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Speaker 1: Bloomberg Audio Studios. Podcasts. Radio. News.
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Speaker 2: Apollo Sports Capital recently produced a report saying sports is a $ 2. 5 trillion market. Our own research, we think there's about $ 650 billion per annum invested into sports across ticketing, media rights, merch. We're speaking to every league. Every league that you can think of. The subset for us globally is probably about 15 leagues.
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Speaker 3: Welcome to Trillions. I'm Eric Balchunas.
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Speaker 4: And Joel Weber, who normally does this intro, is out this week. He's at a wedding. So I'm going to basically run point this episode. But I have a great co-pilot in Vildana Hyrek from Bloomberg News. Hi, Vildana.
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Speaker 1: Hi.
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Speaker 5: Thanks so much for having me.
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Speaker 3: Good to have you here. This is a great topic for both of us.
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Speaker 5: For both of us.
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Speaker 4: I've been wanting to cover this for a while. Vildana and I look at all the new filings with... And we love looking at what the industry is coming up with. And over the last two months, we've seen a bunch of filings for sports teams ETFs. For example, like an ETF for the Philadelphia Flyers, an ETF for baseball. So it would be like the New York Mets. And there's been multiple issuers filing for all of these different sports teams ETFs, including leveraged. And this is really a new potential world opening up here. Some people are skeptical. But we wanted to talk to the people who are behind this. The ETFs aren't out yet, but the index makers, they're called Future Sports.
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Speaker 3: And what do you make of this?
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Speaker 6: I think it's really exciting wherever there is white space within the ETF world. We have so many ETFs already. And anytime that somebody comes up with a new way to put something into the ETF wrapper, an innovative way, so to say, I do think it's worth paying attention to because then each time it's a test case of whether or not it takes, whether or not people are interested in it, whether or not they actually put their money towards it.
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Speaker 4: Yeah, I tell people all the time, this is capitalism in action. There's so many flows going into ETFs. Of course, you're going to have people trying things. In this case, it's almost like they invented new white space because I wasn't thinking about sports and investing, but they're going to make their case. And so I am joined, let me see, We are joined today by Lee Tailforth, who is co-founder of Future Sports, and Jody Gunsberg, who is head of index services. Lee and Jody are here with us in the studio. This week on Trillions, sports ETFs. All right, let's just jump right in. I want to start with you, Lee. You're one of the co-founders.
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Speaker 3: How do you come up with this idea and why?
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Speaker 2: So it's myself and a co-founder guy that I'm good mates with, both ex-traders, 20 plus years in derivatives trading. We were coming out of COVID and I guess the best way to describe it was we were probably bored. We'd had a black swan style event with COVID. We thought that the financial markets didn't kind of behave like they would have or didn't move in equilibrium. We had central banks and central governments getting their hands involved and making sure the markets kind of stayed at a certain level. We decided it was time for a change for us. So we started tooling around with some ideas. We were living in different states, so we were throwing around ideas on WhatsApp and we realized pretty quickly that about 90% of that conversation was around sports and sporting events and sporting statistics. So ultimately we decided we should do something that we're passionate about. It just so happened that it was non-correlated as well. So you're not going to have that interference. So we started mucking around with an index methodology. We both know the index space well. We've traded indexes throughout our career. The thing that we decided to index was sporting statistics. There's a really deep data pool there of stats. So the challenge for us was to work out which statistics we included in the index methodology, how we weighted them. At the time, we were traveling to the US to see whether this would pass muster. So we were meeting with the CFTC. We were meeting with professional sporting leagues. We were basically doing two weeks at a time and just turbo flying around everywhere that we could over here. A lot of time was spent with industry as well, diving into the concept around risk in sports. It jumped off the page at us about how much risk there was and how hard that is to hedge. A lot of these groups were just having to live with downside in their investments and their capital at risk in sports. So it makes a lot of sense to create a measurement instrument, which we're doing with the indexes, that tracks performance in sports. These groups that are investing in sports, be it media rights, be it stadium owner operators, ancillary businesses, patch sponsors, other kinds of endorsers, They're all tracking performance. So us creating something underlying there that had utility was really appealing for us, as well as the opportunity to create something novel.
