Are Frustrated Sports Bettors Really Driving the Covid Stock Market?

With most professional and college sports shut down, so has betting on them. But this is a multi-billion dollar industry and those who indulge are looking for action.

So, as ridiculous - and scary - as that may seem, the answer is that sports bettors are having a noticeable influence on the stock market at this time. JL

Matt Phillips reports in the New York Times:

Wall Street analysts see people who used to bet on sports as playing a big role in the market’s recent surge, which has largely erased its losses for the year. Stymied sports bettors legally wagered more than $13 billion on sports last year. Estimates suggest illegal wagering is 10 times that figure. But betting has collapsed since the outbreak shut down the major sports leagues.Even with modest investments, these newcomers can move stock prices. "It is big enough to matter."

When he wasn’t coaching sports, he was playing them or watching them. And if he was watching — well, a little skin in the game always made it more interesting for Steven Young, a teacher outside Philadelphia. Just small-dollar bets, mixed in with shuffling the rosters of his fantasy teams.

But when the coronavirus pandemic hit, all the games he cared about sputtered to a stop. So he turned to one of the last places in town for reliable action: the stock market.

Mr. Young withdrew all the money from his sportsbook accounts and deposited it into Robinhood, the free stock-trading platform. When his federal stimulus check arrived, he put money from that in, too.

Forced into online lessons when his school district shut its doors, the health and physical education teacher had everything he needed to get into the market. “Having the time and the flexibility and the opportunity — it being as low as it was — I just kind of felt it was a good time,” he said.

Mr. Young, 30, has only about $2,500 invested, making him a guppy among whales. But some Wall Street analysts see people who used to bet on sports as playing a big role in the market’s recent surge, which has largely erased its losses for the year.

“There’s zero doubt in my mind that it is a factor,” said Julian Emanuel, chief equity and derivatives strategist at the brokerage firm BTIG. “Zero doubt.”

Millions of small-time investors have opened trading accounts in recent months, a flood of new buyers unlike anything the market had seen in years, just as lockdown orders halted entire sectors of the economy and sent unemployment soaring.

It’s not clear how many of the new arrivals are sports bettors, but some are behaving like aggressive gamblers. There has been a jump in small bets in the stock options market, where wagers on the direction of share prices can produce thrilling scores and gut-wrenching losses. And transactions that make little economic sense, like buying up the nearly valueless shares of bankrupt companies, are off the charts.

Even with modest investments, these newcomers can move stock prices, which are typically set by just a sliver of shareholders. On most days, the overwhelming majority of stock investors do nothing, while the buyers and sellers establish the prices. So even a small influx of hyperactive speculators can have a significant effect.“Investors are increasingly asking us about the participation of individual investors in the shares and options market,” analysts from Goldman Sachs wrote in a note published late last month. “Our data suggests that individual investors are indeed a significant proportion of daily volume.”

Jim Bianco, president of Bianco Research, a financial market research firm, said gamblers were a small but important segment of those new arrivals, along with video game aficionados.

“Is it as big as what would we refer to as the institutional community?” Mr. Bianco asked, referring to mutual funds, exchange-traded funds and professional investors. “Probably not.”

But, he added, “it is big enough to matter.”

Stymied sports bettors are sitting on a substantial amount of money. Gamblers legally wagered more than $13 billion on sports last year, according to Eilers & Krejcik Gaming, a research and consulting firm, and estimates suggest illegal wagering is 10 times that figure. But betting has collapsed since the outbreak shut down the major sports leagues. Sports betting revenues in March dropped some 60 percent from February, the firm said. They may have fallen as much as 80 percent more in April.

“Basically, I needed something to try to gamble on or to try to make some money on,” said Sean Moore, a 23-year-old aircraft electrician living in Suisun City, Calif. With an initial investment of about $1,000, he has experienced all the highs and lows of playing the market in just a few weeks.

Mr. Moore’s bets on airlines and casino companies surged roughly 60 percent in about a week. “I was telling everybody: ‘You got to do stocks. Sign up — it’s easy money right now,” he said.

But then a bet he made on the casino company MGM — premised on the reopening of Las Vegas after coronavirus restrictions were lifted — went south.

“It did not go positive like I thought it would,” he said. “I thought that was going to be huge with them reopening.”

Mr. Moore got into stock trading after watching Dave Portnoy, the president of the raunchy, irreverently juvenile — and wildly popular — sports and gambling website Barstool Sports.

