When Ladbrokes (or any other major bookmaker) disclose details of alleged insider gambling on an event or an occurrence, the default response of any right minded individual should be enlightened cynicism. Yesterday's spectacular society news that Paul Allen, the co-founder of Microsoft, has approached English Championship team Southampton with a view to a takeover bid falls into this territory. Apparently, Mr Allen is attracted by his love of the south coast region and the family image of the club. Yeah right... Leading global investors always base their financial decisions on such minutiae.
Checking out the timeline on this news story is revealing. Bookmakers reported a frenzy of betting activity on Southampton returning to the Premiership by 2008 with a Ladbrokes spokesperson adding that "if an Abramovich-type figure arrived at a Championship club it would completely change the goalposts" and "we have had inquiries for some pretty hefty sums...". The London Evening Standard (a bastion of journalistic integrity) offered support for the fallacy and, in response to this media disinformation, the share price of Southampton Leisure Holdings plc climbed 35% in one day. After all the mugs had been accommodated at both the Stock Exchange and the bookmakers came the outright denial from a spokesperson for Paul Allen. To quote the spokesperson "there is no truth to the rumour and Mr Allen does not have any interest in purchasing or making a bid on this football team. I'm not sure where the rumour was started but it's certainly not true".
Southampton have been saddled with long term debt since jumping on the Private Finance Initiative (PFI) bandwagon so beloved by Britain's neo-conservative government. The PFI allows major infrastructural schemes to go ahead without the government of the day having to dip into treasury coffers while allowing private masonic firms to profit handsomely at the expense of British taxpayers - typical of the short-termism that seemingly underpins all aspects of a shareholder capitalist society. There is no doubt that Southampton have been seeking investment and talks with Mr Allen's representatives may have taken place but the outright denial tends to prick the disinformational balloon.
Looking more closely at the various actor's hidden agendas usually reveals the truth behind such breaking news. Firstly, why would any bookmaker release information suggesting a particular market outcome unless they are fully aware that such information is bobbins? The corrupt and psychopathic nature of these organisations does not lend itself to altruism towards the clients who are there to be taken advantage of at all opportunities. Secondly, Southampton have been seeking external investment since getting rid of tweed-clad twit Rupert Lowe. There is no better manner to generate a perception of value in a particular investment than a public portrayal of interest from a first world operator like Mr. Allen or Thaksin Shinawatra (with regard to Manchester City). The former will elicit other interested investors while the latter will bump up the price that Ray Ransom's consortium will be expected to pay for the Blues. Thirdly, the disinformation sells newspapers.
Inside information is a key aspect of all market analysis and numerous academic studies have attempted to determine the impact of such knowledge in the marketplace. All inside information takes on the form of a chain - in this manner, it shares parallels with pyramid selling schemes. If the information is true, the initial recipients of the valued data possess a considerable first mover advantage as the markets are inefficient in that all public information is not in the price. By the time this information has reached the press, any value will have disappeared. Indeed, often the price will overshoot due to a market overreaction and there is analytical validity to taking a contrary position when the informational trend peaks - short selling Southampton's shares late on Friday afternoon for example. If the inside information is fallacious then, once again, insiders can profit by the trading activities of the uninformed either via creative arbitrage or selling/buying at the peak/trough.
The key aspect of inside information for a market analyst is the ownership of the information. If Ladbrokes are telling the world to bet on Southampton then the natural inclination should be to question why they are telling you this. The only inside information that I believe in is the sort that is primary in source ie a trusted contact with the ability to influence an outcome informs me of such information on an exclusive basis. Additionally, there are occasions where I include non-primary inside information in my analysis but this occurrence is dependent on other people putting their own money where their mouths are! The legendary horseracing professional gambler Phil Bull solved this conundrum quite simply. Bull hammered the bookmakers for many years by staying out of the loop and trading on his own proprietary analysis. Often he would find himself in the position where the world and his dog were aware that such and such a horse was up for a particular race. If this information did not correlate with his proprietary analysis, he ignored it. He often joked that he accepted the occasional missed position in the knowledge that 90% of the time his strategy worked.
The most entertaining aspect of this whole charade is the rumour circulating the trading rooms this morning that a certain Harry Redknapp is among the people handsomely profiting from this non-news event. Redknapp, whose contacts allegedly made £16 million from Betfair through insider trading on his managerial move from Southampton back to Portsmouth, is akin to Ian Paisley in the six counties - nothing but nothing happens in his territory without his approval and/or knowledge. At the time, the inappropriately rich Mr Redknapp playfully quipped "all I know is that my two sons got the needle and said, 'thanks dad, it seems everyone's had a bet on you except us'".
Sweet... Warms the cockles of your heart, doesn't it?