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Speaker 4: So just to go over that a little bit, your main audience, at least at first, would be people who are invested in sports but need to hedge. Say, I know you're running an airline company. Maybe you buy Oil Futures because it hedges the gas movements or something like that. Is it similar to what you're talking about here?
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Speaker 2: Very similar.
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Speaker 3: Okay.
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Speaker 7: Okay.
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Speaker 3: It seems like.
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Speaker 4: They're designed for the sort of calci polymarket audience, but that is interesting in that it's for people who are invested in sports.
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Speaker 7: Yeah.
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Speaker 2: A real misconception. So we created the indexes with institutions at the heart of what we were trying to look to create. We were trying to create utility for them to be able to hedge these risks. We've got retail groups on the cap tables. We've got Robin hood on the cap table, which we're proud of. And they've been a huge supporter of ours. We haven't once discussed with them the index composition. We're going out and discussing that with industry, making sure that the constituents or the statistical categories that we capture and measure within our index methodology reflect real-world capital investments in sports.
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Speaker 6: And so, Jodi, just to talk a little bit more about the index composition, what does that look like? What do you include? I know you guys have a lot of statistics that you're incorporating, but how does it track Each team, you know, does it move up and down during a game, for example, if it's during market hours?
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Speaker 5: Or how specifically does it work?
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Speaker 7: So the team indexes are really designed to measure the performance throughout the game and the season. And every stat that's provided from the league has a fixed value that is in a publicly published table, right? And in hockey, there's 53 different stats that go into it. One of them is a win in baseball. There are 70 different stats. And what we do is we follow a rule book that takes these stats and puts them into an index level. That's one number that can act as a benchmark or a reference for the industry. And the way that the stats point values were developed were by looking at 10 years of history and the rarity and how much a stat influences the game and the performance is what determined what the point values were.
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Speaker 6: Okay, and just to follow up with that, so let's say I'm watching the Sabres game. The index wouldn't be moving after hours, right?
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Speaker 5: Or when could I see it moving up?
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Speaker 6: Is it the next morning if they win that the index rises? Is there a potential for them to lose and the index still rises? Like what are the different scenarios that maybe a retail investor could wrap their mind around?
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Speaker 7: Yeah, the indexes are calculated throughout the games as the stats are coming in. And the official value is published at 9 a.m. Central Time. So that's the official close. And then they've got, you know, any of the values people can look. and see what stats, what they expect and what they can do with that is they can take the current index level and then what's their expectation of the accumulated points either throughout the game or until a contract expires. So part of that value is already on the board and the rest is just expectation and there's calculators that they can use or they can put in their own expectations to really decide whether the value of a contract is undervalued or overvalued.
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Speaker 3: Let's talk about that a little bit.
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Speaker 4: I'm looking at baseball just because I know baseball better than hockey, but like a single is worth 2.5, double 3.5, triple 4.5, home run six. If you strike out, it's a negative one and on and on. Those are like intra game stats. And then there's like milestone stats. Like if you have a four plus home run game, you get 12.5 points. So there's, I could go on and on. There's, it's all in this like PDF you have. This is interesting because, All that happens, right? So those stats would, in fact, impact the index pricing that you calculate. But then the futures are based on the index, and that could deviate a little, you're saying, so that if a team is on a good run, the futures might trade higher in the future and almost have, I guess, like contango?
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Speaker 6: And addendum, what if there's an injury, or does it calculate for that?
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Speaker 7: The injury is not a statistic in the table. To the extent that anybody expects an injury to impact any of the stats that are in the table, they can incorporate that in their expected value of the contract through the season or at expiration. The fair value is just the index value currently plus the expectation, right? So all of these stats that you're seeing.
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Speaker 2: Yeah.
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Speaker 7: They all have values. So as a spectator, a business owner, an investor, whoever you are, you can look at this table and be like, this is what I expect to happen. And you can add it up yourself because it gives you all the values. And then you can say, all right, this is what I think is going to happen. And this is where the market says the price is based on the fair value. So is it higher or lower? And then you can take your position on that.
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Speaker 4: Is it normally trading near the fair value?
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Speaker 3: Have you had experience?
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Speaker 4: I mean, I know they're brand new, but we're a team, yet the expectations make the price higher than the fair value?
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Speaker 7: So the closer you get to the expiration or the end of the season, the closer your futures price is going to be to your spot price. Because remember, part of it is already on the board and the rest is expectation. So as you get closer to expiration, there's not as much expectation left because most of it's already on the board.
