What other ways are sports event contracts used besides speculation and arbitrage?
In addition to speculation and arbitrage, sports event contracts are used for several other purposes, including hedging, insurance, information gathering, and brand engagement. For both retail and institutional traders, these contracts serve as more than just a way to bet on outcomes.
Risk management and hedging
One of the primary uses of event contracts, particularly for sophisticated or institutional users, is to manage commercial risk associated with a sporting event.
- For sportsbooks: Traditional sportsbooks can use event contracts to offset their risk from an unbalanced book. For example, if a sportsbook receives an overwhelming number of bets on a favorite, they can buy “Yes” event contracts for the favorite to hedge their financial exposure. This allows them to take on additional customer bets without increasing their overall liability.
- For businesses and vendors: Companies whose revenues depend on the outcome of sporting events can use contracts to hedge risk. For example, a vendor that sells merchandise at a stadium could hedge against the risk of their team performing poorly, which would lead to lower attendance and sales.
Event Insurance
For businesses with a financial stake in a sports event, event contracts can function as a form of insurance, providing a payout if a negative outcome occurs.
- Example: A company hosting a large viewing party for a major tournament could purchase “No” contracts on their home team’s success. If the team loses early, attendance and merchandise sales might fall. However, the payout from the event contracts would help offset the financial loss.
Information aggregation and market intelligence
The price of a sports event contract reflects the collective intelligence of all market participants, providing a real-time probability of an outcome. This “wisdom of the crowd” can be used for informational purposes.
- Valuable data: The price of contracts can provide more accurate and immediate information than traditional polls or surveys, especially as the event approaches and more money is put on the line.
- For research: Researchers can analyze the price movements of event contracts to understand how different pieces of news, like a star player’s injury, affect a market’s perceived probability.
Brand engagement and marketing
Some companies use event contracts to engage with their audience and promote their brand. This goes beyond traditional sponsorships to a more interactive fan experience.
- Interactive promotions: A sports league or brand could create a special prediction market as a promotional event, offering prizes to winners.
- Loyalty programs: Companies could use event contracts as part of a loyalty program, where customers can earn contracts or use them to participate in exclusive markets.
Entertainment and competition
For many users, participating in sports event contracts is a form of entertainment that adds excitement to a game.
- Beyond traditional betting: For fans who want to do more than just root for their favorite team, contracts offer a more dynamic and competitive experience. Instead of just betting against a house, traders compete against each other in a peer-to-peer market, which some find more engaging