Sports Betting Hedge Funds

trading analysis chartHedge funds may not be something that you are familiar with, but even if you are, then potentially sports betting hedge funds will be new to you. Obviously, the world of sports betting is something that is continuing to expand. This is largely due to the digital revolution, and former finance professionals have taken their acquired skills to the sports betting world through hedge bets.

Of course, if this is something new to you, then you will likely want to know what a sports betting hedge fund is. And furthermore, once you’ve read about it, you may want to inform yourself on how to get involved with one. Well, fortunately, you are in luck. We have all of the necessary information for you here on these hedge funds and how they work.

Before we get into this, though, let’s be clear that we are not offering financial advice here, we are not recommending hedge funds or that you should participate in them.  As with all financial markets your investment can go down as well as up and you should consider the risks very carefully before embarking on investing in a sports betting hedge fund.  An independent financial advisor may also be able to help you decide if this is something for you.

What Is a Hedge Fund?

hedge funds signBefore speaking of sports betting hedge funds specifically, it would be key to know about what a hedge fund in general actually is. Basically, it is an actively managed portfolio of investments. Everything is sort of pooled together in an investment fund, and usually it trades in relatively liquid assets. A hedge fund can also make extensive use of more complex trading, portfolio-construction and risk management techniques as a way of improving performance. Therefore, it is not uncommon to see techniques like leverage, short selling and derivatives coming into play.

With regard to this article, the hedge funds being discussed throughout are all in relation to sports betting. Hedge funds will only be available and accessible to accredited investors, keep in mind. They do not have as strong a regulation as mutual funds or similar lower risk investment options. This is key to remember when deciding upon whether or not to proceed with involving yourself.

In their official capacity, sports betting hedge funds are referred to as “sports betting entities”. Essentially, experts will bet with a client’s money, utilising the same principals related to mutual funds. However, instead of betting on traditional financial instruments, they wager on sports, as the name would suggest. The experts are in total control of all the capital that is invested in the fund, and they are the ones who make the sports bets for the clients when hedge fund sports betting is in operation.

Where Did Sports Betting Hedge Funds Originate?

man trading investing at a deskIt was back in 2004 that Mark Cuban floated the idea of a sports betting hedge fund around on his Blog Maverick weblog. Even though this is when the idea was first brought up, it did not actually gain much traction in a wider sense until Centaur Galileo propelled it into a higher sphere in 2009. It didn’t take long for other firms to then follow in the company’s footsteps.

Cuban’s post from November of 2004 stated that he would find the “best and brightest” experts to do all the betting for him, following a 15-year run of betting on stocks, both long and short. He mentioned that he had done very well with such betting previously, and that 2004 was the time for him to start the sports betting hedge fund. Through his 15 years of trading, he had learned that trading individual stocks was not an efficient way to make money.

It was also the case that he realised that trading was simply an alternative form of gambling with many people making random trades without any knowledge behind them. However, if you have enough information about sports and the matches coming up, a sports betting hedge fund sounded much better.

Centaur Galileo may have been the first company to take sports betting hedge funds and run with it, but it didn’t last for a long period of time. In January of 2012, it was reported that the world’s first sports betting hedge fund had actually collapsed following a loss of $2.5 million. Prior to launching, the directors of Galileo had told CNBC that they were utilising high-level software which had taken five years to develop, and that they were expecting a 15-25% return on investment. How did this fail?

Well, the fund told its investors that the money was lost simply due to “bad luck”. Naturally, this highlighted a certain risk with engaging in sports betting hedge funds. These investments aim for high-risk, high-reward outcomes, and sometimes, large-scale consequences are the end result. Galileo required a minimum of around $135,000 to become an investor, and its number-crunching software allowed the fund to bet on sports with much more accuracy than a causal gambler has.

How Exactly Does Hedge Fund Betting Work?

trader with graphs overlaid

Experts in this field of gambling suggest that being successful at sports betting requires nothing more than a sophisticated mathematical equation to be brought into use. Complex and varied pieces of data are brought together by quantitative analysts through machine learning. This creates proprietary algorithms, and even though the people constructing the systems don’t frequently have much interest in sports in general, they do have an interest in crafting systems that predict outcomes. At the end of the day, it results in them simply inserting data.

Sports hedge funds utilise what are defined as “watchers” as well. These people review games by spectating in person and on television, gathering both objective and subjective statistics. This data is then fed back to the analysts. Watchers may end up viewing more than 10 games every day across a variety of sports, submitting in-play statistics about such frequently – sometimes as often as every 10 minutes!

