Dear Economist

Betting against Britain

Dear Economist,
I had high hopes for a successful sporting summer but it took only a few days for it all to fall apart. England have been humiliated at football, cricket and rugby while “Tiger” Tim Henman went out of Wimbledon with hardly a whimper. Now the Olympics are fast approaching and I think the suffering is going to be too much for any English sports fan to bear. Can you suggest any way of easing the pain?
Terry Price, Manchester

Dear Mr Price,

Life is full of uncertainty. Sometimes there are pleasant surprises – you must recall your joy when England’s footballers beat Germany 5-1, or when the rugby team lifted the World Cup last year. But the memory of those happy times raises expectations and makes reverses more painful. Therefore, I recommend a financial re-engineering of your sporting portfolio.

As a passionate sports fan, you are highly exposed to the vagaries of fortune – the form of David Beckham, the fitness of Jonny Wilkinson. This is not rational behaviour if you, like most people, are risk-averse. It is better to diversify by betting heavily against the results that you crave. You can get odds of 6-4 that the British team won’t bring home a single gold from the Olympics. A few pounds on that and you can either celebrate if Paula Radcliffe wins, or buy enough beer to drown your sorrows if she is beaten.

Of course, losing money when the results are good means that neither the highs nor the lows will be as intense. That is the nature of insurance.

There is an added bonus. British bookies often find that punters like to bet on a home win. These irrational fans, by increasing their own risk, are subsidising your insurance.

Be sure to take advantage.

First published at ft.com.

7th of August, 2004Dear Economist • Comments off