Betting as a hedge

Today’s Business Standard reports that ESPNStar and their advertisers stand to lose significantly following India’s early exit from the T20 World Cup. However, the situation now is significantly better off than in the 2007 World Cup where India didn’t even enter the super8. Back then, India had played a grand total of 3 matches out of a maximum possible 11 before they got knocked out. And thanks to India’s exit, interest in the rest of the tournament had also waned, leading to significant losses for SETMax, etc.

The situation this time round is significantly better than the last time – since India has gone out only after the second stage. Given that after today’s games the only games are the semis and the finals, I don’t expect the channel and the advertisers to lose as much.

Nevertheless, my mind goes back to a post that I had written back when India went out of the 2007 World Cup following its loss to Bangladesh. I had suggested the following as an “immoral solution”.

It is clear that Ireland is in the super eight, so nothing can be done about that. However, there is still a ray of hope in group B (india?s group). I know it is illegal, but wouldn?t it make sense for a consortium of say SET, Tata SKY, LG and maybe tourism departments of West Indian governments to offer money to Bangladesh and ask them to lose to Bermuda? ?you have done a fantastic job so far in the world cup. You?ve beaten India. Must be a very proud moment for your country. Can you please take this money now and leave, so that the rest of the world cup can go on? We would be better off without you!?

However, the chance to implement the immoral solution is past us this time around. So let me come to the “one legal solution” that I’d suggested:

By buying broadcast rights for a major tournament such as a world cup, you are unwittingly betting on the results of a few matches. Betting that the country where you’ll broadcast will do well. Betting that there aren’t too many major upsets. Betting that results will follow a certain pattern. You know you can’t affect the results, so the next best thing is to hedge!

Go to Ladbrokes, and take the opposite position. Bet, and bet well so as to limit your losses in case some results don’t go according to plan. Maybe you’re not very good at betting, and after all it?s not your core competence. Not to worry. I’m sure some good investment banker would come up with a product with returns linked to the results of a few matches. He will provide you a product with which all the implicit bets you’ve taken will be hedged. And he will go to Ladbrokes and hedge his position by taking positions there. And charge you a small premium for it. Beautiful, isn’t it?

Betting on sport is not a purely speculative activity. Of course there are a lot of people who speculate on sports, but these people also speculate by buying and selling stocks and bonds. Betting can also be an extremely useful hedging tool. If only it were to be made legal in India, I’m sure a lot of our corporates will end up being better off. And typically taxes on betting are high, and so the government will also have its share.

Can someone please convince the people in the finance ministry, or whatever is the concerned ministry, about this, and to legalize betting? I’m sure there is significant value to be unlocked.

2 thoughts on “Betting as a hedge”

  1. Better is to move to a structure in which teams are more evenly matched in terms of market size so that you don’t run into this problem in the first place. That’s how football works – most of their top teams (England, Germany, France, Italy, Brazil, Argentina) have comparable market sizes so the broadcasters need not be overly concerned which team makes it and who crashes out. So in Cricket, either split the Indian team into 8-10 teams or get out of this nation vs nation model completely and concentrate only on IPL.

  2. It’s already there in a different form!

    Example: http://economictimes.indiatimes.com/News/News-By-Industry/Media–Entertainment-/Entertainment/Dentsu-to-guard-Sonys-cricket-kit-for-Rs-500-cr/articleshow/1960525.cms

    It’s probably better that it happens at this level and not really at the layman level…

    I don’t see the reason for betting when underwriting is already available for big companies/firms… on which eventually everyone bets thru some variant of financial products?!

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