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Speaker 3: So you could buy one of these.
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Speaker 4: And if the expectations that this like, for example, this is not baseball, but the Jets.
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Speaker 6: Okay.
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Speaker 3: Everybody expects them to lose every game.
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Speaker 4: So you'd have the futures trading at a lower than the fair value. If they start winning, then it could go the other way quickly. And the futures could even rise faster than the stats themselves.
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Speaker 1: Absolutely. Yeah.
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Speaker 2: The futures will be the market's expectation of where the contract will fix. So there's, I don't want to speak for CME, but there'll be three lengths and this is sport dependent. So you're talking about football sports where there's only one game per week. We'll not have future weekly futures. But for hockey and baseball, there are weekly futures, monthly futures, and you can think of it as an annual or seasonal future. So the market's expectation, the Sabres are not a bad example. I don't have the indexes in front of me, but I believe they are something like the fourth lowest out of the 32 teams this year, their index price.
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Speaker 3: Opportunity.
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Speaker 5: I wish the people could see my face.
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Speaker 2: I know, it's a sad face. But the futures would potentially, I don't know where they're trading and I don't have an order book in front of me, but they could be trading higher than where the index value is right now if the anticipation is that the Sabres pick it up and turn their season around. They finished, obviously had a really good year last year.
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Speaker 4: What's the dispersion if there's 30-something teams in a league? Again, we'll go back to baseball just because, again, I can use names better.
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Speaker 3: But who won the World Series? Oh, no, we're in the playoffs.
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Speaker 4: Okay, well, let's just say the Yankees are out, but there's 30-something teams. If I bet on all of them at the beginning of the year, what's the dispersion typically? What would the best team return and what did the worst team return? I'm curious of how much volatility or reward there is for the risk.
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Speaker 2: Yeah, I might throw to Jody for the second part of that, but I had a look this morning and out of the 32 baseball teams, 17 of them are up on the year. So they have risen above the seven and a half thousand point index starting value. The number for hockey is up 17 as well. So Jodi, you can throw to like how far the highest performing teams and the lowest performing teams have traditionally traded. It's obviously different year to year. So we'll give you some guidelines of what it's looked like.
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Speaker 7: Yeah, generally. So the rules state that the index levels start at 7,500. And the best performing teams end up in the 11,000 to 14,000 point range. And the worst teams end up in the 2,000 to 5,000 point range. And generally in the games, about 50 points get added. It can go higher or lower depending on what's happening in that game. But there's quite a bit of opportunity for dispersion there.
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Speaker 4: Like if you pick the right team, let's say you pick the Seattle Seahawks. I'm mixing sports here, but my brain is just so, yeah, we're in football season. If you pick the Seattle Seahawks last year, you probably made a hundred percent. If you pick the.
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Speaker 3: Who was the worst team? Not the Giants or the Panthers, some, you know, whatever. One of those teams, you.
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Speaker 4: Probably lost 80%. That's 180% dispersion. That's about what thematic ETFs are based on the numbers you just gave me. That makes sense because we were curious how much these could actually pay off. And that seems pretty good. Now, if you bet on a game right now, tonight, I don't know who's playing, but if you bet $ 10, it's 100% up or down after the game's over. So this doesn't give that quite a hit. It's more like taking the concept of an index and applying it to sports betting in a way. I'm talking about for people who just want to trade these, not the stadium owners who want to hedge.
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Speaker 3: But is that the.
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Speaker 4: Idea here is that it's a little kinder, friendlier version of betting on sports where you are to binary bet?
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Speaker 7: It's not. In fact, if you look at the table, the winner loss isn't even on there in baseball because the runs add up. Yeah. So you'd be double counting if that were the case. So it's really very different than a bet because a bet is binary. You win or lose. And in this case, the index is calculating and accumulating points throughout the season. So it's not a win or lose. And you can actually be the losing team and come out ahead for the night.
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Speaker 2: I can kind of go back to the conception of these indexes. They're born out of institutional financial market backgrounds. There's very few products. Obviously, we've got a lot of stuff happening within the prediction market space at the moment. But when we created this concept four years ago, there's very little within traditional financial markets of this trading around binary outcomes. So it's continuously priced, continuously measured, and there is a way to track that price across the time continuum.
