Sports Gambling’s S&P 500-Like Product Is Coming

A new and potentially financially harmful sports gambling product would allow fans to trade their teams’ performance in a way that resembles buying and selling stock-index futures.

CME Group and FutureSports, two Chicago companies, announced the product in a press release on July 29. They said the launch is pending federal regulatory review.

The companies plan to market a complex, continuously tradable, and leveraged futures product to ordinary sports fans and so-called retail traders.

That could lead to harm for some users. Sports are emotionally charged, and platforms distributing sports-related markets may involve habit-forming design features. The companies have not yet announced distribution.

FutureSports would administer the underlying indexes, while CME would list and operate futures and options markets referencing those indexes, according to the press release. Robinhood, which offers prediction-market-style sports gambling, invested in FutureSports, but the announcement didn’t say Robinhood would distribute the product.

Index-Based Sports Gambling

Using a points-based scoring methodology, the product transforms team and athlete performance into continuously changing index values (as seen in the NHL Carolina Hurricanes example above). The index number changes based on game statistics.

People could use those values for speculation. Sports fans could buy or sell futures contracts based on where they expect a sports team’s index to stand at the end of a specified month or quarter.

The contracts would be cash settled. Gains and losses would be resolved in money rather than through an underlying asset. Sports fans would not be buying ownership in a team.

According to FutureSports, a team’s index starts from a “standardized base value” of 7,500 before each season.

CME described traders going long or short and capturing changes in the index—not purchasing binary contracts priced between one cent and 99 cents, which is how a prediction market product like Kalshi works. CME has not yet released the contract multiplier, tick size, margin requirement, or settlement formula.

Nonstop Action?

CME advertised “24/7 market access,” although it had not announced the precise trading schedule.

“React to draft picks, trades, lineup changes and news cycles instantly. Express your view on your schedule – day or night – without waiting for the end of a game, race, match or season,” CME’s website stated.

Companies with financial exposure to sports could use the contracts for hedging. Meanwhile, ordinary fans without such exposure would primarily be speculating on team performance.

“Potential market participants will include league broadcasting partners, team and athlete sponsors and endorsers, insurers, stadium owners and operators, private equity investors, lenders, and apparel manufacturers,” a press release said.

CME said the indexes would rely on “league-approved” statistics and that leagues would serve as official data sources. However, neither company identified the participating leagues. FutureSports said partnership announcements were forthcoming.

Along with Robinhood and others, FutureSports has investors associated with the Boston Red Sox, Chicago Cubs, NASCAR, and the Premier League.

The Bottom Line

The financial risks here could exceed those of an ordinary fixed-stake sports wager. Compared with traditional sports bets, futures trading is more complex, and the use of leverage can rapidly amplify losses.

The Commodity Futures Trading Commission (CFTC) warns that futures trading is volatile, complex, and “rarely suitable” for retail customers. Even so, CME is explicitly marketing the contracts to everyday traders. It encourages fans to turn their loyalty into long or short positions.

Because CME plans to offer the contracts on margin, traders could lose all of the money deposited and may be required to pay more than they initially invested.

All forms of sports gambling carry significant risk, but futures on sports indexes may be the riskiest of all for some users.

The post Sports Gambling’s S&P 500-Like Product Is Coming appeared first on GamblingHarm.org.