Sports Markets and the Sports Economy

Assuming the following:

1. The SRI is approved for trading all major sports worldwide
2. A free online educational system with videos, tutorials and tools can be accessed on your smart phone
3. All major online brokers have access to the SRI and you can trade from your smart phone

10 years from approval, how many sports fans worldwide would trade an average of 1 SRI contract per month if the average price per contract was $50? and if the average price of 1 SRI contract was $5? You can describe this in terms of a percentage or an absolute number of trader fans.

These are the types of discussions we need. I would like to know why you think that the average sports fan won’t be active in the SRI market and if there is anything we can do about it.

These early strategic decisions can have enormous consequences further down the line. Imagine pointing a laser into the heavens and moving the direction just a few fractions of a degree one way or the other. The distance in space can be light-years between those points in the cosmos.

I am asking all these questions about sports because, as crazy as it may seem, I really don’t fully understand why sports captivates the world as it does. I understand the “living vicariously” aspect, but since I don’t feel that, I’m lost. I am far more interested in the “doing” than the “watching”. So… maybe we frame up the SRI as part of “doing” sports rather than “watching” sports. That messaging could make a HUGE difference.

Believe me.. these discussions are vitally important to how quickly and deeply we will penetrate the market after approval.

Please DO keep up the conversation no matter your view. And, those of you sports fans, please don’t take offense to my lack of interest. I am the odd one on this planet.

Thank you, Chris.

In my view, the bigger question is whether or not a “trigger payment” tied directly to a particular match win/loss is important to engage the public. Again, think of the stock markets. Over the past 15-20 years, the interest in online trading has skyrocketed. In the “game of business”, there are certainly daily events (games.. so to speak) that have a perceived immediate effect on market value. This causes people to log in and make trades. Remember that the public won’t have a point of reference like most here. This is why I keep making a point of the importance of how we frame up the education, messaging and marketing of the SRI. That will set their expectations, heighten their interest and keep them engaged to sustain an active and lively market. At the same time, this active trading should happen intra-game and create price spikes and valleys corresponding to the activity of the game. This is something that the CFTC product review staff confirmed we should expect. So, to tie it all together, we need an easily accessible educational platform with easy-to-use and easy-to-understand learning methods and navigation. Liquidity is key to the whole thing working optimally and liquidity comes down to access and understanding.

As far as the technicals of how the SRI works, that will be public information. The “quid pro quo” offered by the U.S. and WIPO patent registries is our full disclosure of the invention. In exchange for that disclosure, we are provided a monopoly for nearly 20 years. I agree that we should put a great deal of effort into explaining exactly how each SRI index formulation works so that traders know what to watch to effectively speculate on future team values. Since, as you say, fans follow their team details extensively already, trading the SRI will be an extension of their existing behavior patterns. The added benefit is that they have the ability to legally profit from their wealth of superior knowledge and attention to the teams they love.

Finally, since the SRI tracks team value and not standings and field performance (directly), there will be “blue chip” teams as you point out. That doesn’t mean there will be a lack of “waves” in game-day trading however it will likely be less in intensity. This, again, mirrors the activity of the stock markets. Investors with a low threshold for risk will be drawn to the “blue chip” SRIs while those with a higher risk tolerance will be drawn to teams perceived to be undervalued, trading in erratic patterns but with the potential for large gains due to sudden upside surprises like the acquisition of a great player, coach or lucrative endorsement contract resulting from an unexpected run of exceptional performance out of a slump.

Most of what you describe is a matter of positioning and messaging of the SRI to the public. The SRI formulation isn’t something that sports fan traders will be able to control. This will be the result of evolution and I expect it will change over time. That does not mean that public input on suggested variables won’t be examined. It does mean that the construction must be economically and legally valid. What is immediate is the thorough explanation of the inputs and how they work together. It won’t be long before 3rd party tools of all types will be developed to analyze the market. Again, think of Wall Street. There is no shortage of decision support and trading tools. I expect the same with the SRI.

As far as a “sporty interface”, that is a good idea. Maybe some combination of the construction of fantasy sports crossed with Wall Street. Inducing a broker to make this investment in the beginning may be tricky… but not impossible. We would need to convince them that they stand to gain (and retain) a larger portion of the SRI trading market. That won’t be easy before we’ve traded the first contract. Keep in mind that the distribution channels (brokers) will be determined by the exchanges we list on. For example, if we list on the CME, all brokers with access to the CME will see our contracts the first instant they are listed. The only real leverage we have with any particular broker will be trying to build a logical case why they should spend the money to customize their interface to grab as many customers as possible before their competitors do. Something to think about…

I would guess that most professional sporting events take place weekdays after 5PM EDT and on the weekends. In both instances, markets are generally closed. If we expect game-day traders to significantly contribute to volume and volatility of the contracts, the SRI must be available for trading 24/7 at the outset, versus occurring naturally as a result of its evolution to other sports around the world. Do we know if the SRI will be available for trading 24-hours per day?

I think a great example of why the average sports fan won’t participate can be seen in what happened on ASM when it became a requirement to send in your personal information according to the ‘Know Your Customer’ requirements. ASM went into melt down. Since I had already opened a trading account, I was already familiar with what to do. Those that were from a betting background had no idea what was legally required and thus were very reluctant to send in the information.

So the very basic element of education/advertisement is to know your audience. From above I identify 2 separate audiences, the retail investor (sports fans & individual traders) and institutional traders (Financial institutions, leagues, & teams), each needing to be reached in different ways.

A well developed website is essential for reaching both audiences. The retail investor needs a lot more hand holding. We must assume they have never traded stocks or have even opened a trading account. A good site to look at for ideas is http://www.investopedia.com (suggest other sites that you like). Our site should have Sports & Financial News, Videos, Dictionary, Articles, Tutorials, Simulator, & free tools. We should have brokers advertising on the site for income and for easy click to open an account.

Once the site is developed, then we can start educating the institutional investors. I think a good way to reach them is to get a booth or do presentations at trade shows. A list can be found here http://www.moneyshow.com/events/MoneyShow_Events.asp. The audience at the shows is much more educated so you can focus on the details of the SRI, how they are calculated, variables used, etc. I would say you could use the same presentation you used for the CFTC. Once they are comfortable with the product they will bring their clients. Then we can focus on the retail investors and draw them to our website through standard advertising means, TV, magazines, radio, etc.

I know all this will cost $$$, that is why I think we don’t start with the retail investor. They have more cost for smaller returns. I think you get a bigger ‘bang for your buck’ by starting with the institutional traders.

You know, guys, to me it is as simple as, when the team I have an investment in wins, it pays a dividend. I really can’t think much else about the matter, except that various people have various attitudes, and sometimes they change due to the outcome of a game or a string of wins. that is interresting to me, because you can use it the way a wrestler would use his opponents weight against him. There is never a good bet, but these ALL appear to be relatively sound INVESTMENTS. Chris, you are doing the right thing. Good luck.

I think if volume is high enough, we could do an annual dividend at season end, or at fiscal year end or quarterly to avoid any perceived linkage to games. I liked the dividends, but I’m getting more conservative in my investments.