Wall Street Firm Uses Algorithms to Make Sports Betting Like Stock Trading

[The Straight Story]

Wall Street Firm Uses Algorithms to Make Sports Betting Like Stock Trading

To many people on Wall Street, gambling is a dirty word. Overlords at firms like Deutsche Bank and JP Morgan take great pains to differentiate the sober, serious profession of investing from the irresponsible, impulsive act of betting. Conversely, many traditional investment houses are eager to dismiss newfangled equity trading techniques as something closer to spins of the roulette wheel than to long-term investment strategies. “Wall Street hates being thought of as a gambling operation, but that’s how it makes its money,” says John Bogle, founder of the risk-averse index-fund titan Vanguard Group. “One of the big trading firms just announced that its average hold time on a stock was 11 seconds. That is not investing—it’s gambling.”

The stigma associated with the term became even more pronounced after the financial meltdown of late 2008. At Senate hearings this April in which Goldman Sachs execs were grilled about the collapse of their mortgage-backed securities—a collapse that threatened to bring down the entire US economy—the worst put-down that senator Claire McCaskill of Missouri could conceive of was, “You had less oversight than a pit boss in Las Vegas.” Goldman CEO Lloyd Blankfein was dubbed the prince of casino capitalism by the media. In The New York Times, reporter Andrew Ross Sorkin wrote that Goldman’s synthetic collateralized debt obligation was “no different than betting on the New York Yankees vs. the Oakland Athletics.”

It was in the thick of this debacle, March 2009, that Cantor Gaming rolled out its M Resort sports book operation, an enterprise that flagrantly, deliberately blurs the line between investing and gambling. Why aren’t they being pilloried?

For starters, Cantor Fitzgerald doesn’t have to deal with stockholders, individual investors, or the press the way its higher-profile competitors on Wall Street do. Cantor is a private company that derives much of its income from being the middleman in trades between major banks. Also unlike others in the finance industry, it never begged the government for hundreds of millions of dollars to cover its bad investments. “Cantor is private, it didn’t blow up, it didn’t take TARP money,” says Steven Begleiter, former head of corporate strategy at Bear Stearns (who also won $1.6 million in the 2009 World Series of Poker). “I doubt Goldman Sachs would move into this business—in the current environment, it could generate unwanted newspaper headlines. But Cantor is small enough that nobody on Wall Street really worries about what they’re up to.”

http://www.wired.com/magazine/2010/11/ff_midas/2/

[Richardo]

1. Sure it's not the other way around?

:shrug: