On InTrade: All the economists blogging about their prediction markets never mentioned the numerous disputes about the non-sport contracts (North Korean Missile, Closure of Gitmo, Departure of Hosni Mubarak, US Debt Ceiling, etc. etc. etc. etc.).

On John Delaney’s death: He did something very risky (climbing the top of the mount Everest) for his own pleasure, and he left a widow and a bunch of orphans. According to one InTrade trader, his personality raised red flags in the past.

Disclosure: I am not an investor in prediction market companies, contrary to some lauding commentors under the David Pennock post.

I like an analogy of Playstation versus Wii. Just like Wii opened up video gaming to a mass audience including women, I think there’s room for simpler/friendlier sites like smarkets that can open up gambling to a much wider audience than sites like betfair that seem to cater mostly to men familiar with gambling jargon.

4 more important factors:

1. Robin Hanson, James Surowiecki and Justin Wolfers have exaggerated the usefulness of the prediction markets, hence putting the bar too high.
2. Robin Hanson, James Surowiecki and Justin Wolfers were clearly the wrong leaders. They pushed the enterprise prediction markets, which proved to be a mirage. John Delaney was also the wrong leader to follow. TradeSports-InTrade was a big operator; InTrade is a niche player. All the leaders failed. All of them. Including David Pennock (who has the backing of an Internet giant). On top of that, the prediction market people let the San Francisco clown pollute our turf; he has now decamped for a greener turf, of course. We need better leaders. We need leaders with a better compass.
3. Real-money prediction markets are still illegal in most countries (including in David Pennock’s one).
4. North-American aficionados of the prediction markets (and that includes Paul Hewitt) have always lambasted UK-based BetFair, for silly reasons (just look up Pennock’s prose, above, for one instance), instead of making it the hero of our field. On the other side of the Atlantic, the BetFair management has never joined and supported the prediction market community.

The result is the Waterloo that David Pennock describes in his post, and no solution is proposed (other than the tired mantra, “yes, we can”). [Not a slam to research scientist Dave, just a parting way to get the debate going. ]

External Link: Smarkets

And “tradesports” is only one keyword… among thousands.

More Intrade Financials

I paid 7.50 euros to see Intrade’s full filings from 2008 at www.cro.ie. I’m not going to post them publicly, because they contain the names and addresses of everyone who owns shares in the company. (Fun fact: John Delaney’s address does not have a number, it has a name.)

A few new pieces of information:

-How can Intrade keep losing money? Like any other startup, by issuing new shares. Intrade issued $2 million in new stock last year. About 320,000 shares were issued, on a base of 1.2 million shares, which would value Intrade at about $10 million, the same as my ballpark estimate yesterday.

-I was correct about the valuation of the Tangible Fixed Assets. Intrade valued anything left over from Trade Exchange Network at $0, and depreciated computer and software equipment by 33% of the purchase price per year.

-The report does not break down expenses and revenues in great detail. It tells total employee compensation, and interest income, but does not spell out commission revenue or other expenses.

-Trade commissions are (properly) recognized only when they are paid. Trading fees are paid when trades are made; expiry fees are paid when contracts expire. Intrade likely recognized a good deal of revenue on election day, which at least mitigated their losses.

I don’t view this with the shock of some on the Intrade forums. These numbers seem entirely reasonable to me. Intrade has grown substantially comparing 2004 to 2008, and even in the absence of legislative change, will probably be profitable in 2012. I’m not going to short the contracts on whether Intrade will still be in business. Even in the unlikely event that Intrade were to close, there is no reason to worry about customer deposits.

Part I

The InTrade numbers

Next: Public prediction market operator InTrade raises US$3.5m.

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The InTrade documents:

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I have obscured the personal addresses of these 2 persons:

Comments are open.

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I have obscured the personal addresses of these 2 persons:

We would need to see note 12 to understand what happened to the Share Premium account. It appears that the December 31, 2007 balance of the P & L Account was applied against the Share Premium account. However, at September 30, 2008, the Share Premium is 1,063,614 higher than it should be (6,651,502 – 5,715,540 = 935,962 vs. 1,999,576). Note 12 might explain why.

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2007

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2008

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There might be a slight discrepancy between the accounts and the balance sheet.

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I have obscured the personal addresses of these 2 persons:

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2007

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2008

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There might be a slight discrepancy between the accounts and the balance sheet. If you, too, spot it, then publish a comment just below, and we will share our thoughts. (Please, do not publish any negative comment that can be legally reprehensible.)

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I have obscured the personal addresses of these 2 persons:

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I think the CFTC is likely to define a set of limits which, if followed, will subject a prediction [exchange] to CFTC regulation which will hopefully be lighter than their regulation of HedgeStreet (which essentially was so heavy-handed it killed the firm). And this help protect prediction markets from the state gambling regulators.

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Yes, but TradeSports and BetFair would be excluded from this CFTC regulation, alas. And there is no way a prediction exchange can be profitable without sports.

P.S. I was interviewed for The Analyst, too. Those Indian journalists are very nice people. After that publication, I received many friend requests on LinkedIn from Indian business people.

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