One firm is offering the opportunity to make thousands of pounds in tax-free profits from `sports intelligence'. Is it too good to be true?
Choosing where and how to invest your money is a big, and often difficult, choice.
Whether you are buying shares yourself or just putting your money into a fund, you should always do an awful lot of research to understand exactly where your money is going, and what your prospects are. But no matter how much research you do, factors outside of your control always have the potential to upset the applecart. And even if you do make a profit, the taxman always takes his share.
A novel alternative, particularly if you have an interest in sport, is to use 'sports intelligence' to decide how to invest your money.
This involves buying into a fund with an investment firm. The firm uses software programmes to study all the relevant variables about the team and the event ahead of time - and just as importantly, the betting exchanges surrounding that event. Based on this data, the firm then makes recommendations to you about how to make a profit on your cash. This could range from placing bets to offering odds, all via the fund.
This means that, like gambling, it offers you the opportunity to make tax-free profits. But proponents of sports betting say that sports intelligence is more scientific than gambling. They argue that, if you head into a bookmakers to make a sports bet, there are 101 random reasons why you may choose to back a result, from supporting the team in question, to 'wanting' that result to transpire, to even just backing a horse because you like the name.
With sports intelligence, the idea is that you are taking the sentiment away from betting, thereby transforming 'gambling' into 'intelligent investing'.
But is all that just a load of tosh? And how does it actually work?
The Centaur Sports Investment
Currently, the only firm offering sports intelligence investment funds is Centaur. You get to choose between four options - Socrates (Football), Voltaire (Multisport), Newton (Horseracing - form-based) and Euclid (Horse racing - information-based). They will also be launching Michelangelo (tennis) in March 2011. Each of the funds vary in terms of the risk involved, and the potential returns.
You will be required to place at least £5,000 into a ring-fenced account, and you will be contacted a couple of times a week with recommended 'trades'. This may be to back a certain team, or to 'lay' (in other words, offer odds to other speculators) a certain result.
However, there is no requirement to take up any of the trades - you could leave that £5,000 there, completely untouched. You can also take out your money of the fund at any time.
Performance
Centaur claims that, on average, its funds grew by 450% between December 2003 and July 2009. That's a very attractive return but there are absolutely no guarantees that Centaur can deliver similar returns in future. It might even start to make losses. Who knows?
Regulation
The other bad news is, this type of investment is not regulated by the FSA.
If that has set your alarm bells ringing, I don't blame you. But bear in mind that it's a unique type of investment, and that even long-standing investment sectors like the buy-to-let mortgage market are currently unregulated.
And to be fair to Centaur, it launched a new investment, Galileo, in October 2010 which is available for recommendation by IFAs, and is regulated.Galileo reported a first quarter NAV trading profit of 4%.
Is it worth it?
The million-dollar question - does this all sound a little too good to be true?
To be completely honest, I don't think it's that different to buying shares in a company. If you sign up to investment updates from any City analyst, chances are you get a few emails a week recommending buying shares in this company, or shift them in that firm. Centaur operates on a similar basis.
And taking the sentiment out of it is obviously the best way of doing things - sport, far more than traditional investment, attracts money based on little more than hopes and prayers.
You are still taking a risk on never seeing that money again, just as you are if you buy shares in a FTSE100 company. The added bonus is that, not only are most of your profits tax-free, they are also economy-proof. Your chances of making money from this form of trading is completely detached from the economy at large - if sterling crashes, the money you have invested in the stock market will likely plummet. But it won't stop football matches taking place, or horse racing meets from going ahead.
So would I invest? Probably not, but then I don't have at least £5,000 lying around waiting for a new home. Even if I did, I'm not sure I would want to put all of my eggs into the sports basket. But as a part of an investment strategy, rather than the entirety of that strategy, then it may not be the worst bet in the world.
Having said that, there is always our old motto: if you don't understand something, don't invest in it. And there can be no doubt that this is a complicated way to invest your money, which may be far too close to gambling for many readers' tastes. If you feel that way, don't touch it.
What do you think?
That's what I think - but what do you think? Does this sound like a good, alternative way of getting a decent return on your cash? Or are you sceptical? Is it just gambling by another name? We want you to tell us what you think.
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This article was updated in February 2011.
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