The SportsFolio Journal - February 4, 2021


Another sports SPAC, this one from A-Rod. Too much money following too few good ideas? 

Roger Goodell is not giving up on its $25 billion revenue goal in 2027 but is being careful. It also sounds like the fan lockouts will continue. 

It’s Dame time again. His 44 points and buzzer-beater against the Bulls was yet another masterpiece

What are you doing this Sunday? We plan on watching Brady vs. Mahomes and the Super Bowl ads of course, which went for an astounding $5.5 million a pop this year. Here are the leaked commercials. Robinhood has one.


There is a twenty-dollar bill on the ground. An economist walks by ignoring the money. Another economist who sees it afar, shouts: "Hey, there was a 20-dollar bill on the ground. Didn't you see it? Why didn't you pick it up?" The other economist shrugs:  "Nah. I saw it but I must have imagined it. If there were a 20-dollar bill on the ground, somebody would have picked it up already."

If you want to explain the theory behind market efficiency in a couple of sentences, this joke is it. Markets are not just efficient in the sense that there are no easy opportunities. It is also presumed that the adjustment to fundamentals is instantaneous. For example, you cannot roll out of the bed, brew yourself a cup of coffee, open the newspaper (if that’s still how you read), make some connections nobody else made, put in a bunch of trades and make money. There are still positive returns to information and insights, which can give you an edge, but it is not supposed to be overly simple. Somebody else would have already beaten you to it. 

The Signal and GameStop episodes show us market efficiency is mostly reduced to a theoretical construct. Real life is messy. In real life, people are either irrational, or it is considered rational to ride the bubbles rather than pop them. Still, GameStop closed at $53.50 today, down 42% from yesterday and 89% since its intraday high of $483 on January 28th. Signal is now down to $2.10, down 30%. 

So, markets are somewhat efficient? It looks like markets may be on their way to true value, but instead of “Usain Bolt” ing there, they are strolling. It's as if somebody put the right moves in but the collective computing power was so slow, the prices are just waking up to value. It's as if there was some sort of logjam somewhere. For half a century, we taught our MBAs that the road to efficiency looks like a SpaceX rocket trajectory. Instead, it looks like the 405 freeway (Sorry, can’t help with the Los Angeles references). 

It turns out that the romantic story of the little guy taking on the behemoth that is Wall Street is not entirely true either. To be fair, some people had doubts about that already. Elizabeth Warren wasn’t buying it (“There are rich people on both sides of this.”) Others questioned it. Now there is at least one documented example that big money may have been on both sides of this - one hedge fund made a cool $700 million on GameStop.

None of this means what is happening is desirable. True, one can ignore all this theater - it is good theater, all right - and say, “So what, I hold for the long term, none of this concerns me.”  That is a cop-out. This is monkey business and it has real-life costs for society. When people drop what they are doing, sign up for r/WallStreetBets and try to ride a bubble, that decision may be rational, but it still damages the confidence that fund managers, investment banks and retail investors have in the markets. It still prevents markets from being orderly. When people decide to speculate with their stimulus money (which really belongs to all of us), that is not right. When people divert their student loan money to Robinhood, that’s not cool. When a 20-year old Robinhood trader kills himself because he was confused over the financial lingo on the app, that's simply unacceptable. This family now suffers because their son thought he had racked up a $730,000+ debt, when in reality his trading balance was still hovering at a positive $16,000.

At least, there is a bigger realization of who the culprit is: the gamification of investing. Solving the problem starts with identifying what the problem actually is. 

We applauded the Massachusetts lawsuit against Robinhood when it came out. We said, “Make no mistake, that is the suit that matters.” Now, FINRA is waking up to the problem too. A former FINRA director of enforcement said: 

When you make stock trading look like a fantasy sports app, you may be unleashing forces that are beyond your control. 

Bingo. That's exactly what is happening here.

Why did this happen? Who is responsible?

It’s easy to point fingers and hang this on the SEC, FINRA or some other entity. It’s much harder to accept responsibility. There are numerous individuals, systems, entities, etc. that contributed to this problem: Dave Portnoy, when he said “Just like sports betting is entertainment, I think the stock market is entertainment. I don’t think there’s anything wrong with that”; Robinhood, when its COO declared: “There’s really a notion that it’s gambling or gaming if you’re new to the market, but it’s investing if you’re wealthy”; the entire DFS industry who pushed sports gambling under the disguise of a skill-based game while also likening it to investing; the courts that have been tricked into thinking that DFS is a game, like the Supreme Court of Illinois;  the SEC when it called Bitcoin a digital asset; Christine Lagarde, when she did the same; ICE, when it called its exchange Bakkt; every written piece (and their authors) who pushed the idea that Wall Street is just a casino, like this book; and all the individuals who supported these positions because they either  i) did not understand the nuances and formed opinions without sufficient information; or worse ii)  understood very well what was going on but chose to support them anyway because it was financially beneficial to do so, are all responsible in some fashion.

The list goes on and on. Not all of these acts are intentional, nor do they contribute to the problem to the same degree. In any event though, they all contributed to the mess we are in. 

We still trust the system. We still think this is the best country in the world. We still believe. We still have confidence that our lawmakers, regulators and courts will do the right thing when the problem is presented to them in a clear manner. We will not give up because we love this place called America. 

So let’s start. Here is the problem we need to solve: fhdbfh of deugeerff. 

Can you solve that problem? No, right? Because you don’t even know what those words mean. You don’t even know where to start.

If we want to really solve the problem of gamification of investing, we first need to agree on what these words mean. What is a game? What is investing?

Sports & Money

Nothing too crucial this week, so let us give you the highlights.

We submitted our 23-page comment letter to the CFTC last week regarding the proposed ErisX NFL Futures contracts. More than 20 entities (gambling outfits, law offices, professors, non-profits, concerned citizens and others) in total submitted public comments, both for and against the proposed contracts. Notably, both the NFL and the NBA stated that ErisX misrepresented their relationship with the leagues in their submission and are currently recommending the CFTC not allow the ErisX contracts without further studies. There has been some coverage on the issue in general, not much. We’ll see where it goes.  

DraftKings is hot again, closing at $63.05 today. So is Penn National Gaming, despite revenues contracting 23% from last year. Irrational exuberance again?

Sports gambling in Florida? Nah, too complicated.

Tax season is upon us, so where do the DFS operators stand with respect to the IRS? You know where WE stand on this.