Newsletter: Are there futures in Sports Investing?

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Howdy ho out there guys.

I hope everyone is having a great week and making tons of money with their sports investments. Before I go to much further I want to throw a HUGE shoutout to Mikka from the ScoreMetrics Lab. Mikka worked tirelessly on this report below and I am taking a lot of credit for it by writing my newsletter on top of it. I honestly just found the information so compelling and interesting that I wanted to expand on it and then lead you right into the article. It’s really that good of a read and a TON of work was done to make it a really good piece to read. Special thanks to Mikka for doing another great job.

This week we are going to talk about an interesting facet of investing in sports and again touch on just how similar the Sports Investment world is to the types of investments you may be more familiar with. The similarities are so eerie, it’s kinda scary.

This is a conversation I have had a ton of times with my friends who are high level traders and the debate always seems to hit a wall when we try to argue out “So is investing gambling or is sports gambling investing?”

I say, it depends on how you do both. Your own personal headspace and investment process play such a huge part of how you approach how, when and where you put your money. When these same friends can’t wrap their head around how I don’t just sit around and bet on the team I think is going to win, I simply explain to them that, to me, that would be the same as putting $1,000 in to Apple because I own a few Macs and an Iphone.

I invest me money to make me money back, not for the rush of it all. Anyway, I may have got off topic a bit with that rant so let me get myself back to what I wanted to talk about; today we are going to talk about Futures in sports Investing.

For those of you familiar with traditional investing, you probably have heard of, or maybe even invested in Futures. But those of you who have not are probably asking yourself: What is a future? Sounds like something fun, right?

Futures are a way to get returns from from the short-term price movements and trends of securities, both up and down, without actually owning the underlying asset. Buying a futures contract gives you the right to a certain financial instrument or commodity at a later date, and you agree to keep that promise.

For example, US Air wants to lock in jet fuel prices to avoid an unexpected increase in price so they buy a futures contract agreeing to buy a set amount of jet fuel for delivery in the future at that locked in specified price.

Investors can use futures contracts to speculate on the direction in the price of an underlying asset, but did you know that you can do the same thing in sports? It’s just another example of how similar this sports trading market is to the traditional markets that so many people trade.

We’re officially over the halfway mark of the 2019-2020 NBA season and some clear favorites have stood out from the rest of the pack. The Western Conference has been ultra-competitive and we’re already looking forward to many incredible matchups in the playoffs.

But who will come out of the West and go to the NBA Finals? 

The ScoreMetrics labs is here to give you a sports investors overview of the topic. We’ll look at the current odds for each team in the West, talk about the NBA futures market, and analyze if investing in the market makes sense.

Let’s get on it!

Western Conference futures 

Here are the current odds for each team to win the Western Conference, as of the 25th of January 2020:

NBA – Western Conference – Winner

BetStarsDraftKingsBet365CaesarsWilliam Hill
LA Clippers220180200160150
Los Angeles Lakers250180175125125
Houston Rockets400750575500750
Utah Jazz80090090012001200
Denver Nuggets120080090010001100
Portland Trail Blazers16005000300055006000
San Antonio Spurs4000700035002500025000
Dallas Mavericks40001600150012001100
New Orleans Pelicans4500100007000750012500
Sacramento Kings800010000150005000075000
Minnesota Timberwolves800015000100005000075000
Oklahoma City Thunder50001000055001500015000
Memphis Grizzlies150001500070002500050000
Phoenix Suns2000010000150001500050000
Golden State Warriors25000200002500050000

As you can see, the NBA futures odds given might differ drastically between bookmakers. In this case, three out of the five included bookmakers favor the Lakers, while BetStars prefer the Clippers and DraftKings think they’re even. 

To make this concrete, let’s look at the ROI for investing $1000 in the Lakers with two different bookmakers, assuming that they win the West:

BetStars: +$2500 (+250%)

William Hill: +$1250 (+125%)

Now that’s a huge difference. So, before making any investments in NBA futures, make sure you’ve scanned the market and analyzed why such differences exist. If you have the option to choose between bookmakers where you live, make sure to choose the one that gives you the best odds for your investment case. 

An investor also needs to remember that these odds might change after each game. Take a look at the latest available market data before making any decisions.

Who will come out from the West?

Reporters, analysts and bookmakers all agree that it’s very likely that one of the LA teams will win the West and have a chance to fight for a ring in the NBA Finals. 

The Lakers hold the best record at 36-9. LeBron James has been a legitimate MVP candidate at 35 years old, which is nothing short of unbelievable, and Anthony Davis has been killing it all season. 

The 32-14 Clippers haven’t necessarily been as exhilarating to watch night to night with the team suffering from injuries all season long and with Kawhi Leonard missing games due to his load management regime. But Kawhi is arguably the best player in the world right now, and it’s scary to think that the Clippers have been able to play so well with Paul George missing a significant part of the season and the team being in constant flux due to all the injuries. 

Behind the LA teams, the Houston Rockets are still favored over other Western Conference contenders even though they’ve fallen down to sixth in the standings and haven’t been great recently. James Harden has been slumping, they have the worst transition defense in the league, and the team doesn’t look like they’re locked in right now. 

The bookmakers surely favor them over the other contenders because of historical playoff performance and Harden’s potential as a perennial MVP candidate. Having a bunch of veterans who’ve been there and have made multiple deep playoff runs while matching up well against the Warriors surely makes a difference. 

But not having home court in the West probably means that a team has to go through both the Clippers and the Lakers to get to the Finals. That’s a tough ask, especially when you have major question marks over who in your roster can guard their best players.

NBA futures as an investment

The mid-season investment landscape for the Western Conference winner has obviously been Warriors centric for the past five years. 

If you would have invested in the Warriors on February the 1st in each of the seasons starting from 2014-2015, you would have gotten the following odds: +250, -130, -270, -298 and -320. That amounts to a ROI of 86%, with the Warriors obviously coming out from the West in each of those seasons.

Sounds like easy money, but let’s remember that not many expected them to win the conference during that first season with the decent odds. And that the Rockets would have probably bested them in 2017-2018 if it weren’t for Chris Paul’s injury and Houston missing a fluky 37 of their 44 attempted three-pointers in game 7 of the West Finals.

Here’s a futures investment case for you to think about for this season: 

If you believe that a team from LA will win the West unless something crazy happens, you can make an investment to both the Clippers and the Lakers that guarantees a win. Let’s take the odds from BetStars and look at a $1000 investment:

$500 to the Clippers win at 220 ($1100 ROI)

$500 to the Lakers win at 250 ($1250 ROI)

So, in this case we’re more than doubling our investment if either one of the LA teams wins the West.

Of course, you need to take into account the potential for injuries, possible trades that haven’t happened yet, etc., when you evaluate the case. The futures market is always tricky and complex.

Worth the risk? We’ll let you decide.

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