A-Rod's Sports Betting Play Suggests Big Shift in Investing

The most important news for long-term investors is rarely in the headlines. Great contrarian plays rarely come from things most people don’t believe, rather they are based on things most people ignore.

Take the recent news that baseball great Alex Rodriguez — who gained the moniker “A-Rod” during his playing days — and his business partner, Marc Lore, are investing in a new company aiming to be a “stock market’’ for professional athletes. This might be the most consequential investing news of 2022. No, not that Rodriguez is putting money into something called Mojo that will allow fans to take a position on players whose values rise and fall based on their performances on the field, but that a quiet revolution is taking place in sports betting, attracting venture capital funds and interest from insiders without much public exposure.

Before you decide sports betting is too trivial to affect long-term investing strategy, consider three facts. First, it’s big. While statistics are hard to pin down, it is something like the 10th largest global industry measured by profits, employees or market value. Moreover, larger industries like commercial real estate or construction don’t touch nearly as many people as sports betting. Most sports betting is illegal, and much of it is informal, but it dwarfs the business operations — ticket sales, television revenues — of the actual sports people bet on. Professional sports were created by bookies to give people things to bet on, not due to demand from spectators to watch games. This is obvious in sports such as horse racing and boxing, but a little research shows it is true of other professional sports as well.

Second, sports betting has had profound economic effects. It was bookies who financed first the telegraph and then the telephone network, and gambling in general (not just sports betting) along with pornography funded early Internet development. Gambling has also been a major user of cryptocurrencies.

Finally, sports betting plays an important role in shaping people’s risk decision-making. Finance can be boring and intimidating, and we often insulate young people from it with cultural prejudices and regulations, such as attempts to discourage “gamification” of stock trading. When adults make their first major financial decisions—what kind of mortgage to get, how to allocate a 401(k)—they often have far more practical experience observing and participating in sports betting than any kind of financial risk-taking.