Chicago is offering an unusual investment opportunity tied to the future revenue of its first casino, the Bally's Chicago casino. Investors can buy a "Chicago Casino Bond" that pays a variable rate based on a percentage of the casino's adjusted gross receipts. While offering potentially high returns, the investment carries significant risk as casino revenue is unpredictable. Factors like competition, economic downturns, and the casino's management could impact payouts, and there's no guarantee of principal return. Essentially, it's a bet on the long-term success of the casino itself.
The blog post "Kelly Can't Fail" argues against the common misconception that the Kelly criterion is dangerous due to its potential for large drawdowns. It demonstrates that, under specific idealized conditions (including continuous trading and accurate knowledge of the true probability distribution), the Kelly strategy cannot go bankrupt, even when facing adverse short-term outcomes. This "can't fail" property stems from Kelly's logarithmic growth nature, which ensures eventual recovery from any finite loss. While acknowledging that real-world scenarios deviate from these ideal conditions, the post emphasizes the theoretical robustness of Kelly betting as a foundation for understanding and applying leveraged betting strategies. It concludes that the perceived risk of Kelly is often due to misapplication or misunderstanding, rather than an inherent flaw in the criterion itself.
The Hacker News comments discuss the limitations and practical challenges of applying the Kelly criterion. Several commenters point out that the Kelly criterion assumes perfect knowledge of the probability distribution of outcomes, which is rarely the case in real-world scenarios. Others emphasize the difficulty of estimating the "edge" accurately, and how even small errors can lead to substantial drawdowns. The emotional toll of large swings, even if theoretically optimal, is also discussed, with some suggesting fractional Kelly strategies as a more palatable approach. Finally, the computational complexity of Kelly for portfolios of correlated assets is brought up, making its implementation challenging beyond simple examples. A few commenters defend Kelly, arguing that its supposed failures often stem from misapplication or overlooking its long-term nature.
Summary of Comments ( 43 )
https://news.ycombinator.com/item?id=42816418
HN commenters are skeptical of the investment opportunity presented, questioning the projected 16% IRR. Several point out the inherent risks in casino ventures, citing competition, changing regulations, and the reliance on optimistic revenue projections. Some highlight the unusual nature of the offering and the lack of transparency surrounding the investor's identity. The overall sentiment leans towards caution, with commenters advising a thorough due diligence process and expressing doubts about the viability of such a high return in a saturated market like Chicago. Some also suggest exploring publicly traded casino companies as a potentially safer alternative investment in the sector.
The Hacker News post "A very Chicago gamble" (linking to an article about a Chicago casino investment offering) has generated several comments discussing the viability and specifics of the proposed casino project. A recurring theme is skepticism about the project's financial projections and the potential return on investment.
One commenter points out the high tax rate on casino revenue in Chicago, expressing doubt that the project can generate sufficient profits to justify the investment. They also highlight the potential difficulties in accurately forecasting casino revenue, given the unpredictable nature of the gambling industry and the possibility of future economic downturns. This commenter ultimately concludes that the investment appears risky.
Another commenter focuses on the complex ownership structure and the involvement of various stakeholders, including real estate investment trusts (REITs) and private equity firms. They question whether this complex structure might prioritize certain stakeholders over others, potentially disadvantaging smaller investors. This comment raises concerns about the transparency and fairness of the investment opportunity.
Further discussion revolves around the specific location of the proposed casino within Chicago and its potential impact on the surrounding area. One commenter mentions the challenges of attracting sufficient foot traffic to the chosen location, while another raises concerns about potential negative externalities such as increased traffic congestion and crime.
Some commenters express a general distrust of investment offerings framed as "once-in-a-lifetime opportunities," viewing them as potentially misleading or overly optimistic. They advise caution and thorough due diligence before considering such investments.
Finally, there's a brief exchange about the historical performance of casino investments, with one commenter citing examples of both successful and unsuccessful casino projects. This underscores the inherent risk associated with such investments and the importance of careful analysis.
Overall, the comments on Hacker News express significant reservations about the Chicago casino investment offering. The high tax rate, complex ownership structure, uncertain location-related factors, and general skepticism towards such investment pitches contribute to a prevailing sense of caution among the commenters.