New hedge fund bets on sports, literally

Date: Monday, April 19, 2010
Author: Nathaniel Popper, Los Angeles Times

Centaur Group's Galileo fund, which plans to apply for SEC approval, claims to have a number-crunching system that can make sports wagers with far better results than the casual bettor.

If you've ever deluded yourself that betting on sports was really investing, have we got a hedge fund for you.

Starting on Saturday, the new Centaur Galileo fund in London will be making investments not in the traditional financial playing fields of stocks, oil futures or real estate, but in the actual playing fields of soccer, tennis and horse racing.

Galileo is probably the first hedge fund to make bets on sports events, experts say.

"We put numbers against those things that you and me and everyone in pubs have casual discussions about," said Tony Woodhams, the managing director at Centaur Group, which operates the fund. "That gives us an edge on these markets."

It's not for the average bettor. Galileo requires a minimum investment of 100,000 euros (about $135,000).

Centaur claims to have a proprietary number-crunching system that can make sports bets with far better results than the casual bettor. In fact, the company plans to make money off fluctuations in odds and point spreads that are affected by amateur bets.

"You have a lot of sports fans who are betting for their favorite team," Woodhams said. "They get excited and discipline goes out the window. All of that provides opportunity for a trader like us to go in a very clinical manner. That's where the edge is."

Galileo is only for Europeans for now -- Centaur can't offer it in the U.S. without the blessing of the Securities and Exchange Commission. Woodhams said the company would apply for that approval next year.

So is investing in a sports-betting hedge fund about as sane as pouring money into a Nigerian inheritance deal? There are financial folks who believe such a fund could be a good bet.

Entrepreneur, Dallas Mavericks owner and former "Dancing With the Stars" contestant Mark Cuban has long advocated such a fund.

"If they fully commit to a data-driven model, I think they can do well," Cuban said in an e-mail. "In many respects, stocks are the bigger gamble."

Others were skeptical, to say the least.

Justin Wolfers, a professor who teaches a class about sports gambling at the University of Pennsylvania's Wharton School, said there are people who make a good living from wagers. But he's not sure Centaur is in their league.

"Is it plausible that these guys could be as smart and savvy as professional gamblers? Yes it is," Wolfers said. "But any time anyone in any realm of gambling tells me they can print money -- I'm always cynical."

Centaur will have 25 traders working on its London trading floor (though the fund's official address is in the British overseas territory of Gibraltar, which has an easier regulatory environment). Most of the traders come from a financial background. One of them, Woodhams said, left a job at Goldman Sachs to set up a sports book trading on cricket and tennis.

"In the U.S. you would probably say he was a gambler," Woodhams said. "In the U.K., we are beginning to recognize these people for what they are -- they are professional traders."

The traders will use statistical modeling to place bets on websites such as Betfair, which is popular in Britain but banned in the U.S. The bets will not just be on matches' final outcomes -- Centaur will also wager on items such as the over-under that takes into account the total points scored.

If profit is made, Centaur will take a 30% cut, a hefty premium over the usual 20% for hedge funds.

Galileo is not Centaur's first venture into gambling -- it operates a training program for professional bookkeepers and since 2000 has run funds for betting on various sports. But unlike Galileo, the previous funds allowed investors to opt out of recommended bets.

Centaur said that one of its betting funds, Voltaire, rose nearly 40% in value in less than a year.

Investment funds have been known to sometimes make big gains in short amounts of time, but the 40% claim made attorney Chuck Humphrey, who runs a gambling law information site (www.gambling-law-us.com), uneasy.

"Nobody can do that," he remarked.

Investment fund manager Brett Barth, of BBR Partners in New York, said that the sports-betting angle alone would keep him away from Galileo.

"I've never seen anything like this," Barth said. "It would be hard for it to pass muster with us."

In the U.S., the operation of online sports betting is generally illegal, with horse racing as a major exception. But some gambling experts say Galileo could win approval because Americans who invest in the fund would not be placing bets themselves.

"If they limit themselves exclusively to betting on events in foreign jurisdictions where there is no U.S. involvement, you can make an argument that that is legal," Humphrey said. "But it is dicey."

So there are a lot of unknowns about Galileo as it prepares to place its first bets. But at least one Las Vegas regular believes that gambling hedge funds could have a bright future.

"If [online] betting was legal in the United States," said Kenny White, chief operating officer of Las Vegas Sports Consultants, which sets sports odds for most casinos in that town, "there would be hedge funds everywhere here."

nathaniel.popper@ latimes.com