Think you've got a bead on who will win the World Series that begins tonight between the Boston Red Sox and St. Louis Cardinals? Prepared to put your money where your mouth is?
Some fans would seek out their favorite bookmaker and take whatever odds are being offered.
Others are taking the Wall Street approach and buying futures contracts on their teams of choice on TradeSports, an online exchange incorporated in Dublin, in part because of its favorable gambling laws.
TradeSports and similar sites pattern themselves on traditional commodities exchanges. But instead of an agreement to buy or sell a commodity at a specified price in the future, contracts on TradeSports are worth $10 if the event the contract predicts occurs. On Friday afternoon, a contract for the Red Sox to win was trading around 57, meaning the site's 43,000 members' combined offers to buy and sell were estimating that the Sox have a 57 percent chance of winning, compared with 43 percent for the Cardinals.
An investor who bought a Red Sox contract at 57, paying $5.70, would stand to make $4.30 on the contract if Boston wins the series.
Or, if Boston pulls ahead in the first couple of games and the price of the contract rises, the investor could sell and take a profit just in case the team collapses. A holder of contracts for the New York Yankees to win the American League Championship Series would have been wise to do this after the team went up three games to none against the Red Sox. But almost no one did, according to data from TradeSports. And for good reason. No team had ever come back from a 3-0 deficit to win a baseball playoff series, and the Sox have a long, painful history of losing to their Bronx rivals.
When the Red Sox lost Game 3, contracts for the team to win the series dropped to 2.5, or 25 cents. Anyone shrewd enough to buy stood to make $9.75 per contract.
Most traders, however, were like "Cisco," a regular poster on the site's message board. Even after the Yankees dropped Game 3, Cisco wrote that he was certain they would prevail.
"There is ONE FINAL PREDICTION that ole cisco will make in regards to 2004. The RED SOX will NOT win tomorrow," Cisco wrote.
Michael Knesevitch, communications director for Intrade PLC, TradeSports' parent company, said around 53,000 contracts traded hands during Game 7. The site sees its highest volume, around 100,000 contracts, during Super Bowl games.
Offshore Internet gambling sites such as World Sports Exchange and BetonSports.com, operate in a kind of legal nether world. U.S. law forbids foreign Web sites from accepting bets from U.S. citizens. But the law, despite occasional crackdowns, has proved hard to enforce.
But TradeSports says it believes it does not run afoul of U.S. law because it operates only as an exchange, matching buyers and sellers of a contract. The site makes its money by charging 4 cents per matched order. Knesevitch said the site is profitable but did not give specific numbers. Knesevitch said traders themselves set the odds rather than having them set by a bookie, which distinguishes the exchange from traditional bookmaking.
In addition to sporting events, the site also trades futures contracts on political events, such as the U.S. presidential election, much like the popular Iowa Electronic Markets. Traders can buy contracts on the candidate they think will win, as well as on the number of electoral votes they think each candidate will receive, among other variables.
On Friday evening, traders were giving President Bush a 61 percent chance of winning reelection. Though the site has been around for only 31/2 years, Knesevitch said it has a strong track record of forecasting political events.
For instance, he said traders immediately discerned that former Vermont governor Howard Dean would fail to win the Democratic nomination after his bombastic speech following his loss in the Iowa caucuses. He said Dean was given a 40 percent chance to win before the speech but dropped to 9 percent within 40 minutes of the speech.
Many pollsters dismiss the significance of sites such as TradeSports and the Iowa Electronic Markets, which is run by the University of Iowa business school, because users tend to be affluent, white and male.
But Yale University professor Ray C. Fair, who generates his own widely used election prediction model based on economic conditions, defended the sites, saying they reflect not who users want to win, but who they think will win based on all available information.
"I'm an economist, and economists love prices," he said. "To some extent, the price of the Bush contract reflects all of the polls as filtered through trades. It distills all of this information and includes people who are putting real money on the line. And in that sense it is something to be paid attention to."