A friend of mine started investing in the stock market last year. He bought some stocks by listening to tips and doing his own analysis. Until a few months ago he was satisfied with his performance. But since June he lost everything he had gained (disregarding the inflationary loss), which he attributed to the resurgence of the pandemic and the external scenario.
His 18-year-old son is a fan of Cartola FC, a fantasy game in which he scores according to the goals and assists (and other parameters) that his 'acquired' players convert in real life. He has been playing for two years and has won over $6,000 in prizes.
The activities of father and son are more alike than you can possibly imagine. Both the returns on stock exchange investments and the results of football games involve skill and chance, in curiously similar proportions. Luck is important in both cases. But skill is also decisive. It's a mixture.
However, both are games: (1) you put money in front, (2) there is a luck component, after which (3) you determine profit (prize) or loss.
There's no doubt that a professional tennis game –which scores every 30 seconds in a game of hours– is more about skill than luck. On the other hand, a game like Blackjack depends more on luck than on skill (a truth disputed by the stupendous story of MIT students who counted cards in the 1980s and 1990s). The ratio of luck to skill varies for each game.
Daniel Kahneman, a psychologist and Nobel laureate in Economics, maintains that the Stock Exchange is more akin to pure "gambling" than activities like Cartola FC. Kahneman argues that the equity fund industry "is largely supported by an illusion of skill" and that evidence from many decades of research proves that "stock picking is more akin to rolling dice than poker."
In most countries, prize-paying games that depend exclusively on luck – lottery, jogo do bicho, bingo, and roulette – tend to be monopolized by the state. On the other hand, those who depend on skill –football, tennis, chess, Stock Exchange, Sudoku–, can be commercially exploited by free enterprise.
In 2018, Law 13,756 legalized sports betting (more skill-dependent than luck), in which the bettor knows at the time of betting how much he will win (fixed odds). It is the fastest growing sport in the world, driven by online betting. In Brazil, passionate about football, bets on sites like bet365, Sportingbet, galera.bet, Netbet, and others have grown substantially.
It is a healthy competition for the government, which for centuries (1784) has held a monopoly on lotteries. It currently distributes in prizes, in gross terms, only 43% (about 31% net) of the total collected. For comparison purposes, casinos and slot machines (banned in Brazil) usually distribute between 85% and 95% of the amount collected, gambling sites, around 95% (winner of a game), and fantasy games, about 90%.
Congress has just approved urgently the processing of a bill that regulates and authorizes games of chance through auctions of concessions and various operating fees (in addition to creating another federal agency). In the same bulge, it also wants to regulate games of skill, such as sports betting, which have been operating since 2018 without the need for a license acquired at auction. Operating without a license will no longer be a misdemeanor to a crime punishable by up to seven years in prison.
It is another chapter in the sad story of a State that cannot see a business prospering, that soon wants to get its hands on it.
Helio Beltrão
Engineer with specialization in finance and an MBA at Columbia University; president of the Mises Brasil institute.
