Sports Betting as an Alternative Investment

Sammanfattning

This paper provides a broad overview of sports betting, considering its markets and evaluating whether it can provide positive risk-adjusted returns as an alternative financial investment. Across a large dataset of closing odds from over 165,000 soccer games from top European leagues, we develop a trading strategy which generates promising returns. We then conduct a survey of sports-betting models in academic literature, obtaining a representative distribution of returns from betting across sports, combining this with detailed data for prices and events to simulate a fictional sports-betting asset. With a returns profile for this asset, we then include it in an optimised mean-variance portfolio, integrating it with conventional asset indices, finding that the sports-betting asset compares favourably in various investing scenarios, including a value-at-risk analysis. Finally, we discuss financial frictions specific to this market, concluding that sports betting does not provide sufficient liquidity for large wealth managers, but that shrewd investors with a nuanced understanding of the market can likely generate strong returns.