September 11, 2023
It’s football season again, and many of us (not me) are participating in fantasy football betting groups. In its own little way, this is a symptom of what I like to call “the Cult of Prediction.”
It used to be that only “nerds” participated in “rotisserie leagues” in which the statistics generated by real athletic contests were used to determine which contestant’s “team,” “drafted” from all the players in a particular actual sports league, had “won.” The term “rotisserie” came from La Rotisserie Française, the New York restaurant in which participants in the original Rotisserie Baseball League met for lunch beginning in 1980.
Think about the levels of abstraction.
First, there is everyday life, the struggle for food and shelter and safety from all kinds of threats.
Second, there is the actual game being played, say, baseball, between humans who are present and on the field (and therefore not thinking, at least for the moment, about “everyday life”).
Third, the players of the actual game decide to divide themselves into distinct and persistent teams, with their own identities.
Fourth, spectators begin to follow these players and their teams, and be interested in their games.
Fifth, the spectators divide themselves into separate fan bases, rooting for their particular teams (and against the others).
Sixth, official scorers are hired to document the games and record various statistics.
Seventh, people – some of them actual spectators, most merely outside observers following the sport via newspapers or television, become interested in the statistics beyond the wins and losses registered by the teams.
Eighth, some of these people become so enamored of the statistics that they decide to use them to create their own contest; so they create an algorithm to decide which among them is the winner, using the input from the sports league and the newspapers.
It’s a far cry from Jimmy and Billy running off with their mitts and bat and ball to play with their friends, isn’t it? Or from the production of food, housing, goods and services, or military service.
But it is really close to something else: the financial derivatives markets.
In the same way that rotisserie leagues are derivative of the statistics churned out by the scorekeepers of physical sports leagues, financial derivatives are bets on the future value of certain other stipulated “intersubjective realities” – in this case, not an official scorer’s judgment of the outcome of a certain football play or baseball at-bat, but, e.g., the price of a physical commodity (sowbellies, oil, grain) or even another financial instrument (a tranche of sub-prime mortgages or corporate “junk bonds”).
In each case, the Cult of Prediction begins to rival the actual physical reality behind its “rotisserie league” in importance, size, and impact. If you have seen the film version of Michael Lewis’ The Big Short, you may remember a scene set in Las Vegas to illustrate the potential dangers of derivative, in which people are playing blackjack or another game of chance at a table. Unbeknownst to them, behind each of them is a group of people who are betting on the result of the blackjack hand being played at the actual table. Behind those people are others who are betting on how the people immediately in front of them will do in their bets with each other on the original game. The camera pans outward until we see that there are hundreds of people, all of whose bets depend on that one single blackjack hand. By the time we reach the outer ring of the crowd, the participants may have no idea that there is even a blackjack game going on. And yet the “derivative” bets now dwarf the “original game” in size and impact.
(Sports betting is expected to be some $7.62 billion in 2023, growing by about 17% a year; the total revenue of the NFL is about $12 billion, growing far less. We’re getting there.)
And the key is, all the bets are correlated, so bad fortune for the original blackjack player (or, as in 2008, the entities depending on the mortgage to be paid off) is “pyramided.” One smallish loss on a mortgage suddenly becomes multiplied and echoes through the entire financial system – and then through the whole “real” economy.
This is the cost of the “Cult of Prediction.” When the biggest fortunes in the economy are being made, not from actual material products and services, but from bets on bets on bets, “rotisserie leagues” making wagers on wagers on wagers on the future value of those physical material goods and services, then the stability of the entire financial and economic structure can be put at risk.
Don’t get me wrong. I have a degree in Finance. Finance has its place. But when the “rotisserie leagues” dwarf the actual “sports leagues” in question, instability becomes more and more likely.
There are historical precedents for such instability. In the 500s AD, in the Eastern Roman empire, based in prosperous, dominant Constantinople, there came an era in which sports became far more important to the mass of the public than, say, winning wars and fending off external threats. There were two basic “fan bases” whose psychological wellbeing – and therefore, public order – had come to depend on their “side” winning the very spectacular, violent, and dangerous chariot races. The two “teams” of the time were the Blues and the Greens. (Historians today do not agree on exactly what the blue-green division was about – class, ethnicity, politics, or simply random desire to belong to a “team.” There originally had been four teams, but by 532 AD, it came down to these two.)
The Emperor Justinian had been a fervent proponent of the Blue side during his rise to power. But when he assumed the throne, he found that the whole Blue-Green divide in Byzantine society made his efforts to fight wars on the borders of his empire problematic. He needed to raise taxes in order to keep winning wars in Spain and Persia. This initiative finally united both the Blue and the Green sides against him.
The result was the Nika riots of 532. The name of the riots came from the participants’ chanting of “Nika” (“Win”) as they burned and looted the city following perceived excessive taxation and a crackdown by Justinian against hooliganism at the Hippodrome, the site of the chariot races.
But the obsession with chariot racing, and the division into rival factions, were the undoing of both the Blues and especially the Greens. Justinian had thought about fleeing the city, but his wife, Theodora, a formidable power in her own right, stiffened his spine, and they devised a plan with Belisarius, Justinian’s great general, and Narses, a eunuch. Narses went into the Hippodrome with a large amount of gold and reminded the heads of the Blue faction that Hypatius, their candidate to succeed Justinian, was a Green. As a result, the Blues spoke quietly to their side, most of whom left the arena.
At this point, with mostly Greens remaining inside, Belisarius blocked all the exits and trapped the remaining rebels in the Hippodrome. The result was a slaughter, predominantly of the Green faction. Some 30,000 of the “Nika” insurrectionists were killed, and the tax rebellion was broken.
But half the city had burned, and a large minority of its population was dead. The “derivative” cult of betting on horse races had destabilized and almost destroyed an empire that at that moment was at its territorial height, encompassing almost the entire coastline of the Mediterranean Sea, from southern Europe around through present-day Israel and Palestine, around through North Africa to the Atlantic coast.
A society divided into two factions, at the seeming height of its power, obsessed far less with dangers posed by overseas rivals than with internal issues, games, and betting, suddenly destabilized over issues that may appear to future readers of history not to be plausible reasons for such deep political division… sound familiar to anyone?
