We talk about assets a lot around here. So, why don’t we discuss what an asset class is?
We don’t have a pocket-size definition on it just yet, but the concept is clear. Consider this; for something to be an asset class, there should be a variety of investment choices as well as risk management opportunities available on the financial markets.
We have a product on each side of that equation. ASM is sports investing and the SRI is a risk management mechanism.
By the same definition of course, for sports to truly become an asset class, there should also be more ways to own a piece of a team or a league. Traditionally, in the U.S. at least, leagues & their individual teams have not gone through an IPO. Therefore, unless you are a billionaire, you don’t really have a legitimate shot at owning shares in different teams.
That is changing as we speak. NBA owners have agreed on a framework where investment funds would be allowed to own a slice of the teams. This is, undoubtedly, an avenue that we will be monitoring closely.
If you want to start small, there is another option: Major League Football, Inc. This is a publicly listed Pink Sheets company that just popped onto our radar (ticker symbol: MLFB). They have a single entity structure where the league owns all the teams. We are reading up on their history and it appears that they have been through a lot. What doesn’t kill you makes you stronger, right? Through our own research, we have discovered that more than 90% of all startup leagues end up failing due to mismanagement, lack of funding, or both. We wish MLFB the best of luck.
Then there is the Super Bowl. Is it us, or does this game have a changing-of-the-guard feel to it? When TB12 won his first Super Bowl, Mahomes was in … first grade? Now Tom Brady is in a record-breaking 10th Super Bowl appearance. This faceoff will be featuring the Legend vs. the Phenom in Super Bowl LV. This will be one for the history books.
What is the mission of the SEC? Let’s run this one more time.
Maintain fair, orderly, and efficient markets; and,
Facilitate capital formation.
Previously, we argued that defining the word “investing” is absolutely critical. Equally important is establishing consensus on what constitutes an asset. We opined that even if the SEC concludes that Bitcoin is not a security, they can still do something about investor protection.
Here comes the second part of their mission. Maintaining fair, orderly and efficient markets. Does the stock market look orderly and efficient to anybody these days? The gamification of the stock market will not stop until the GameStop type issues cease; that much is clear.
This is either another crazy ride in what feels like the Mad Tea Cup ride at Disneyland or the beginning of a sea of change that will arrive one day soon. It is really is difficult to tell at this point and it is safe to say that this is novel stuff; somebody will end up writing a book on this.
What happened? Let’s just say that retail traders decided to push GameStock beyond bubble territory. Some people believe there are some fundamentals changing, but that honestly seems to be more about putting a shirt on the crazy person as if the shirt will mask the craziness. GameStop soared higher than an eagle. Plodding along about $17 three weeks ago, it hit a high of $483 per share today. What a turnaround!
How this happened exactly is a bit unclear. Most everybody agrees that the retail crowd on Reddit started this, but what happened afterward is a bit of a mystery. Did the retail investors simply decide to stick it to Wall Street? That’s a popular narrative, but not everyone is sure. In fact, another speculation is that big money moved in and is now riding the retail momentum. What we also do know, is that not only have retail speculators benefited greatly, but short-sellers are losing their shirts. The benefactors have paid off school loans in less than a one-week period and forced one of the largest investment management firms, Melvin Capital, to the brink of insolvency, only to be bailed out with a nearly $3 billion infusion by two deep-pocket, private investors; another first.
Elizabeth Warren already wants to hang this on the SEC. The mission of the SEC is to maintain fair, orderly and efficient markets. The business that turned himself into a ticker symbol, (Prince would be proud!) does not particularly seem to be part of a fair, orderly and efficient market, so it must be the SEC’s fault!
We don’t buy it. This is a shared responsibility. If we want a scapegoat though, following the breadcrumbs takes you to … you guessed it, Dave Portnoy, the founder of Barstool Sports.
What? You might say. Didn’t he just release a video (not PG-13) mocking Robinhood? He is one of us. He protects the small guy.
Pass us a napkin, ‘cause we’re gonna cry.
It is true that Robinhood kind of messed this up. If your business model is to sell investing as a game, you should also be ready to sell GameStop as an investment. You just can’t stop now, if you are Robinhood. Maybe they panicked?
That said, Dave Portnoy deciding that everybody who is involved should go to jail, reminds us of Josh Howley denouncing the mob after raising his fist to them. Ride the train until the end and try to jump off the bandwagon when the end is near. It simply doesn’t work that way.
Dave Portnoy became the poster boy of day trading. His Barstool Sports is no stranger to controversy. Portnoy also made headlines when he mocked Warren Buffet and called him washed up. He recently sold Barstool to Penn Gaming.
Inclusion-related controversies, mocking senior citizens, gambling … Reminds us of an ex-president. Ultimately, though, Portnoy, like Trump, is not a cause, he is a symptom. He conflates gambling and investing, likely intentionally. For Portnoy, stocks only go up. His gambling interests may involve violations of federal law (see the next section). He contributes to an entertainment culture, probably laughing all the way to the bank.
We have lost our way. This is not solely on the SEC. We all have to take a good, hard look at ourselves and seriously ask what we can do to promote healthy behaviors, education, and of course, the truth. Otherwise, every day will be a winding road.
Sports & Money
We’ll keep this one short because we kept it long elsewhere. Today, on January 28, 2021, we at NSEI submitted a comment letter to the CFTC on the proposed NFL futures contracts offered up by ErisX, a designated contract market. We had a lot to say on this one and we made sure we said everything we wanted to say.
Brew yourself a good cup of coffee, because you’ve got some great reading ahead of you.