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Speaker 6: But Lee, can you actually talk a bit more about what you were saying about the need for hedging? So presumably you were in conversation with institutions. Feel free to name names here and what that would look like because I think there's an obvious comparison for a lot of people just maybe not knowing all of the details to prediction markets or hedging. to the idea that on Kalshi you can also, one of the arguments that Kalshi makes for itself is that you can use various bets on Kalshi to hedge for various outcomes. I think there's that now famous example of the ice cream shop in LA that's hedging whenever it's supposed to rain and so they're making money off of that. But that's one example and I think the examples are kind of few and far between. And so tell us a bit more about the institutional side of this conversation, who would be hedging how, you know, and what the volumes.
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Speaker 5: Might look like?
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Speaker 1: Yep.
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Speaker 2: We won't get into guessing volumes, but I can share a couple of interesting stories with you. So a bit over a year ago, we went and met with one of the major TV broadcasters who had said their worst case scenario was the Blue Jays making the World Series. They lost the Canadian media rights to Rogers, right? So it's a substantial or material drop in their advertising revenue. That's hedgeable. We've met with another network who said every game that a seven-game playoff series doesn't go through to the seven, they leave $ 50 million on the table in lost advertising revenue.
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Speaker 6: But then it's hedgeable, right? But will they actually act on it? So if it's NBC, for example, does Comcast go and buy those?
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Speaker 2: Respectively, yeah, we hope so. Creating a benchmark, this is not a play that is a two-year play and we'll see what happens if there's a change in government or anything like that. We're trying to create a 50-year business here, like creating a benchmark and something that the industry understands and can price their risk out is something that's going to see across a long time. So that's what we're trying to create here. We think that accumulation indexes or something that is continuously priced is the best way to hedge. We don't think that a binary market is the best way to hedge. We don't think that groups that have capital at risk in sports really care about who wins tonight's game, right? So we think that these groups being able to hedge in the way that they do across other asset classes with behaviors like movements in the index from a volatility perspective, from a range perspective that institutional traders are used to, we think they will use that as a hedge. We've only launched two weeks ago. We launched Hockey Futures via CME two weeks ago, so we can't answer the question yet about whether they're there. Our concept is build it, and we think that they will come.
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Speaker 7: I might add to that, too, that The playbook for bringing new asset classes is now pretty well established. I think as the data and the technology developed, we've followed a certain method in the industry that was done for stocks. Like in the 1800s when the Dow was started, just get your transportation stocks for the Wall Street Journal predecessor print. And then it took until, what, probably the 30s to get another sector. And then probably nothing was tradable until Vanguard's fund in 1976. And that sat empty for years until the derivatives markets came, until you had the options and the futures in 82 and 83. And then everything started trading. And then the ETFs came in the 90s. And then you had the sector. So, you know, that process of knowing, collecting data, creating an index that's a reference and a benchmark, and then getting product and a combination of funds and derivatives in order to manage that risk. It takes all of that in order to bring it to the market. But now we can do it so much faster than we used to do with equities. And we've seen commodities, we've seen hedge funds, we saw crypto, and now it's sports. So it's the same thing again. And that's what I would expect us to come and serve the market in the same ways that the other assets did.
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Speaker 2: And without avoiding your question about volumes, we can talk about the size of the market. So Apollo Sports Capital recently produced a report saying sports is a $ 2. 5 trillion market. Our own research, we think there's about $ 650 billion per annum invested into sports across ticketing, media rights, merch, sponsorships.
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Speaker 5: Half of that is me buying bills.
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Speaker 2: That's you with all your merch material part of the market.
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Speaker 3: Hey, stop trying to make the bills happen, okay?
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Speaker 5: The bills are happening.
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Speaker 4: By the way, I can see the bills being really one of the better teams, even if they get bounced in the second round every year, because their stats are really good. They're really good for their record and their playoff bounce. Does that mean the Bills could be like the second best performing team, even if they get bounced in the second round?
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Speaker 5: Well, you don't have NFL, right, yet.
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Speaker 2: We don't yet.
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Speaker 5: So that is another question of mine.
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Speaker 4: That's the holy grail.
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Speaker 5: That is the holy grail. Clearly, it keeps coming up. It's America, you know.
