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Mother Nature is My Darkhorse

By Matt Wood in News on Feb 10, 2006 4:41PM

Chances are you have a friend with a bit of a gambling problem. It's probably a guy, someone you know from college who likes to hit the casinos, maybe play the ponies, but his real addiction is the sports book. Fantasy football and office pools aren't enough for this guy--he was the one betting on the coin toss for the Super Bowl last week, the one who had $50 on the over-under for how many penalties were called. On the surface it might seem like this guy has a problem, but a quick read of the business section will tell you that he's not much more than a product of his culture. Anything is fair game for a little wagerin'.

This man just made $5 million
The Chicago Mercantile Exchange will begin trading snowfall futures and options contracts later this month. The value of these futures and options will be pegged to an index based on the amount of snowfall in Central Park in New York and at Logan Airport in Boston. The more snow, the more the index is worth. The idea is that companies whose fortunes rise and fall with the amount of snow, like insurance companies, hotel chains, airlines, etc, can invest in these futures as a way to hedge their risk. A big blizzard is going to cost you a bunch of business? Well at least you made some bank off those futures.

We wrote that long lead about sports betting because really, if we'd swapped out "Chicago Mercantile Exchange" with "Las Vegas bookies" in the next paragraph, would it have sounded that outrageous? Let's say Ford Field in Detroit didn't have a roof and the Super Bowl was going to be played outdoors last week--how heavy would the weather betting action have been? We wouldn't bet our Chicagoist salary on it, but we think we understand the point of futures and options. Maybe some of you finance geeks can explain it better. But come on, insurance companies don't have enough ways to make money?