I am going to make a billion dollars betting against the 2016 Cleveland Browns.
Ridiculous, you say. No Vegas sports book will accommodate a bet that would allow me to do this. True. Nonetheless, I am going to place one legal bet against a team that is bound to fail. The bet will gross me $1 billion. I am not going to The Strip. I am going to Wall Street. I am going to short sell the Cleveland Browns.
If this sounds askew, then then the first thing you need to understand about Wall Street is that gambling is both legal and encouraged. Really.
Forget about investing. Investing and gambling are different. Yes, both are risky, but when you invest, a company uses your money to try to make more money. Society benefits from investing. Companies grow. Jobs are created. Many people reasonably believe that all of the risk on Wall Street is a necessary consequence of investing. Amazingly, this is not true.
If, for example, an institutional investor believes that Disney stock is going to go up, that investor can write up a contract with an investment bank that will pay the investor money when Disney stock goes up. If Disney stock goes down, the investor pays the bank. Investment banks call this a “Synthetic Position.” Disney doesn’t sell any shares in this scenario. The investor never owns any shares, but wins or loses as if it did own the shares. I call this straight-up gambling. It’s risking something of value on an event of uncertain outcome with the primary intent of winning additional value.
In any other context, Synthetic Positions and many of the other financial products Wall Street classifies as “Derivatives” would be considered illegal gambling. That’s why regular gambling is for suckers. On Wall Street, not only can you gamble legally, you can gamble against uninformed bookmakers.
There’s a reason you aren’t able to drop $200 million at the Bellagio betting window and name your odds on the 2016 Cleveland Browns. The bookmakers in Nevada are too skilled and well informed to let that happen. Not so on Wall Street. The few people who foresaw the housing bubble 10 years ago basically did this with the investment banks. They picked the worst possible mortgage bonds and negotiated favorable odds for their bets against the bonds. Meanwhile, Wall Street simply looked at superficial bond ratings and took the bets. This would be like Vegas assuming that a team is a winner because it plays in the NFL without ever bothering to examine a roster.
The first time someone explained all this to me, I was like: “THIS IS BANANAS!” My second thought: How do I get in on this action?
Well, the lynchpin of any successful Wall Street wager is strong information. You have to know with reasonable certainty how an uncertain outcome is going to play out. Well, I know with absolute certainty that the Cleveland Browns will be a losing football team in 2016. First, they won three games in 2015. Then they lost a not insignificant group of contributors to free agency. The team’s most promising asset, quarterback Johnny Manziel (a.k.a Johnny Football; a.k.a Johnny Eightball) flamed out in masterful fashion, quitting on his team, renewing concerns over a substance-abuse problem and courting accusations of domestic violence. He went from franchise savior to irredeemable draft bust in less than a month. The Browns’ hopes for the near term are so low that even Siri, Apple’s artificially intelligent digital assistant, can’t separate them from the concept of sadness.
If the Cleveland Browns were a bond or a stock or a commodity, the only play on that security would be the short sell. Sadly, the Browns are not a security. Or are they? After a brisk review of the federal regulations that govern Wall Street, I can’t find a specific rule that forbids an invest bank from building a trade around the outcome of professional sporting events. As I see it, the Browns’ victories are very much a commodity. In fact, the legal definition of “commodity” supports this conclusion. Under that definition, the term “commodity” means pretty much all goods and articles, “except onions(!) and motion picture box office receipts” and “all services, rights and interests … in which contracts for future delivery are presently or in the future dealt in.”
Given that you can buy futures contracts on NFL victories at betting markets in Las Vegas and London, I believe there is no question that Browns’ victories meet the legal definition of a commodity. Therefore, it is time to open the Wall Street sports book.
I am making a proposal to Goldman Sachs, the greatest investment bank of all time. I am offering them $200 million to sell me a commodity swap. This is a financial instrument that will reward me with $1 billion in the event the Browns fail to win more than seven games. I have already drafted this letter to Goldman Sachs’ CEO Lloyd C. Blankfein, laying out the proposal that will make me a billionaire.
At this point, I know what you are thinking. There is exactly one flaw with my plan. I do not have the $200 million necessary to make the bet. One step ahead of you. I have already launched a GoFundMe campaign to raise the capital necessary for my “investment.” Please visit and follow my progress as I take down Wall Street with the single greatest sports bet of all time.
Dave Brown is a writer and Business Attorney in Boston. He enjoys picking on Wall Street, but feels bad that he’s doing so at the expense of Cleveland, a great city full of sweet people who deserve a better football team. He looks forward to buying some Clevelanders a round at the Winking Lizard on some given Sunday the next time he’s in town.