Betting on stocks will always trump sports gambling

Gamblers follow their bets at a betting shop in Nairobi. A safer bet would be the stock market rather than football if the odds are anything to go by. PHOTO | FILE 

By RUFUS MWANYASI

Without a doubt, the betting industry in Kenya has grown in leaps and bounds since 2013 when the first online sports betting company was registered. There are now about 30 licensed bookmakers (with sports betting licences) operating in the country.

Recent estimates place the global sports gambling industry as worth up to $3 trillion, with 65 per cent of that global figure coming from football betting. It’s unsurprising, therefore, to see betting billboards lining up Nairobi’s highways tantalising everyone with the lure of riches.

But the question remains: is sports betting a better investment alternative compared to stocks? Frankly speaking; I don’t think so. Here’s why.

First, although gambling on say Manchester United to win might seem like a safe bet, it’s a zero-sum game. In game theory, zero-sum is a situation in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero.

A gambler betting on this team will instantly lose his/her entire bet if Wayne Roonie and his team-mates fail to win. However, someone sinking a similar amount into Crown Paints Ltd has little risk of losing that entire initial investment, especially in the long run.

The stock might go up and down some, but it typically won’t go down to zero.

Secondly, sports betting is a time-bound event while an investment in a company lasts several years. If a sports gambler takes a bet and the outcome turns negative, that’s money down the tube. On the other hand, stock-investing is time-rewarding.

For instance, even the unlucky investor who jumped into the market at its peak in September 2007 eventually made their money back when stocks reclaimed their pre-bear levels in 2015.

The same can’t be said of those who bet big that Chelsea FC (my favourite club) would win the 2015-16 season.

Besides, even if one lost at a price level, an investor can still make up their losses on dividend payouts. Companies pay dividends regardless of what happens to your risk capital, if the investor continues to hold the stock. 

Thirdly, when betting on sports, there are no loss-mitigation strategies. If one bets that Leicester will beat Chelsea this coming Saturday, they cannot get their money back if the latter triumphs. In other words, they lose all their capital.

On the contrary, stock market investors don’t have to experience this because stop losses – if a stock drops 12 per cent below its purchase price, the investor has the opportunity to sell the stock and still retain 88 per cent of his/her investment capital.

Indeed, gambling on sports may be more fun, but it’s definitely a more risky use of money than putting it in the stock market.

In the long run, share market investors have the chance to make more money because there are fewer downside risks—in investing, the odds are in the investors favour, however, in gambling, the odds are against the gambler.

To put it another way, the stock market is a lot more forgiving that sports betting. Make the right choice: choose stocks.Mr Mwanyasi is the MD, Canaan Capital Limited.