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Speaker 6: But I am curious, like, so when you guys are putting your executive teams together, it seems like there's the derivatives background, the index background, but also you have to like sports, yes? Plus, then when you're approaching the various teams, you have the MLB. And the NHL, how does that work? Like, are you in talks with the NFL? When do you hope to have the Holy Grail, as Eric says?
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Speaker 2: Yeah, so I'll take the first question first. Liking sports is probably an understatement. We're all pretty obsessed. So to an unhealthy level sometimes. So yes, everybody loves sports. We're looking to combine a love of sports and a background in markets. And to use a sports analogy, we're looking for all-stars here, people who are known within their individual part of the business. So we've got guys on our team who have done really deep work within sports data. For example, our CTO's company got bought by Sport Radar when they're entering the States. So we've got a number of people like this across the team. We're passionate about the team and bringing the right people to the table.
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Speaker 6: Presumably you have some pre-existing relationships where you can go to the MLB or... I noticed you dodged my question about the NFL.
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Speaker 2: Yeah, so I'll get there. We had no relationships coming over here, to be honest. So myself and my co-founder, Rhett, were coming from Australia. We've got capital markets backgrounds, so we have a lot of relationships within that space. We basically asked, begged, and groveled our way to introductions with leagues. The first league we met out here was the NBA, who introduced us to the MLB. We met all of the leagues via introduction. So it's been legwork and hard work and jumping on planes and being willing to sit down. We've invested a huge amount of time. Like we've been engaged with the leagues for four years to explain to them what's an index, what a derivative is, what is exchange trading. They've gotten very smart very quickly and ultimately become partners. So we've worked hard and we've educated and we've been patient. We've made sure that we haven't done what other groups have done and jumped before the league partnerships are in place. That's been important to us. And again, speaking to what we hope is the longevity of this business and Being patient, we hope, sets us up for very long-term relationships with these leagues. We're speaking to every league, every league that you can think of. The subset for us globally is probably about 15 leagues. We are not looking to start indexes in synchronized swimming, for example, not to throw shade. I think you're throwing shade. I love synchronized swimming. I watch the Olympics.
00:23:13
Speaker 3: Don't do pickleball. Please don't do pickleball.
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Speaker 4: Why?
00:23:16
Speaker 3: I don't know.
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Speaker 4: It's just … The noise, just stick to tennis.
00:23:22
Speaker 5: You're really setting yourself up for a lot of Twitter hate.
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Speaker 7: I know.
00:23:26
Speaker 3: For a lot of stuff. But you would do individual sports too, like tennis and golf?
00:23:31
Speaker 1: We will.
00:23:33
Speaker 2: We have met the ATP. We've met the PGA. We know both those groups well. We can build out indexes on athletes. This will never be a product. We will never build indexes or tradable indexes on athletes who sit at the end of the bench. integrity is the number one concern here for us, for the leagues, for the CME, and for the FCMs that trade on CME. So we will be looking to measure performance of top athletes only if and when we do go down that path.
00:23:59
Speaker 7: Wow.
00:24:04
Speaker 4: So I'm going to buy the Carlos Alcaraz ETF, I think.
00:24:14
Speaker 3: I'll Can I do that this time next year?
00:24:16
Speaker 6: Well, I was just thinking if you have a Bills index, you'd also maybe have a Josh Allen specific index because he clearly is the best quarterback in the league.
00:24:26
Speaker 3: Yeah, I mean, look, the Bills, I root for them.
00:24:30
Speaker 1: Don't worry.
00:24:31
Speaker 3: This could be their year. They're just something.
00:24:34
Speaker 4: They lack the clutch gene, which is going to show up here because I'm noticing if you win the World Series, you get 750 points, which is like, That's a combination of a lot.
00:24:44
Speaker 3: Of other stats. Like, that's really big.
00:24:46
Speaker 4: You don't need to do March Madness, and each win gets bigger and bigger points. And the person who picks the actual, the points are so big that the people leading at the beginning of the tournament are never the people at the end.
00:24:58
Speaker 3: Seems like there's a similar phenomenon here. And there should be.
00:25:01
Speaker 4: Winning a championship's really hard. I just think the bills are, they're.
00:25:04
Speaker 3: Due, but I wouldn't.
00:25:06
Speaker 4: I wouldn't. I would bet on them in the right, here's what I would do. I'd buy the bills and then rate the playoffs.
