What is a sports future?

A sports future is an agreement to back (buy) or lay (sell) a bet at a specific point in time in the future called the expiry date. In reality we do not receive the bet at the expiry date. Instead we have a ‘cash settlement’ meaning we exchange the profit and loss given by the difference between the agreed odds, and the odds at the expiry date. The agreement can be traded at any time before the expiry date.

For all intents and purposes futures look identical to regular bets except for 2 key points.

• They expire at arbitrary points in time where we swap profit and loss.
• You can bet on margin (bet more money than you actually have) because you are very unlikely to lose the entire value of the bet before the expiry date.

Here is an example.

• In December Manchester United FC are paying 3-1 to win the English Premier League.
  • I think their future form will bring the odds down so I buy a 1 month futures contract, i.e., I agree to enter the bet contract in 1 month at 3-1 or very similar odds.
  • For this I need only put up my likely potential loss. I put up $100 on margin and receive a $1000 futures bet.
  • In January, Manchester United FC is paying 2-1.
  • To replicate a bet with a $3000 potential payoff will now cost $1500. Hence I close my position and obtain ($1500-$1000) $500 for my $100 bet, a 400% Return On Investment.