which he describes as a risk/reward consultancy) and Sam Dibb (who is now a semi-professional gambler). Its main thesis is that the advent of the internet-based betting exchange – Betfair and its challengers – changes everything. These changes are greatly to the advantage of punters (no surprise there) – and greatly to the disadvantage of traditional High St. bookmakers, for whom the future is bleak. Adapt or die, is the message for them – and most will almost certainly die.

Along with the threat to High St. bookies, the betting exchange is promoting the rapid convergence of gambling and mainstream financial products. If there is a willing seller and a willing buyer of any sort of risk and some sort of engine that will bring them together, why do we need traditional intermediaries? We can already trade sports contingency risk (promotion/relegation etc) over the internet. Ditto weather risk. It is not a big stretch to imagine all sorts of other risk transfer products being developed – disintermediating traditional insurers and banks. And, of course, betting-type products enjoy significant tax advantages over conventional insurance in the UK. (At least until Gordon Brown notices.)

This is a serious paper about a serious industry. Betting shop turnover in the UK alone is now about £40 billion – or three times total premiums at Lloyd’s. (Which means that it is about time regulators took notice – particularly given the furore over money-laundering.) Globally, total gambling turnover is now well over US$400 billion – and rising. And, thanks in part to sympathetic tax treatment, the UK is home to about 30% of the global on-line betting industry – which is where the real action is.

Our authors provide comprehensive odds on where the industry is going next – and what the broader impact on traditional bookies, society and politics is likely to be.

They also tell you how to make money… As our Christmas present to you, there is a box (pages 11 and 12) which shows how a serious gambler can arbitrage the pricing inefficiencies between the online exchanges and the brain-dead bookies to make a risk-free return. Admittedly (in the example offered) it is only 3.2% - but that’s for half an hours work, and it compares very favourably with current equity or bond yields. It won’t last; but on the day it was written, this strategy really did make money for at least one of our authors.

Keywords: Gambling, Online Gambling

JEL Classification: G00 - General, G20 - General

Suggested Citation

Group, Z/Yen and Mainelli, Michael and Mainelli, Michael and Dibb, Sam, Betting on the Future: Online Gambling Goes Mainstream Financial (December 1, 2004). Centre for the Study of Financial Innovation, Number 68, ISBN: 0-9545208-5-8, 34 pages, 2004, Available at SSRN: https://ssrn.com/abstract=3702322

Z/Yen Group (Contact Author)

Z/Yen Group ( email )

41 Lothbury
London
United Kingdom
02075629562 (Phone)

HOME PAGE: http://www.zyen.com

Michael Mainelli

Z/Yen Group ( email )

41 Lothbury
London
United Kingdom

Gresham College ( email )

Barnard's Inn Hall
Holborn
London, EC1N 2HH
United Kingdom

Sam Dibb

Z/Yen Group Limited ( email )

41 Lothbury
London
United Kingdom

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