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Wednesday, August 09, 2006

Aussie Rules Misbehaviour Market - An Introduction

As part of The Speccy's campaign for a commercial online betting service for AFL players' court appearances, we started a proof-of-concept prediction market, where anyone can play for free. This post introduces the Aussie Rules Misbehaviour Market (ARM) to help you get started.

First off, why are we doing this? The short answer is that prediction markets like this help people make informed choices. By providing a simple mechanism to share and aggregate information about likely future player misbehaviour, the community benefits in getting the best possible tip-offs. For example, if the odds dramatically shorten for one particular club, you may want to avoid their favoured drinking establishments. In effect, we're using the "wisdom of crowds" to provide a more specific and reliable AFL Footballer Threat Indicator.

The benefits for the individual punter come in bragging rights and the self-satisfaction that comes from out-punting everyone else. Of course, it's also good practice for when commercial wagering on AFL players in court starts up - and people are betting with real money.

The market itself is pretty straightforward to understand and operate, thanks to our partners at CrowdIQ. Each club has 1000 contracts (for a total of 16,000). Each contract will "pay out" $100 to the holder if and when that club is the first to have a player in court. All the rest pay out zero. All contracts are freely-traded in the interim at what ever price and volume participants wish. The price of a contract goes up and down over its lifetime, driven by buyers and sellers. The price is determined by how likely it is to pay out ie for that club to be the first with a player in court.

If the price of a contract on Collingwood is presently $20, that means that the market estimates the chances of Collingwood being the first club in court is 20%. If you reckon it's actually more - say 50% - then you should bid $21 and buy up as many as you can. If you think the chances are really much lower - say 5% - then you should sell any Collingwood contracts you own. (You could also try short selling, laying a Dutch Book or related strategies.)

There are many factors that will influence the price of a particular club's contract:

  • Adding/dropping notorious players from the list

  • "Free weekends" due to injuries or split rounds

  • Lack of availability of cocaine

  • Elimination in the finals

  • Emotionally tough matches (drubbings and nail-biters)

  • New batch of particularly strong crystal meth in town

  • Team bonding sessions

  • Schoolies week

  • Sharp price movements in other clubs

This last one occurs because - in theory - all the probabilities should add to one. That means that if price increases for one club (ie odds shorten), then they must come down (ie odds lengthen) for the others. Savvy punters will take advantage of that fact in fine-tuning their portfolio.

Of course, there's a wealth of private information that influences prices too. This is where the punters' ability to sniff out rumours, anticipate crises and generally keep in touch with events comes to the fore. This is where it pays to keep an ear to the ground. So, if you're a door bitch, drug dealer, footy slut, trainer, barman, journo, hooker, bouncer, priest or police officer - you get an unfair advantage over the rest of us.

Most of the time, the contract prices will reflect the general assessment of the lawlessness of each club. As such, they reflect a kind of broad-based reputation. Things get volatile when a scandal or criminal incident breaks. It could play out in a number of different ways. Suppose the matter is kept under wraps for a few days; only insiders will know and will have an opportunity to make a few judicious trades before it goes public. Once a player has been charged, it's almost certain they'll be in court. The price for that club will get close to $100, while all others tend to $0.

On other occasions, there may be a delay between an incident going public and the laying of charges - think Dean Brogan or Tarrant/Johnson - and there will be much speculation and volatility in the prices. Other times, it will be a dead cert that the player will be in court once it breaks (like Michael Gardiner) and the market acts like a raffle.

A couple of other matters about the structuring of the market.

The initial prices for the contracts are set by IPO (Initial Public Offering) via a Dutch auction. This means that people can bid silently up until this weekend ie Sunday, 13th of August on how many contracts they wish to buy. The system will automatically allocate them to punters, based on this auction. After this period, all contracts will be in flux and will be traded in the usual fashion.

So if you reckon each club is as bad as the next, then the "fair price" is $6.25 ($100/16) per contract. You may wish to set each club at a discount or premium to that "base rate" based on your assessments of their general lawlessness. Note: past behaviour is a good indicator of future behaviour, but it is no guarantee.

Contracts are "resolved" once a player appears (either in person or by a representative) in an Australian court facing criminal charges. To avoid contempt of court issues, this market does not allow speculation on any decisions or findings of the courts. It only pertains to new matters about incidents that have (allegedly) occurred prior to the start of the market. Therefore, re-appearances about older matters - such as sentencing, appeals etc - do not count.

The Speccy, as market manager, is responsible for deeming when a contract is resolved. We take all care in monitoring the media for this, but we are not infallible. Therefore, we're happy to take any tip-offs or leads about court events that we may have missed.

