http://www.weatherbill.com/

Lease a car before August 26, and if it’s above 96 degrees at Boston Logan Airport on Labor Day, they will make your first 12 lease payments for you (minimum 36 month lease term).

This reminds me a lot of Jordan Furniture’s “free furniture if the Red Sox win the series” promotion, which prompted me to ask if sports betting was now legal if you bundle it with furniture?

A difference with the Jordan’s promotion is that the implied amount of betting here is actually pretty trivial.  First, note that a year’s lease payments are only about 15 percent of the value of the car.  Second, the odds of temperatures that high at Logan are tiny (Logan is surrounded by Boston Harbor, which may help moderate the temperatures).

Weatherbill.com is willing to sell me for $69,000 a contract that pays $1,000,000 per day with a high above 96 at Logan in the 15-day window surrounding Labor Day.  Divide by 15 and you have a market-implied probability of 0.46%.  Weatherbill also tells me that in the last 30 years this contract would’ve paid $33,333 on average, for a historical probability of around 0.22%.  So the actual expected discount implied by this promotion is around 0.033% to 0.069%, compared with 10% for Jordan’s.

One interesting thing about this promotion is how the commercial starts (I’m paraphrasing):  “92 degrees, 90 degrees … it’s been cool lately, but remember those scortching Labor Days …”  They are clearly playing on both the Gambler’s fallacy and its reverse, just at different frequencies.

But my main takeaway is:  could gambling policy in the country be any more screwed up?

P.S.  Some interesting follow up on Jordan’s:  they were sued over the promotion by a man previously convicted of running an illegal lottery, who bought furniture during their 2008 promotion and then sued after the Red Sox did not win that year.  The letter from the Mass AG posted in comment #2 indicated that the AG reviewed the promotion and decided not to take action.  So I guess the answer to my question is that betting is legal if bundled with a product, at least in Massachusettes.

The suits against Jordan’s have (predictably) been struggling.

As a blogger, WeatherBill presents a difficulty: How to you categorize it? I fill it in these 4 categories:

1. insurance (obviously);
2. finance (because it is hedging);
3. exchanges (because of what our good doctor Pennock said above, see the title);
4. betting (because the reverse of hedging is speculation);
5. UPDATE: I just added “hedging” —so that’s 5 categories now, probably too many. (It probably shows my readers that I am confused… and really need a “research scientist”. Ha! ha! ha! )

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Developing…

Waiting for a P.R. release from them today [tomorrow, on another subject]…

And, of course, they blog.

UPDATE: Sunshine Guaranteed or Your Money Back – pdf

Via our chief economist Michael Giberson.

UPDATE: Did the CFTC relax its ECPs requirement for eBOTs?

His analysis misses the fact that WeatherBill re-sells the risks to hedge funds that want to make a profit (as opposed to an automated market maker that may lose money) —but I am not sure that’s important in the analysis.

Excellent.

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[...] Atlanta hair salon owners Ray Luciano and Spencer Malay recently reeled in a bundle — tens of thousands of dollars — after taking out insurance-like coverage called “weather derivatives.” Their Buckhead salon does well when it rains, drawing walk-ins and overflow from the nearby mall and movie theater. “If it’s a sunny day, they [shoppers] tend to do outside stuff, not go to the movies, not go shopping, not get their hair done,” Luciano said. [...] In the last nine months, the owners at Spencer Malay Hair have taken out four contracts, and Lady Luck has smiled on them three times. The most recent was for the holiday season between mid-November and just before Christmas. “We put a dry-season contract on it because we hired a couple of new stylists,” Luciano said. The proceeds, which he declined to talk about in detail, allowed them to “pay our staff while business was not as good as good as it could have been.” [...]

Previously: Eric Zitzewitz on WeatherBill