A question of scale (part one)
I got a phone call from the Financial times the other week about the collapse of Centaur. They wanted to know how I knew it would collapse long before it did, they originally phoned me for an opinion when Centaur first started up and I told them then what I repeated recently.
When you looked at the proposition there were in fact many, many flaws in there; but the top one for me was one of scale. Mainly because I’ve experienced that first hand.
The betting market is like a financial market in some ways but in other ways it is definitely not. In financials you can scale to billions over many years, the sky literally is the limit in a global economy worth trillions. The sports market is no where near that, but it’s scale will typically suffice for most individuals. The key problem you find in a betting market is that when you increase stakes you actually end up influencing the outcome, especially on exchanges. This puts it off limits to institutions unless you run the mechanism and are guaranteed a profit, like err.. a bookmaker / exchange.
In a market of limited scale the more money you have the less likely you are to see a return. More money equals less chance of a positive outcome, not more. So this was a key reason why I felt something set up to raise money to use in a betting market would fail. That much money would be a burden, not a benefit. Anybody who has uncovered something that works will confirm exactly the same finding. On betting exchanges I touched my limits some time ago with a relatively small bank, that’s why I’ve continued to invest in financial markets for years; as I am some what below the scale where diminishing returns kick in. With a lack of core growth on exchanges it wasn’t difficult to bump up against those limits. That’s not a problem for individuals but I failed to see where that sits for larger forms of activity.
There’s your starter for ten, part two to follow!
Category: General, Trading strategies
