Red-Blooded Risk: The Secret History of Wall Street

Sports Betting

Another group diverged in the opposite direction. The invention of the point spread and the unrestrained growth of organized crime had turned sports betting from the domain of local bookies, who took risk but might lay off a large imbalance through an informal network, to a highly organized, mostly illegal, national business that was allergic to risk. It was easy for quants to identify profitable bet opportunities in this system, because the spreads were set to equalize money bet on both sides, not to reflect the true probability of winning (actually, it's not even clear what “true probability” means). The organization did not want to make money by predicting outcomes better than customers and taking risk; it wanted to have a guaranteed profit whatever the outcome.

You could make consistent money with strategies as simple as betting against the Los Angeles Lakers National Basketball Association team at home, because Los Angeles was a large, rich, and high-betting city and the Lakers were a glamorous team. Anyway, a quant with a computer and a bit of time on her hands could make some easy money with rules that were not much more complicated than Lakers + home = bet against. And with a little more effort, she could derive more profitable complicated rules.

Unlike the blackjack card counter, who was usually ejected from the casino or worse if caught, the advantage sports ...