That data includes information that goes beyond what many would consider the norm for sports betting. Not only do they report on the regular stats such as corners achieved, attempts at scoring and so on, but anything that they believe to be related to the final outcome of the match. So, they’ll check into the mood of the team’s manager or the current weather situation and report back on this.

Firms will then employ analysts who work alongside traders to interpret that data they have received. From there, sports bets will be placed through different sportsbooks around the world, and this is how the sports betting hedge fund operation works.

Priomha Capital Experiences Success

Outlay vs IncomeOf all the hedge funds that have been started surrounding sports betting, Priomha Capital is perhaps one of the most successful, making it one of the largest in the world. It was also established in 2009, and it invests in sports from a number of different professional leagues. The hedge fund’s methods or specifics behind the placing of the bets has never been revealed. However, by the end of 2011, Priomha Capital had generated a huge return of 118% altogether.

As a stark alternative to the now defunct Centaur Galileo fund, Priomha utilises exceptional risk management when it comes to placing the sports bets. The hedge fund is also audited every quarter of the year to ensure things are proceeding at a good rate.

Between 2010 and 2015, Bloomberg said that the Priomha Capital fund provided a return on investment to its clients of 17%. Since it was founded in 2009, the hedge fund has returned more than 220%, which is quite the astonishing feat. This has led to Priomha gaining plenty of attention from both those involved with sports betting and fund managers as well.

What to Expect from Sports Betting Hedge Funds

setting odds and margins explained

Investors can benefit quite heftily from participating in sports betting hedge funds, as the results from Priomha Capital display. Sports are not correlated to anything, and they are also recession-proof. Add to that their low volatility level and there is plenty to raise the eyebrow of even the most gambling-negative person.

Huge political and economic events very, very rarely have any effect on sports events. Because of the fact that sports are uncorrelated, there is little to send them into huge, dramatic slumps if a massive political event occurs. And when you consider that sports betting hedge funds also employ safety measures just in case as well, it works as a secure option to utilise.

Finance is quite the complicated scene these days, with risk management being a huge necessity in all forms. It can be quite difficult to manage, though. However, putting your money into a sports betting hedge fund is recession-proof, meaning that it is very much impervious to the broader events surrounding global finance. While trading on stocks, currencies and the like can be very risky with regard to the financial world, sports betting is very much unaffected by these same issues.

Getting Started With Sports Betting Hedge Funds

hedge fund written on chalk board by computerYou will easily be able to search for sports betting hedge funds online. Numerous brands have taken it upon themselves to start such operations, with one of the most popular being Vantage Sports Fund. Based in the UK, the fund is designed to ensure monthly and quarterly profits for all its investors to hedge against the stock market or to receive interest on money in their savings account.

Many hedge funds operate in the same sort of way, requiring you to first deposit money through a supported payment method. Vantage accepts transactions through PayPal, bank transfer or Bitcoin, and requires a minimum investment of $5,000 to get started. Your profit percentage will be based on your investment amount, and you will then have the options of receiving your profit monthly, quarterly or annually. All investors receive their own login details, and this allows you to keep a check on the progress and balance of your investment at any time.

Different hedge funds will focus on different sports, but the majority of them have a prime target of the professional leagues and popular sports. This means that it is not uncommon to find hedge funds focusing on basketball, football, horse racing, American football, baseball and similar popular sports sectors.

What About Tax?

UK TaxThe taxation that occurs on hedge funds in England and Wales is structured as offshore partnerships or companies. Investors in the limited partnership hedge fund are taxed on share of partnership profits, as if they held underlying investments. Offshore corporate vehicles that are tax resident exclusively in their offshore home country without any permanent establishments onshore, are only chargeable to tax in the offshore location. Typically, the offshore tax regimes either impose profit tax at the rate of 0% or allow full profit exemption.

UK offshore fund rules apply to UK residents investors in hedge funds and tax UK investors’ disposal gains from fund interests as income (at higher tax rates for individuals) rather than capital gains, unless the fund distributes or reports all its applicable income annually and is also certified by HMRC as a “reporting fund”.

UK investors are currently chargeable to tax on all fund income distributed and reported to them, whether or not received. UK bond fund rules mean distributions to UK investors from funds primarily (more than 60%) invested in debt-like assets are treated as interest, which is taxable.