The recent Economist lead article:
Meanwhile in reality:
I know it’s quaint in 2024 AD to let reality get in the way of a good story but this is what we know:
- The online sports betting industry is a low-margin business with high customer acquisition costs (ie relentless advertising and bonus promos).
- Like mobile gaming, most of the profits come from a small subset of customers. You can dress this up in VC-approved language: 80/20 rule, Pareto distribution, power law. But in gaming, these high-value customers are simply called “whales”. In sports betting, the right word is “addicts”.
- The profits come from sick people who churn. And why must they churn? Because eventually, they go broke betting 4-leg parlays. What’s a 4-leg parlay? It’s a clinical term for when a gambling site connects a Dyson to your bank account.
- If your best customers necessarily churn you have no choice except to hunt for more sick people and make sure you exact every last cent out of the ones you’ve hooked.
- The entire regulatory backdrop is complicit in a gigantic lie — that this is a free market. But you’re not allowed to win. It’s a rigged game. If you have an edge they limit your bet sizes to lollipop levels.
- The gambling 800 number PSA they include in the ads is weapons-grade irony. The business relies on the people who should be calling that number to instead believe that their luck is about to change for the better.
- Any attempt to rebut the disgusting contradictions with rhetoric (nobody is going to defend their behavior honestly with data) must contend with reality — sharp bettors try to mimic addicts or blend in with edgeless whales to “get down” (lingo for being able to place adequate sized bets). That tells you everything about the industry’s sympathies towards addicts.
Anyway, I had no reason to bring any of this up except for the Economist cover being a cat’s paw for hyper liberal market ideology. There are plenty of examples of free trade being pro-sum. This one undermines the message. An impressive journalistic own-goal for a publication titled “Economist”.
Make me czar and I kill the current system. Instead…all betting is on an exchange. You bid and offer just like futures markets. It won’t solve addiction but now smart bettors are valuable and rewarded, everyone gets better prices, and the incentives are towards volumes not seeking out sick people to cross faded markets.
More reading:
The Online Sports Gambling Experiment Has Failed (14 min read)
Zvi Mowshowitz
While I’m just ranting, Zvi shows his work in a convincing argument.
[Zvi is a sports gambler and a former Jane Street trader. His discussion of trading in this interview with Patrick McKenzie is fun.
Zvi’s substack tends to be mostly focused on AI but he does deep dives on various topics. The recent one on the Jones Act is shockingly hard to put down. The subject would appear to be dry (no glancing pun intended with Jones being about water-borne trade) but Zvi brings it to life.]
Related:
✍🏽Takeaways from The Odd Lots episode with pro sports gambler Isaac Rose-Berman
✍🏽Classics that remind us that thinking in averages or bell curves is often dead wrong. In many domains, especially business, a small number of customers or products drive most of the outcome.
- Taylor Pearson’s How to Get Lucky: Focus On The Fat Tails (13 min read)
- Kevin Kelly’s 1000 True Fans (19 min read)
I didn’t read Kevin’s post in 2008 when it dropped but it turned out to be incredibly wise.