Several ETF issuers have filed to launch hundreds of funds tracking individual sports teams. The 8:30 Hosts Julie Hyman, Pras Subramanian, and Jake Conley discuss the details.
All right, guys, it is time for the ETF report, brought to you by Pimco and we have, um, an interesting topic this week.
Mhm.
It's sports ETFs.
Very much in Julie's lane.
Listen, ETFs are in my lane.
Can you explain this? I'm sort of confused by this whole thing.
That's because it's confusing. So, um, there has been a a host of new applications for ETFs tied to sports teams. 402, um, by the count, I believe of the Financial Times. And they're they're pegged to specific teams, individual ice hockey, baseball, and basketball teams. They're being backed in some cases by um, some of the teams themselves.
Mhm.
Um, and how do they work? Okay? So, there is an index for each of the teams that is based on all kinds of things, including what happens in a single game. And they like assign points to different plays that happen in the game. And then they also assign them to the rankings of the teams and whether they win or lose the entire game. This has confused me a little bit, according to the story. The proposed ETFs would not track the spot levels of these indices, but futures contracts traded on the CME, whose prices would embed market expectations of a team's performance over the remainder of the season. So, in other words,
it's complicated. And I loved it. Jason Zweig, um, at at the journal, in reacting to all this. I love this quote. He says, it's okay to gamble a little from time to time. If, but only if you know you're gambling
Right. and don't think you're investing.
Right.
That's right. Uh so I I I want to see if I can distill this into like a 20-second version.
Good luck, man.
So, the index tracks stats. You get an RBI in a baseball game. Your stat presumably goes up. You uh, you know, you give the ball away in basketball a turnover. stats go down. The index level starting at 7,500 moves based on that. Fine.
Yes.
But then what's actually getting traded are futures looking at, okay, if the stats are as such and the index level is here, then what can we expect further into the season, which is essentially what Vegas does for some stats, but it's embedding to Zweig's point, it's embedding a fundamental gambling model of where do we expect things to go in a sports season into a product that when the average American hears ETF,
Mhm.
that doesn't sound like a gambling investment.
Right. So the question is, a, what will be the demand for these things? And will it siphon demand from gambling? Will it just be additive? because we've seen there's huge demand for gambling.
Right.
And why is there no, why is there no NFL?
Is is the reason why they're doing this whole like tracking these whole derivatives is because it's like a regulatory thing from a trading point of view or it's just because this is how this has to work. It makes no sense to me.
I don't know.
you're you're trading like a second order derivative on top of it.
Yeah, I don't know. I don't know.
I don't really know. I mean, as Zweig says, is this fund the easiest and cheapest way to accomplish my goal? How does it fit with the rest of my portfolio? In other words, like applying rational questions to something that on the face of it is is very unorthodox.
Yep.
pragmatic and say unorthodox.
That's right. Also, the most wonderfully British anecdote from the Financial Times story, which is a British publication. For the astute sports fan, there are no plans to introduce cricket at this time.
Yeah, that's right. No plans for cricket.
Yeah.