00:25:11
Speaker 3: I would sell them. They're so good in the regular season. That would be my move.
00:25:15
Speaker 4: But anyway, you're going to go down with the ship.
00:25:19
Speaker 6: To sort of synthesize all of this. So we have the indexes for those two major athletic leagues, I guess, possibly more to come. But then a number of ETF issuers, because this is an ETF show after all, have filed to use your indexes to put out maybe sometime soon, a number of exchange traded funds, right? And so there's a lot of questions actually around this, like who would be market making for you? Like who have you talked to or signed up already? Or who the target audience is? Because in my mind, it is retail, even if you have had discussions with institutions about how they might.
00:25:58
Speaker 5: Use this for hedging.
00:26:00
Speaker 6: Clearly, I am a Bills fan, and everybody in Western New York is a Bills fan, and maybe you're hoping that all of those people eventually buy the Bills ETF. There's just a lot of questions about the ETF concept of this.
00:26:12
Speaker 2: I totally get that. The important thing to remember here is that we are the index. We're the index administrator. We are the reference. The ETFs that are coming out will hold futures. The futures are made available via CME. So those groups will hold futures. They will do different things with the futures. There's a lot of interplay here in the way that the ETFs will be able to work. They may be long only. They may be short only. They may be active. They may be levered. There have been applications for levered. So there will be a lot of different things that the futures can do. There will be a lot of index concepts that we haven't brought to market yet that would be able to sit within an ETF wrapper. We think this is exciting for the ETF space. This is somewhere where we do see retail getting involved. Somebody for... For you to trade futures, you have to be a sophisticated retail trader. There's a bar there where any of the FCMs or brokers will need to understand your trading background, source of funds, trading history. They need to make sure it's margined. So they need to make sure that you can meet a margin call if you have an out-of-the-money position. So for a retail investor who doesn't trade futures or isn't comfortable or doesn't have that background, an ETF provides access.
00:27:17
Speaker 4: Yeah, I mean, the futures for oil ETFs, Nobody really wants to trade those. But I will say that when ETFs track futures, there is some roll costs involved. I assume the futures are what the market makers will use. They'll just trade the futures. That's why I think the ETF will be approved. I don't even think they have to think about it because it's not that different.
00:27:36
Speaker 3: Than an oil or corn.
00:27:38
Speaker 5: Curious which market makers, you know?
00:27:40
Speaker 1: Yeah.
00:27:40
Speaker 5: Who's signing up?
00:27:42
Speaker 3: If you have a year and I bought USO, that's the oil futures ETF.
00:27:46
Speaker 4: If oil went up 10%, actually might lose 10% because of the roll costs.
00:27:52
Speaker 3: Are there roll costs like that? And is there any way to put a number on that?
00:27:56
Speaker 2: Yeah, it depends what tenor of future you hold. So within this space, we know that CME already have seasonal futures. So some ETFs may choose to hold the season future and then there won't be a roll cost. Say that there was tighter pricing on a weekly, which there will be because there's less room that a weekly future can move or an index can move over that shortened period of time. then if they wanted to hold long-term, then yes, there would be roll costs.
00:28:20
Speaker 3: So if you have the near, we'll call it the weekly futures, would be like the front week. Micro.
00:28:24
Speaker 4: That would be more sensitive to moves in that sports team that week, which is the benefit there. The longer ones would be less sensitive, but you would have less roll costs. Yeah.
00:28:35
Speaker 5: Is that right?
00:28:35
Speaker 3: Absolutely.
00:28:35
Speaker 2: So if you think about how weekly, I don't want to get into saying how a future will trade because we, again, we're the index, but if Jody has just said that an index will generally put on 50 points during a game, which is less than a percent. There's only so much that the index can move across a week. If you think about, you can extrapolate out opponents and how many games there are during the week. It could be between two and say six for baseball versus a year. You're going to have somewhere between 82 and 184 now for NHL. They changed this year at 162 games in the MLB that trade across a season. So the indexes can move a lot further across that time period.
00:29:12
Speaker 6: But Jodie, what happens with the indexes and performance presumably down the line with the ETFs when the season's over?
