When Butterflies Sneeze: How Coronavirus impacts the Sporting World
I always like to tell people that I see betting as just another type of investment. I go on and tell them that it is in no way correlated to any other asset class and even if stock markets collapse, people will still be betting on sports. How wrong I was.
Most of the time we use first-order thinking and if you want to be really clever you might do some second-order thinking as well. Going from, This happened so this will happen, to this happened, which leads to this happening which will eventually lead to this happening. You can go as deep as you like thinking about how each event impacts things further down the line.
Everyone has heard of the Butterfly effect:
Invisible and inevitable, like a butterfly that beats its wings in one corner of the globe and with that single action changes the weather halfway across the world.
but people have the wrong idea of what it means. Most people see it as compounding, seeing the little bit of wind the butterfly generates growing exponentially until it creates a typhoon at the other end. The actual Butterfly effect shows that one small thing can have non-linear impacts on a system. In this case, we are talking about the entire world which is one massive complex system.
To simplify things, someone somehow caught a new type of coronavirus and it has spread around the world. The spread of the virus has infected the entire global system. From one person, we now are likely to see massive numbers of sick and dead, nations shut down and a global recession (amongst a trillion other things). Talk about simplifying a complex issue.
I’ll not go into the enormous health risks this virus has created. All I will say is this is very serious and you need to think not just of yourself, but the second and third-order impacts. Yes, you are likely to be fine if you catch it, but you may pass it onto someone else who gets sick, or they may pass it onto someone else who will eventually die from it.
I’ll continue with a sports analogy and “stick to my wheelhouse”. Sports betting.
How does it impact Sports betting?
By now you would have seen almost all sporting events being suspended or shut down completely. This is not something that would have popped into peoples minds when they heard about the coronavirus. Not even the people running or playing the sports would have ever assumed they could be called off.
Sports is big business, it’s entire value is over $500 Billion a year and growing at close to 6%. Stopping sports doesn’t just stop the game, it stops hundreds of other parts of the system that rely on the event happening. Stadium staff, catering, television, advertising, merchandise, media, so on and even our tiny neck of the woods (Sports betting).
The linkage between a sport stopping and sports betting is easy to see. Without anything to bet on, there is no betting.
With the NBA season suspended, my tipping service (Dailyprofit) has let members know they can get a refund on their subscription. In all likelihood, the NRL and AFL seasons will be disrupted and I will have nothing to sell at all. It’s likely that there could be no sport on for 3 months or longer, meaning my small business could lose between $20,000 and $60,000. There are no government incentives for tipster services.
If all the sports I bet on are cancelled, it means I won’t be betting and making my usual 5% ROI, adding to the amount I’ll lose.
Taking it further, if there is nothing to bet on, Sportsbooks won’t be able to take bets and make the 10-12% ROI they do from customers. Their stock prices will fall and if it lasts longer than 6 months many of them will go bust, in some cases, taking players funds with them.
Now you start to see how a butterfly sneezing can impact things so far down the line.
How I prepared (financially speaking)
Do not feel bad for me, I’ll be fine. While I did not prepare for this specific event, I did prepare for a huge market downturn. As it stands, I’ve lost close to a 7 figure sum with my investments in the past month. But as I wrote about last year, I took a sizeable amount out of the market and went to cash. I see this upcoming time period as a massive opportunity to buy up assets at amazing prices. I started buying last week and will continue to buy over the course of this pandemic/global recession.
Thanks to my almost 10 years of betting and having to deal with 60% ($300k) downswings, this current market feels like a walk in the park. I’ve spent the last week writing out what I will do based on how it all might possibly play out.
I have a plan on exactly how much to invest at each stage (even if the markets go down 60% or go right back up to new all-time highs).
One thing is for sure, markets have always recovered and have been through much worse times. The stock market will either come roaring back over the next few decades or it won’t, if it doesn’t it will be because this was much worse than anyone could imagine and no one will be thinking or caring about the market. In essence, it is a great bet. Things either return to the norm, or we are all dead and won’t care anyway.
I know people will ask about Bitcoin as well so I may as well say something about it. I still feel that a $16,000 bitcoin is likely for the end of this year. We just saw a day where bitcoin went down 50% before recovering 20%. Bitcoin doesn’t have governments pumping money into its system to keep it alive, it also doesn’t have a pause switch to calm investor’s nerves when it goes down. If you want to be in an asset that can go up 10x in a year, you also need to be willing to accept massive volatility. With central banks around the world starting up the printing presses and the Bitcoin halving just 2 months away, boy is it going to be an exciting time.
Stay Calm and Safe
I hope we all do what we can to lessen the impacts of this virus and keep ourselves and our community safe. If you can frame the next few months as an opportunity instead of a hassle, once this passes you will be in a much better position.
Personally I am in a fortunate position to already work from home and my work allows for that, I know many others can’t simply “work from home”. If a quarantine period is required, I’ll continue to work on my new business, read a few books, catch up on some movies and try and get my fat arse a little less fat.
It’s amazing to think that 2020 was going to be my year of sports travel. I’d likely be in America right now and whinging that Indian Wells, the NBA and March madness had all stopped. I’d also be desperately trying to get on the next flight out of America.
There are a million disclaimers to this article, people will lose their lives, jobs, homes and so much more. This article is just about one tiny subset of the economy that has been impacted. Everyone is different and we will all be impacted in different ways. I hope we all come out of this with good health, good spirits and a lifetime supply of toilet paper.
Stay safe and keep others safe.