Dallas Morning News, The (TX) - April 4, 2003
Author/Byline: WALT ZWIRKO, DallasNews.com
Edition: SECOND
Section: TEXAS LIVING
Page: 1E
Readability: 11-12 grade level (Lexile: 1260)
You can bet that Saddam Hussein will no longer rule Iraq by the end of April. Or perhaps by the end of May.
Choose correctly, and you could make some money on TradeSports.com, a Dublin, Ireland Web site whose members have been wagering on the future of Iraq's leader since September.
Chief executive John Delaney says TradeSports has been accepting "relevant and respectful" contracts unrelated to sports since shortly after the online exchange opened for business in March 2002.
TradeSports can be likened to an eBay for gamblers. Setting their own odds, users bid against one another on contracts ranging from game results to motion picture box-office totals. TradeSports charges 4 cents for each contract bought or sold.
While some might consider contracts on Saddam a distasteful extension of sports wagering, some experts suggest that such activity delivers accurate forecasts of future events.
"I trade financial futures and options for a living," says Mike Ambrose of Bridgewater, N.J., who also has his own money riding on the future of Iraq's ruler through a TradeSports account. "Some of their contracts, like the Saddam contract, offer that extra bit of information you can't find on news services."
Before the opening shots were fired in Iraq, Stanford Graduate School of Business professor Eric Zitzewitz co-wrote an academic study that found the Saddam Security wagering contract accurately forecast the increasing probability of war.
"I think the potential to get unbiased information about the probability of war just totally swamps any ethical qualms about betting on war," Dr. Zitzewitz says. "It may even affect future decision making for the better."
"Potentially, these could be great tools for industry or the government to use," says Dr. Zitzewitz, an assistant professor of economics.
Kay-Yut Chen, a senior scientist for computer company Hewlett-Packard, calls the forecasting technique "very promising."
Dr. Chen has found that HP employees gambling among themselves predicted sales trends for their group more accurately than traditional methods six out of eight times.
While HP employees didn't have to wager their own money on the sales predictions, Dr. Chen says he believes it "makes a big difference" when participants have a financial stake in the outcome.
"It's fun," he adds. "I think the moral of the story is, if you can design a game correctly, it can actually achieve a lot."
Robin Hanson, who teaches economics at George Mason University in Virginia, says "betting markets" have applications beyond the worlds of finance and business. Dr. Hanson is working on a military-funded project that is investigating this method of research and its applications for intelligence-gathering.
"The major consequence of people betting on Saddam is that it creates this estimate," Dr. Hanson says. "That's a useful thing. ... A lot of policy and politics is around arguing the consequences of actions."
Dr. Hanson says betting markets may provide informed guidance on other matters. "If a bunch of people are betting on the market," he said, "maybe they know something and maybe I should believe it, because these are people who are putting money where their mouth is."
Total online wagering worldwide will top $6 billion this year and $10 billion in 2005, according to estimates from Christiansen Capital Advisors, which studies the gambling industry.
And although Texans can play lottery games and wager on horse racing, questions linger about the legality of placing online bets.
In a series of votes since 1998, large majorities in the U.S. House and Senate have voted to outlaw gambling over the Internet. Disputes over how to define illegal gambling, what forms of wagering to exempt and how to enforce a ban have prevented Congress from agreeing on legislation.
Anthony Cabot is a Las Vegas attorney and editor of the Internet Gambling Report, a book that reviews the industry's complex legal issues. He says the average gambler shouldn't be overly concerned about wagering online.
"Federal law and most state laws do not penalize or make it illegal to place a bet, only to receive bets if you're in the business of betting or wagering," he says.
"I am not aware of any cases in which the prosecutors are going after the bettors."
Mr. Cabot also says many of the existing regulations are related to sports gambling.
"When you're dealing with something like the survival of Saddam's regime, it probably isn't specifically prohibited by federal law."
Two well-known Web sites already trade in information wagering.
The Hollywood Stock Exchange (HSX.com) lets its 800,000 registered users buy "shares" in new movies and actors.
While it's just for fun - no money is exchanged - the company that runs the Web site sells the information it collects to the entertainment industry.
The HSX.com community accurately predicted the winners in five major Academy Award categories.
Since 1998, the University of Iowa's Iowa Electronic Markets exchange (www.biz.uiowa.edu/iem/) has been letting students trade in entertainment and political futures. The IEM operates like a real stock market - with real money being traded.
The IEM correctly predicted Al Gore to win the popular vote in the 2000 presidential election. While the Web site's survey of Democratic candidates for the 2004 election shows no clear front-runner, it may be a good place to monitor.
"They are actually, in a sense, polling the population," says Dr. Chen, "but since the population has money at stake, there will be a lot more truth coming."
Be it placing money on Saddam's fate or the winner of the Final Four, is all this information analysis gambling or investing?
"Gambling is where there is no bona fide element of skill," says TradeSports' Mr. Delaney, adding that his Web site caters to professional investors.
Mr. Ambrose, the online trader, has a different take. "Every trader on the trading floor will say there's a fine line - or no line - between trading and gambling. It's one and the same," he says. "It's betting. Let's call a spade a spade."
Although TradeSports.com and similar sites may not be mainstream, Mr. Ambrose suggests that history may prove them to be significant.
"One hundred years ago, the guys who were the grain traders at the Chicago Board of Trade were derided," he says. "Now the Chicago Board of Trade is one of the cornerstones of the financial landscape."
As of Wednesday afternoon, TradeSports users were betting there's a 69 percent chance that Saddam Hussein will no longer rule Iraq by April 30; an 85 percent chance he'll be ousted by the end of May; and a 94 percent chance Mr. Hussein will be ousted by July 31.
"The prices reflect the probability of what is going to happen," Dr. Chen says. "When people play this game, you can have a glimpse into the future."
E-mail wzwirko@dallasnews.com