Once a contract is resolved, the market is closed, contracts "pay out" (winners are grinners) and a new market is established for the next round of speculation.

Ready? OK, check out the prices ... and happy punting!

Word Count: 1051


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13 Comments:

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  • Interesting idea. Perhaps I might sign up.
    You really could do with a way to advertise this AFL footy fans that are tech savay though! Could I suggest
    Here could be the place..
    Molly

    By Anonymous Phillip Molly Malone, at 12:34 pm, August 10, 2006  

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  • Well, Molly, we'll see ... we'll see ...

    By Blogger Greg, at 1:13 am, August 11, 2006  

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  • Collingwood's odds must have shortened further after Didak's altercation with his bimbo girlfriend and another man at some club.

    By Anonymous Ben Wallace, at 6:42 pm, August 14, 2006  

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  • Do I take it from the extremely low price of each team that no one thinks that any of the teams are going to have people in court any time soon?

    You know what would have made this a lot more intering:
    1) Add the AFL (i.e. AFL staff) as a "stock" (for want of a better term)
    2) Add no incidents as a "Stock"
    3) Had a time limit on the payout (say Grand final day for example) and if no one goes to court in that time, the no incidents "Stock" gets the $100.

    JMTC
    Molly

    By Anonymous Phillip Molly Malone, at 12:16 pm, August 24, 2006  

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  • No, the low prices reflect the fact that the market is broken and trades aren't clearing (announced on messaged board).

    Unfortunately, it seems the technology has let me down - who'd have thought a Web 2.0 start-up run by a couple of guys out of their garage would be unreliable?

    It's a shame, because it's a great idea - and quite a nicely executed site (when it works).

    Thanks, too, for your suggestions. The contracts expired - all "money" returned - at the end of the year (31/12/2006), not the end of season since players still get in trouble after the Grand Final (no rest for the wicked!). I'll look at a "no incident" event for future markets.

    Also, I'm intrigued by the AFL Staff option? Have there been incidents of AFL staff going to court?

    I'm examining the legalities around setting up a market on TradeSports. (They have a legal section for betting on court events.) Since this uses real money, it's unashamedly gambling. We have peculiar laws about online gambling, so it could be tricky.

    I'll keep you all informed.

    In the mean time, there's nothing wrong with a friendly public declaration. Let's see ... with all those ugly rumours going around right now, I'm down for the Cats.

    By Blogger Greg, at 12:43 pm, August 24, 2006  

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  • So are we expecting to see "Web 2.0 Spectator" blog opening soon so you can go them as well?
    ;-)

    Molly

    By Anonymous Phillip Molly Malone, at 6:18 pm, August 24, 2006  

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  • Hey - good one Molly!

    That's the first time you've made me laugh out loud (on purpose).

    By Blogger Greg, at 6:10 pm, August 25, 2006  

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  • Good news! The AFL Misbehaviour Market is back online.

    It seems trades are clearing now, and we can see price movements in the "stocks". Not surprisingly, Collingwood is the market favourite, though still cheap at $2 - surely the chances that a Collingwood player will be next in court is more than 2%!

    Click through to get your $1000 initial cash and start speculating.

    By Blogger Greg, at 2:33 pm, September 06, 2006  

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  • Isn't there already been a winner?
    ;-)
    Molly

    By Anonymous Phillip Molly Malone, at 6:27 pm, October 02, 2006  

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  • What do you mean, Molly? Got a link?

    By Blogger Greg, at 6:54 pm, October 02, 2006  

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  • First I have to admitt that the rules are slightly tricky (in what represents a court visit) but heres the link:
    http://www.google.com/url?sa=t&ct=res&cd=5&url=http%3A%2F%2Fwww.news.com.au%2Fheraldsun%2Fstory%2F0%2C21985%2C20431881-2862%2C00.html&ei=K8UhRfTKC7iMaPTV9cUJ&sig=__MxvY8T7glCR2NXR7r8gRqPAWnYQ=&sig2=I-cQVE7FV1J76F6RD1e7fQ
    Molly

    By Anonymous Phillip Molly Malone, at 12:12 pm, October 03, 2006  

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  • Thanks, Molly. We already covered Heath Scotland's miraculous escape from justice (ie he got off because he wants to be a fireman when he grows up).

    But, yes, this definitely counts as a court appearance. However, as outlined in the rules, the incident has to take place after the competition has started, so these old matters (like Brodie Holland) don't count.

    But thanks for keeping an eye out!

    By Blogger Greg, at 12:47 pm, October 03, 2006  

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  • DOH! To Quote a famous man:
    "You have more weird rules then Block Buster video".
    ;-)
    Molly

    By Anonymous Phillip Molly Malone, at 4:10 pm, October 03, 2006  

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