Sports betting vs. the stock market

August 31, 2014: 8:14 AM ET
Green Bay Packers sports gambling
NEW YORK (CNNMoney)

Sports gamblers have lots in common with stock market investors.

They both believe they can predict the future, and they sometimes fall into the trap of making decisions with their hearts instead of their brains. And of course, they both hate to lose.

But don't let those similarities fool you. Gambling on sports may be more fun, but it's definitely a more risky use of money than putting it in the stock market.

In the long run, investors have the chance to make more money because there are fewer downside risks.

To put it another way, the stock market is a lot more forgiving than the MGM Grand (let alone your local sports bookie).

"A lot of people regard investing as gambling, but I frequently say no. Which casino in Atlantic City, Las Vegas or Macau pays the bettor 73% of the time?" said Sam Stovall, chief investment strategist at S&P Capital IQ.

That's the percentage of time that Stovall's research shows the S&P 500 -- the gold standard in the stock market -- has increased in value during the years since 1926.

Those are pretty good odds.

Related: 4 reasons September could be good for stocks

The betting appeal: Americans bet an estimated $380 billion each year on sports. It's easy to see why fans may be tempted to gamble on their favorite teams and athletes. Gambling on football star Peyton Manning to win might seem like a safe bet, especially compared with picking winners in the stock market.

"You're making a wager based on some facts and some intuitions. And in neither instance can you be guaranteed to be correct," said Randall Fine, managing director of The Fine Point Group, one of the casino industry's largest consulting firms.

Manning is really, really good at what he does for a living. Heck, even his commercials are funny.

But take it from one person who has lots of experience in both worlds.

"Betting is more difficult and riskier," said one resident of Hoboken, New Jersey, who bets on illegal gambling sites and also invests in stocks. He asked for his identity to be withheld due to legal concerns.

"A large, steady company has a low chance of plummeting and causing you to lose all your money, but even Peyton Manning doesn't cover the spread sometimes," he said.

S&P Above 2000? Thank Super Mario

All or nothing: Gambling on sports tends to be a zero-sum game. A bettor gambling on the Green Bay Packers will instantly lose his or her entire $500 bet if Aaron Rodgers and his teammates fail to win or cover the spread.

However, someone sinking $500 into Apple stock has little risk of losing that entire initial investment, especially in the short term. The stock might go up and down some, but it typically doesn't go to zero.

Related: Apple and 9 other stocks hit new records

Investors also have the ability to spread their money out among many stocks. People often invest in funds that buy dozens or even hundreds of stocks, which helps reduce the risk.

And investors have greater access to tools that can minimize the risk of losing money. For example, a stop-loss order instructs a broker to dump a stock when it tumbles below a specific price.

Such hedging tools are not as readily or even feasible to sports gamblers, Fine said.

At the same time, investing in stocks actually carries higher upside potential. While many stocks offer steady returns, investors sometimes hit the jackpot (think: buying Apple back in early 2009 or Tesla in 2012).

Related: How $2 billion Clippers bet could pay off

Gamblers and investors also have far different time horizons.

A stock can theoretically be held onto for an infinite amount of time, but a sports bet can end in the blink of an eye.

Even the unlucky investors who jumped into the market at its peak in October 2007 eventually made their money back when stocks reclaimed their pre-recession levels in 2013.

The same can't be said for those who bet big on the Denver Broncos last Super Bowl.

"You can hold onto your betting tickets all your life, but you're not going to get squat," said Stovall.

Markets
Sponsored by
Index Last Change % Change
Dow 17,827.75 12.81 0.07%
Nasdaq 4,787.32 29.07 0.61%
S&P 500 2,072.83 5.80 0.28%
Treasuries 2.23 -0.03 -1.15%
Data as of 3:16pm ET
Company Price Change % Change
Kinder Morgan Inc 42.32 0.00 0.00%
Apple Inc 119.00 0.00 0.00%
Facebook Inc 77.62 1.99 2.63%
Pfizer Inc 31.10 0.00 0.00%
Bank of America Corp... 17.11 0.00 0.00%
Data as of Nov 26