00:29:19
Speaker 7: When the season is over, then the indexes stay at the levels. 32 days after, say, the World Series or the Stanley Cup, they reset to 7,500. And the index levels stay at 7,500. The futures contracts can move based on whatever expectation the market participants have due to anything that they hear that they think will influence the index levels in the future until expiration. So if you hear about something about management changes or trades between players, You can look, all right, I think that this guy moved from this team to this team. He generates a lot of homers. Homers are worth X in the stats table, and I think that this is what it's going to add. You can add that yourself. So the futures can move around even if the index level is not.
00:30:15
Speaker 3: Yeah, I'm a Sixers fan.
00:30:17
Speaker 4: Obviously, the Broncoming was like earth-shattering news. I could see it just going up 10% in a day even if the index was flat because the expectations are the Sixers will be better. You see the same thing in the betting markets. All of a sudden, the Sixers' odds to win the championship go from 12-1 to 6-1, just like that.
00:30:34
Speaker 3: Okay, I think I get it. Now, we've got all these issuers.
00:30:38
Speaker 4: There's four issuers per league, I think. There's LeagueShares, Roundhill, AlphaShares, and then RecShares is doing this new company called Alpha Sports or something, where they're only going to do this, and they're going to get into all kinds of things. I don't... All of this has to use these CME futures, which are based on your company. So as you keep getting these deals, the ETF issuers will just follow suit, four or five of them will swoop in, make the ETFs, and they'll just compete in the marketplace.
00:31:08
Speaker 3: Is that the idea?
00:31:09
Speaker 2: That's the idea. We will bring different index concepts to life. But yes, the amount of funds that are out there, and I know this is giving people some heartburn, it will be in the thousands, right? Long-term, potentially tens of thousands. if you think about other indexing companies that are out there, and I know the SEC has a lot on their plate.
00:31:28
Speaker 5: My eyes almost just bulge out of my.
00:31:31
Speaker 7: No, this is typical because if you think about what happened in commodities, so the S & P GSCI, that one index composite, it was 90 single indices because one for every commodity, one for every sector, and then the composite, and then you had a price return and excess return and a total return. And then in the course of about three years, we had 5,000 indices because of the different strategies that were being built based on the rolling or where to hold in the curve, long, short strategies, dispersion strategies, you name it, a strategy for everybody. And so in a set of futures contracts that are available through different index combinations, it's up To anybody's imagination what they can do with it.
00:32:24
Speaker 4: Same with prediction markets. There's endless possibilities in some of these new areas.
00:32:29
Speaker 3: This is one of them.
00:32:30
Speaker 4: I think what people underrate about ETFs is that you can have a ton because all they're doing is standardizing all this other stuff that's a pain to get. Futures are not that easy. So ETFs make everything trade like an equity. Equity is the best, most.
00:32:46
Speaker 3: Convenient way to trade things. There's price transparency. It's in a ticker. It's regulated.
00:32:52
Speaker 4: It's in your brokerage account like everything else. So it standardizes everything, including sports. So the open question is, will there be demand? How will this work? Would a bear market make it less attractive because people have bigger fish to fry? These are all open questions.
00:33:08
Speaker 3: But it's, like I said, never a dull moment in the ETF world.
00:33:12
Speaker 7: As you were saying how ETFs standardize everything, that aligns perfectly with the index system. strategy that we're taking in standardizing sports performance. It hasn't been standardized. The data's been around forever, but to be able to take that data, assign these point values and a methodology, and have a reference that the whole industry, whether you're a sponsor, journalist, analyst, business whose revenues are tied to the sports performance, or an investor who's looking for diversification because turns from the field and the ice don't move the same as the market. It's standardized. And that's the key. And that's what brings accessibility.
00:33:56
Speaker 4: Thank you for tuning in to Trillions. And thank you both for coming on and sharing all this with us. And we'll look forward to having you back.
00:34:02
Speaker 2: Appreciate you guys. Thanks for having us.
00:34:11
Speaker 1: Thanks for listening to Trillions. Until next time, you can find us on the Bloomberg Terminal, Bloomberg.com, Apple Podcasts, Spotify, or wherever else you like to listen. We'd love to hear from you. Hit us up. Trillions is produced by Magnus Hendriksen and Keshav Pandya. Amy Keene is our executive producer. Cheryl Brumley is the head of Bloomberg Podcasts.
00:34:31
Speaker 7: Bye.
