How can we tell the difference between investing and gambling?

Sometimes it is hard to tell if we are gambling or investing if we only use the level of risk involved as a deciding factor. Another factor that can help distinguish between an investment and gambling is understanding where our money is going.

For example, a sports team can be a business. When we invest money in the team, that money goes towards buying equipment, training players, advertising, etc. If the team wins, it does well as a business and our investment increases in value along with the value of the team, and if the team loses, it suffers as a business and our investment loses value along with the value of the team. In business, our money is invested in the business itself and is a part of the business.

However, in gambling, we invest our money in a game of chance that is separate from the business. Our money stays with us or goes into a betting pool that neither goes into the business nor is it a part of the business. How much money we make or lose is not related to the value of the business. Rather, we make or lose money based on a separate set of rules made for gambling, not investments. It cannot be defined as a business investment.

Even though there is some level of chance in both a business investment and in a sports game, but understanding where our money is going can help us determine if it comes under gambling or not.