Michael Giberson
At Midas Oracle, Eric Zitzewitz asks, "Is sports betting legal if you bundle it with furniture?"
A furniture retailer in Boston offered furniture that would be free to customers purchasing a mattress, dining table, sofa, or bed between March 7 and April 16, if it turned out that the Red Sox won the 2007 World Series. According to the Boston Globe, one customer spent $40,000 during the promotion, and will get it all back if the Red Sox win. A total of 30,000 bets -- er, orders -- were placed during the promotion.
Zitzewitz's question led me to wonder whether, for example, If I bought a sofa from a customer who bought it from the store during the promotion, and the Red Sox win, could I claim the payout?
Or how about a purely financial derivative — I buy the payout option from the sofa owner, but not the sofa. (I have plenty of sofas already, thanks.) The option is worth either $0 or the price of the sofa, depending upon whether the Sox win.
Given 30,000 orders and assuming an average order value of $1,200 each, that is $36,000,000 in potential claims. If the claims were tradable, seems like you could have a pretty liquid little prediction market.
Tradesport prediction market prices suggest a 67 percent likelihood that the Sox will win, so a reasonable price for the payout option attached to the $599 sofa pictured would be about $401.
And no doubt the furniture store took out insurance on the promotion. This is no different than win a free car hole in one contests and the like. That raises the question whether insurance is gambling. Normally purchasing insurance is considered the opposite of gambling which begs the question that selling insurance therefor must be gambling.
I wonder if the insurance company was able to enter into the sports betting market to hedge it's position. Relying on Zitzewitz's report that at the time of the promotion the Sox were judged to have about a 10 percent chance of winning the Series, the insurance company could have hedged against the possibility that they would have to pay off the consumers by betting that the Sox would win.
(Of course, if the betting markets were accessible, the furniture store could have done this themselves.)
“Tatelman bought an insurance policy to cover any losses in the event the Sox win the title.”
As we all know (via Marginal Revolution some time ago), the first X Prize ($10 million) was also paid by a “hole-in-one” insurance contract.