The SportsFolio Journal - June 2020

Sports

Let’s face it. We all missed sports. 

Leagues all over the world are struggling financially. The XFL filed for bankruptcy and is scheduled for auction on July 8th, 2020 with final bids due July 6th. Up North, the Commissioner of the CFL has testified in front of a House of Commons finance committee and is seeking up to $150 million in bailout funds from the government. 

Mark Cuban predicted that fan lockouts will continue for a while. His prediction came true in Europe; Bundesliga is back, but the fans are not. Instead, they need to get into the mood with the sports equivalent of the laugh track: fake crowd noise.   

The crowds feel a bit more comfortable visiting the beaches and restaurants, but will they go back to sporting events? 61 percent of sports fans said they wouldn’t. Our internal survey corroborated these results as well.

“Don’t look at this as a timeout,” said Chris Paul, before urging his fellow athletes to dive into financial literacy. We are working on it, CP3. 

Money

Despite the pandemic, the stock market is defying logic, has rebounded from the March sell-off and dare we say it, thriving? As of May 29, the Nasdaq is less than 5% off its all-time highs. We get that the Nasdaq is tech-heavy and all that, but it still defies common sense when more than 40 million Americans have filed for first-time unemployment benefits in 10 weeks. The President of the St. Louis Fed said the economy may contract 50%. We don’t think these numbers reconcile in a meaningful way and it becomes harder and harder to justify stock valuations when the highs were, arguably, already expensive by historical standards. Soap bubbles can break down COVID-19, but apparently, COVID-19 cannot break down financial bubbles. Wall Street, once again, seems completely divorced from Main Street.

One reason might be that there is not much yield elsewhere. The price of one oil future dipped into negative territory in April, for the first time ever. It was an overreaction and it has since recovered, but we think the writing is on the wall. Oil may have worked for the 20th-century physical world, but for the 21st-century digital world, we need something else. Sports is the New Oil.

Gold has been solid. It didn’t fund your retirement, but it is up close to 10% in the last three months. On the other hand, real estate is trying to find an equilibrium. People may need bigger homes and mortgage rates are good, but real estate builder’s confidence has dropped dramatically, which is one of the leading indicators of a future recession.  

Sounds like a dream scenario for crypto, but it wasn’t immune. The price of Bitcoin initially went down, like pretty much everything else, but has since climbed back to its pre-pandemic levels. Of course, Bitcoin is not, nor has ever been, an asset. It was great to see that Goldman Sachs agreed. Will it ever be useful as a currency? We doubt it, and so does Mark Cuban who hit the nail on the head again, when he said he will change his mind only if Bitcoin becomes easy to use in payment transactions.

Tough times. We welcome the SEC’s proposed rule changes to harmonize, simplify and improve the exempt offering framework. This process has been in motion for a while, and you may recall that CWH and NSEI submitted a comment on the SEC’s Concept Release back in September 2019. 

It’s time to build … a new asset class.

Sports & Money

There has been pretty much nothing to bet on. There are no daily fantasy sports either. Remember, most state laws, including New York, state that risking something of value on a future contingent event is gambling if something of value is received. With the stay-at-home orders in effect, many families turned to old-fashioned entertainment: games. Monopoly remains an all-time favorite. Playing “doctor” is natural for kids. Video games, in moderation, can be beneficial and bring families together. Basketball has largely stopped, to enforce social distancing, but there are still some options: certain parks, your backyard hoop, etc. DFS is the only “game” that had to come to a full stop (if the underlying sports had stopped).

We know this sounds crazy, but … DFS is not a game. We’ve been saying this for a while now, and the fact that DFS had to stop during a pandemic reveals the true colors of DFS. It’s not a game. It is simply a contingent claim on sports performance.

DraftKings, which arguably is alive only because they somehow fooled most everybody that daily fantasy sports is a skill-based game, has gone public through a reverse merger and the stock managed to double as states started to reopen. George Soros’s investment vehicle Quantum Partners, run by Soros Fund Management, recently disclosed a $66 million stake in DraftKings, which certainly did not hurt. Jim Cramer was also complimentary. This is quite a bit of action for a company, whose legal foundation, in our opinion, is not fully vetted.

What does a gambling operator do when there is nothing to bet on, anyway? E-sports betting was approved in the state of Nevada in April of 2020. West Virginia approved, then immediately walked back betting on elections.  One sportsbook even started taking bets on the weather.

E-sports, elections, weather… What makes a good water cooler conversation (at least when people congregate in offices, which seems like years ago), can also be events that people can take financial positions on. The CFTC has asserted jurisdiction over the last two. Weather has been an approved commodity for hedging for a long time now. Elections are more tricky - back in 2012, the CFTC issued an order prohibiting the listing and trading of Political Event Contracts, unless trading happens on a limited basis.  Thus, the willingness of sports gambling operators to create these shadow markets further blurs the lines between speculation that is socially beneficial and speculation that is pure entertainment. 

Along those lines, it seems that gamblers are infiltrating into the stock market as well. It’s time. Stop Betting. Start Investing.®