Your Money & You

October 2010

Sports Arbitrage is Gambling

Sports betting or sports arbitrage involves gambling on the outcome of sport events. Promoters encourage people to join their sports betting schemes by making them sound like a financial investment with guaranteed returns. It’s important to realise these systems aren’t investments.

Horse races and other sporting events are not financial products or services. At best sports arbitrage is gambling and at worst, it may be a scam.

How sports arbitrage works
The operators of these schemes gamble on the outcome of sporting events on your behalf. Multiple wagers are placed on the same sporting events, but with different bookmakers offering different odds so that money is (allegedly) won, regardless of the outcome.

You usually have to pay an upfront fee or a ‘licence fee’ that could be thousands of dollars. Then you have to pay an additional investment amount, which the promoters will use to ‘trade”.

What to watch out for…….
Guaranteed returns
The operators try to lure you in with professional websites and glossy brochures and by saying that your returns are ‘guaranteed’. They also sell software that, they claim, can accurately predict the outcomes of horse races, or other sporting events, based on weather conditions, the form of the players or the draw.

Such claims of being able to accurately predict the future should be a warning sign of a scam. It’s impossible for a person or a machine to predict the result of a sporting event, where pure luck or chance are always involved.

Investing jargon
The operators create the impression of certainty by using investing jargon such as ‘trading’, ‘arbitrage trading’ and ‘strategic investment’. They make it sound like a reasonably certain investment with very high returns, when in fact, it’s nothing more than gambling. In some cases, there isn’t even any gambling involved. The operators are simply taking your money.

James lost $27,000
Here’s a recent case study based on actual events. James received a ‘phone call from Steve, an operator of a sports betting system who promised him a 50% return on his investment. James decided to purchase a betting program for $17,000 and has since lost $10,000 using the program. After reading some horror stories on internet forums about the same system, he now realises it was a scam and he doubts he will ever get his money back.

What to do if you are approached

  • Always do your homework before investing your money in anything, especially if the offer comes ‘out of the blue’.
  • Be sceptical of reports of past performance or graphs showing high returns – it’s impossible to predict the future and scammers simply lie!
  • If you can’t afford to lose the money then don’t invest or gamble with it.

Where to get help if you’ve been scammed
If you think you’ve been caught up in a sports betting scam you should report it to your state or territory office of fair trading or consumer affairs, or your state police service.

Stay between the flags
Don’t gamble your money away in risky sports betting systems.

You’ll be on the right track towards making safer and wiser money decisions, if you:

  • identify your individual goals and timeframe;
  • understand your money management style and tolerance for risk;
  • be aware of the trade-off between risk and return; and
  • only spend money on things you understand.

If you’re serious about starting to invest, as opposed to gambling with sports betting systems, download a copy of Investing between the flags at

More information
See for more information on scams and frauds. The Australian Competition and Consumer Commission website also has useful information and warnings about various scams.

Tony D’Aloisio BA LLB (Hons)
Australian Securities and Investments Commission

Choosing a Financial Adviser

You may have read about a recent Australian survey showing that only 25% of the community trusts personal financial advisers. Given that disturbing number, it’s hardly surprising that one of the most common questions we’re asked is how to choose a financial adviser (aka financial planner). This not an easy question to answer with confidence because much of the industry is driven by the need to sell products; whereas most of the potential customers of the industry simply want some independent trustworthy advice, free of products.

So here’s a simple checklist to help you with your decision:

1) Check whether the adviser is properly licensed. See the licence or representative’s
authority document and check their validity at;

2) Ask questions about the ownership of the adviser’s business and assess how that might influence what is recommended to you. Just because an adviser is owned or licensed by a big institution is not necessarily a bad thing; just as a so-called independently-owned adviser is not necessarily a good thing. It all depends on the adviser’s ability and willingness to act in your interests. That will be determined by the limits put on the adviser by their licence holder, and how they are paid. It’s important to explore exactly what an adviser means when he tells you that he will “act in your interests”. It’s easy to say, but hard to do;

3) Ask questions about how the adviser gets paid and assess how that might influence the independence of the advice that you receive. You don’t have to allow an adviser to take commissions, asset fees or product selling bonuses, all of which can ‘corrupt’ the objectivity of the advice you’re being offered. Consider asking the adviser to charge you a flat ‘fee- for-service’ instead (not a percentage-based one). That way, you’ll know how much you’re paying in dollars, you’ll have much more certainty that the advice is in your interests, and you’ll be in a position to work out whether worth of what’s on offer. Good advice doesn’t have to cost thousands of dollars, but many people are paying that because they aren’t aware of just how much is being painlessly extracted from their accounts.

4) Ask questions about the adviser’s educational qualifications and experience. Good qualifications and lots of experience don’t guarantee a good outcome (look at Wall Street in recent years); but qualifications might give you some comfort;

5) Make sure that any advice that you receive is put in writing by the adviser. If the adviser doesn’t offer to do that, don’t proceed, because the adviser is acting unprofessionally and illegally;

6) Understand what on-going services you’ll receive and how much they’ll cost. Many people receive very little service after year one, but pay a great deal year after year in the form of trailing commissions or fees. Usually, these are quoted in percentages which don’t seem like much at the time, but they can sure add up over the years.

7) Go to a number of advisers, if necessary, until you find the person with whom you feel most comfortable. Your ADF colleagues or other friends may be able to recommend an adviser with whom they’ve had a positive experience. By all means take advantage of the commonly offered up-front ‘free’ consultation, but remember that ‘you get what you pay for';

8) At all times, remember that you’re seeking a professional adviser, not a product salesperson, so avoid advisers who constantly redirect the conversation to their products and the exceptional results that you can achieve through them with safety and security.

If you’d like to know more about how to choose this important person, read the ADF Financial Services Consumer Council’s booklet called “Getting Advice” or use the Council’s e-learning module on this subject at

The Importance of Diversification

In his recent book, The Ascent of Money (2009), Professor Niall Ferguson, said of the evils of ‘leverage’ (borrowing money):

“From Buckinghamshire to Bolivia, the key to financial security should be a properly diversified portfolio of assets. To acquire that we are well advised to borrow in anticipation of future earnings. But we should not be lured into staking everything on a highly leveraged play on a far from risk-free property market. There has to be a sustainable spread between borrowing costs and returns on investment, and a sustainable balance between debt and income“.

……or to put it simply, by all means borrow money to invest in growth assets such as real estate. It can have positive results, but understand that borrowing is risky (by definition). Just like shares, real estate doesn’t always rise in value (especially in the short term); so that in the long run, investors should be aiming to minimise risk by lowering debt and diversifying their assets.

That’s not always easy to achieve on a moderate income where much of the family’s income goes into mortgage repayments and daily living expenses; but it’s important to remember when you’re working out your long term financial strategies. Over the last twenty years, lots of the so-called “Masters of the Financial Universe” lost sight of those simple truths, and the world is now paying the price.

Free Seminars anywhere in Australia

In addition to its commitment to financial education programs in ADF training curriculums, the Consumer Council is happy to provide expert speakers free of charge on a range of financial topics to any ADF unit in Australia.

For more information contact us via our website at (