Saturday, April 16, 2005

Offshore betting

I have continued to think about Intrade and the possibility of buying futures on political and other events. (See my previous post at The Smart Money.) One event that seems particularly attractive is the 2008 presidential election. There are contracts on many individuals to receive the nomination of the two parties. The top Republicans are John McCain (18%), Bill Frist (14%), George Allen (11%), Rudy Giuliani (10%), and Jeb Bush (9%). I don't know that I'd buy or sell any of those contracts.

The top Democrats are Hillary Clinton (42%), Mark Warner (10%), and Evan Bayh (9%). I have a hard time imagining the Democrats nominating Hillary. And at this point she is given more than a 40% chance of being nominated. I'd short that contract — which would mean that I'd sell the contract for 40, which I'd keep if she isn't nominated. I'd owe 100 (i.e., lose 60) if she is nominated. The monetary value of these contracts is 10 cents per point. So losing 60 means losing $6.00, and selling at 40 means gaining $4.00. One can buy or sell a single contract at a time. The minimum account size is $25.00.

I attempted to open an account. Opening the account was no problem. But when I attempted to deposit $25 using a credit card, the transaction was not authorized. The help person at Intrade said that many credit card companies refuse to authorize transactions with sites that are considered offshore betting sites.

The email telling me this, pointed to three of their sites, Intrade and two others. This company sponsors not only these futures markets, they also sponsor sports betting. In fact, their other two sites, and TradebetX .com, list not only sports bets but political futures contracts as well. (In all three sites, for example, you can buy or sell a futures contract that pays off if Michael Jackson is convicted of at least one count. The odds are currently about 60%.)

So this is apparently a well-established organization that has been doing this sort of business for quite a while. Their web technology is quite well done.

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