When the coronavirus shuttered Barstool’s Manhattan offices, Mr. Portnoy — who had almost no stock trading experience — reinvented himself as “Davey Day Trader.” With an initial outlay of $3 million, he started buying and selling from his apartment and streaming the results to his loyal readers.

“I have a pretty good feel for when something is entertaining content for them,” said Mr. Portnoy, whose streaming sessions mix confident pronouncements with colorful profanity.

It didn’t start out so well: Mr. Portnoy lost more than $1.5 million on repeated bets that the market would fall. He put in more than $2 million more and turned into a raging stock market bull, clawing his way back to positive territory.

The short-term swings make betting on stocks no different from betting on a game: “Same rush,” he said.

While Mr. Portnoy has been a considerable influence on Mr. Moore, Seth Serrano was tipped off by someone close to him: his brother. Stocks have replaced sports as their main topic of conversation. They keep one eye on market movements, and fire text messages back and forth.

“It’s funny — we talk about it like we talk about the betting,” said Mr. Serrano, 39, who lives in Edison, N.J.

A modest bettor — only a dollar or two on a game — he keeps a portfolio worth only about $200. He freely admits he started out with little idea of what he was doing, but he naturally gravitated to a classic stock-market strategy: Purchase stocks that have fallen and hope to sell them on the rebound — “buying the dip” in trader parlance.

“I don’t know what half this stuff is,” Mr. Serrano said as he scrolled through his portfolio, reviewing holdings that included Ford Motor, some pharmaceutical shares and a somewhat obscure E.T.F. that tracks the price of the fertilizer potash.

He also has a stake in a business he knows well: DraftKings, the gambling service he formerly used. The company went public in April, and Mr. Serrano figured its shares would spike once games restarted. He didn’t have to wait that long: DraftKings is up some 245 percent this year, even without games to wager on.

“Basically I’m, like, gambling on my gambling,” Mr. Serrano said.

The last time Americans showed any serious appetite for stock-market speculation was the tech-stock frenzy of the late 1990s. Since then, investors have embraced safer options, like set-it-and-forget-it index funds based on the premise that trying to beat the market is a waste of time.

That started to change in earnest last year when a brokerage price war kicked into high gear. Robinhood, fueled by hundreds of millions of dollars in venture capital, had long been offering commission-free online trades. Its established competitors were forced to lower their prices until finally, in October, the giant brokerages — Charles Schwab, TD Ameritrade, E-Trade, Fidelity and Vanguard — started eliminating fees, too.

When share prices plummeted in the pandemic, would-be investors rushed in.

TD Ameritrade reported a record 608,000 new funded accounts during the first quarter, more than triple last year’s pace. Schwab set a record, too, with 609,000 — including 280,000 in March alone. E-Trade had 363,000 new accounts, more than double the same period last year and another record. And in early May, Robinhood said it had added more than three million accounts this year.

There has been a surge in small investors using option trades to make pure win-or-lose bets on where stock prices will be at a specific time, said Matt Maley, chief market strategist at Miller Tabak, an asset management firm.

“That’s another sign that it’s these gamblers,” he said.

Jonny Tran, a lawyer in Fort Collins, Colo., has embraced options and scored some wins, including a $400 put option — a bet that a share price will fall — that ballooned into $7,000 after shares of the chip-maker Broadcom plunged.

“It was just a hunch,” said Mr. Tran, 31, who had tried to scratch his gambling itch with games overseas, putting money on South Korean baseball and Russian table tennis.

During Thursday’s brutal sell-off, which sent the S&P 500 down 5.9 percent, Mr. Tran made out just fine, thanks to put options on Snapchat and the overall index.

“I made like 600 bucks yesterday, which is kind of cool,” he said Friday. But the sharp pullback got his attention, and he thinks he might cool it with the bets for a while.

As of Friday he was out of the market. “I’m going to sit this out for a little bit,” Mr. Tran said.

The bettors stress that they play the market as entertainment. Many have 401(k) plans filled with the plain-vanilla index funds that are the bedrock of retirement planning, and they put down only what they’re willing to lose.

“They’re not expecting to retire off of trading stocks,” said Josh Brown, chief executive of Ritholtz Wealth Management, who has been following the growth of retail activity this year. “They’re having fun and they’re learning the market, and I think it’s great.”

Mr. Young started out buying index funds, but he has grown more adventurous as he has picked up more knowledge. He’s subscribing to investing channels on YouTube, and finds himself reading financial news in Barron’s and The Wall Street Journal.

“It’ll be interesting,” he said, “when sports come back, how invested I am in sports.”