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Sports ETFs Blur Line Between Gambling and Investing
8 Oct
Summary
- New ETFs track individual NHL/MLB teams using season performance metrics.
- Experts question if these are investments or closer to gambling.
- Fund issuers argue for transparency, while critics see wealth destruction.
Financial firms are filing for hundreds of Exchange-Traded Funds (ETFs) designed to track the single-season performance of individual NHL and MLB teams. These innovative funds utilize new futures contracts based on a team's statistical achievements throughout a season. While issuers claim these ETFs provide a transparent investment avenue for passionate fans, numerous finance experts have voiced strong concerns.
Experts like Robert Johnson, a professor of finance at Creighton University, argue that these products have completely blurred the line between gambling and investing. He suggests that such instruments, especially leveraged versions, are more akin to gambling dressed up as investing and could lead to the destruction of wealth for aggregate investors. The underlying CME futures contracts for NHL teams began trading in late September.
Conversely, proponents, such as Greg King, CEO of Alpha Sports, state that these ETFs offer a liquid and transparent product directly tied to live game outcomes, a previously unmet need for investors. However, other analysts, like Alex Michalka from Wealthfront, believe most individuals will use these funds for loyalty or entertainment rather than genuine investment. Todd Sohn, chief ETF strategist at Baird Strategas, also highlighted significant risks including liquidity issues, potential manipulation, and price discovery problems, especially during the offseason.
