Mr. Cuban will have to overcome big obstacles. Bookmakers might resist taking large gambles from the fund. Also, the legality of the idea in the U.S. is questionable. Most sports gambling -- besides horse racing -- is illegal outside of Nevada, over the phone or online. To counter that, the hedge fund could be located outside the country and place bets overseas. A spokesman for the National Basketball Association says it is reviewing Mr. Cuban's proposed hedge fund, but declined to comment further. The NBA's bylaws prohibit anyone involved in the league, including team owners like Mr. Cuban, from betting on NBA games.

Mr. Cuban has a good business record. He made $1.7 billion by selling his Internet startup Broadcast.com to Yahoo Inc. in 1999, and has boosted the fortunes of his NBA club since he bought it in 2000. He says many details of his hedge fund aren't set and a launch is 18 to 24 months away.

The idea isn't entirely new. Several Web sites offer sports-betting arbitrage information. "There are professional gamblers doing exactly what he's talking about, but they're not dressing it up as a hedge fund," says Nick Nocton, a London lawyer who specializes in sports gambling.

Nonetheless, Mr. Cuban's proposal has brought widespread attention to the idea of a sports-gambling hedge fund. Some experts say it could work. "There are differences from time to time, at the margin, that are exploitable," says Raymond Sauer, professor of economics at Clemson University. However, he notes that some sports books might object to taking bets of the size needed to spark growth at a multimillion-dollar hedge fund.

Plus, large bets can shift the odds. "The question is, how much could you actually invest before they start moving these lines?" asks Koleman Strumpf, associate professor of economics at the University of North Carolina and a gambling scholar. He says that successful Vegas sports gamblers who have gone public with their strategies generally look for what they consider good bets, not the kinds of arbitrage opportunities Mr. Cuban plans to chase.

Online -- and outside the U.S. -- big bets are possible. Several billion dollars are bet online each year. "There are very large, very liquid betting opportunities," says Mr. Nocton, the London lawyer. He points to big betting exchanges like Betfair and TradeSports that match up bettors directly, making possible a wider range of odds and point spreads.

Betfair, run by London-based Sporting Exchange Ltd., says it handles up to 12,000 bets a minute. Mark Davies, Betfair's director of communications, says in an e-mail that a sports-gambling hedge fund could work, but Mr. Cuban would have to take some unhedged bets to create sufficient volume. "There's plenty of liquidity, but I don't think you can rely on arbitrage," he says.

Even if Mr. Cuban and the employees he intends to hire work oversees and are able to place their bets, they still face legal questions. It's unclear if U.S. gambling regulators would consider investing in the hedge fund to be equivalent to betting on sports. "You are investing in gambling, so it's probably gambling," says Mark Rasch, an Omaha, Neb., attorney who has advised online casinos. A spokesman for the Department of Justice, which has taken a keen interest in fighting online gambling, declined to comment.

Prof. Sauer says the legal terrain isn't so clear, noting that American investors are free to buy stock in publicly traded U.S. casinos or U.K. sports books that take bets. Frank Catania, a gambling consultant and New Jersey's former director of gaming enforcement, says that as long as the fund is based outside the U.S., "I don't see any regulatory problems here."

A spokesman for the Securities and Exchange Commission declined to comment. The SEC generally doesn't closely regulate hedge funds, which are private investment pools for large investors that often take unorthodox investment strategies, though last week the agency passed a rule that will require most hedge-fund advisers to register.

Enforcing antigambling laws can be tough, but Mr. Cuban may have drawn attention from regulators by announcing his intentions, says I. Nelson Rose, a professor at Whittier Law School in Encino, Calif. Mr. Cuban says he didn't expect so much media coverage: "I didn't send out a press release. I posted an entry on my blog, something I do all the time to get feedback and ideas."

Write to Carl Bialik at carl.bialik@wsj.com³