Dmy0013 - Your friend will win the bet, but for the wrong reasons: hindsight bias. He'll pick a fund he knows did better than the S&P 500 or VTSAX over the past 10 years. When you compare them after the fact, he can pick the best fund in hindsight, and claim some kind of victory.
But it's the wrong approach. If he tries to pick a fund today that will beat the S&P 500 for 10 years, your chances are very good at winning the bet. He could even pick the winner for the past 10 years, and it's still unlikely to beat a passive index fund.
Speaking of bets against the S&P 500, Warren Buffet made a $1 million wager the S&P 500 would outperform a portfolio of hedge funds. Here's a description:
http://longbets.org/362/