Speaker 1: Bloomberg Audio Studios. Podcasts. Radio. News.
00:00:09
Speaker 2: Apollo Sports Capital recently produced a report saying sports is a $ 2. 5 trillion market. Our own research, we think there's about $ 650 billion per annum invested into sports across ticketing, media rights, merch. We're speaking to every league. Every league that you can think of. The subset for us globally is probably about 15 leagues.
00:00:33
Speaker 3: Welcome to Trillions. I'm Eric Balchunas.
00:00:35
Speaker 4: And Joel Weber, who normally does this intro, is out this week. He's at a wedding. So I'm going to basically run point this episode. But I have a great co-pilot in Vildana Hyrek from Bloomberg News. Hi, Vildana.
00:00:50
Speaker 1: Hi.
00:00:50
Speaker 5: Thanks so much for having me.
00:00:52
Speaker 3: Good to have you here. This is a great topic for both of us.
00:00:55
Speaker 5: For both of us.
00:00:56
Speaker 4: I've been wanting to cover this for a while. Vildana and I look at all the new filings with... And we love looking at what the industry is coming up with. And over the last two months, we've seen a bunch of filings for sports teams ETFs. For example, like an ETF for the Philadelphia Flyers, an ETF for baseball. So it would be like the New York Mets. And there's been multiple issuers filing for all of these different sports teams ETFs, including leveraged. And this is really a new potential world opening up here. Some people are skeptical. But we wanted to talk to the people who are behind this. The ETFs aren't out yet, but the index makers, they're called Future Sports.
00:01:38
Speaker 3: And what do you make of this?
00:01:40
Speaker 6: I think it's really exciting wherever there is white space within the ETF world. We have so many ETFs already. And anytime that somebody comes up with a new way to put something into the ETF wrapper, an innovative way, so to say, I do think it's worth paying attention to because then each time it's a test case of whether or not it takes, whether or not people are interested in it, whether or not they actually put their money towards it.
00:02:09
Speaker 4: Yeah, I tell people all the time, this is capitalism in action. There's so many flows going into ETFs. Of course, you're going to have people trying things. In this case, it's almost like they invented new white space because I wasn't thinking about sports and investing, but they're going to make their case. And so I am joined, let me see, We are joined today by Lee Tailforth, who is co-founder of Future Sports, and Jody Gunsberg, who is head of index services. Lee and Jody are here with us in the studio. This week on Trillions, sports ETFs. All right, let's just jump right in. I want to start with you, Lee. You're one of the co-founders.
00:02:51
Speaker 3: How do you come up with this idea and why?
00:02:55
Speaker 2: So it's myself and a co-founder guy that I'm good mates with, both ex-traders, 20 plus years in derivatives trading. We were coming out of COVID and I guess the best way to describe it was we were probably bored. We'd had a black swan style event with COVID. We thought that the financial markets didn't kind of behave like they would have or didn't move in equilibrium. We had central banks and central governments getting their hands involved and making sure the markets kind of stayed at a certain level. We decided it was time for a change for us. So we started tooling around with some ideas. We were living in different states, so we were throwing around ideas on WhatsApp and we realized pretty quickly that about 90% of that conversation was around sports and sporting events and sporting statistics. So ultimately we decided we should do something that we're passionate about. It just so happened that it was non-correlated as well. So you're not going to have that interference. So we started mucking around with an index methodology. We both know the index space well. We've traded indexes throughout our career. The thing that we decided to index was sporting statistics. There's a really deep data pool there of stats. So the challenge for us was to work out which statistics we included in the index methodology, how we weighted them. At the time, we were traveling to the US to see whether this would pass muster. So we were meeting with the CFTC. We were meeting with professional sporting leagues. We were basically doing two weeks at a time and just turbo flying around everywhere that we could over here. A lot of time was spent with industry as well, diving into the concept around risk in sports. It jumped off the page at us about how much risk there was and how hard that is to hedge. A lot of these groups were just having to live with downside in their investments and their capital at risk in sports. So it makes a lot of sense to create a measurement instrument, which we're doing with the indexes, that tracks performance in sports. These groups that are investing in sports, be it media rights, be it stadium owner operators, ancillary businesses, patch sponsors, other kinds of endorsers, They're all tracking performance. So us creating something underlying there that had utility was really appealing for us, as well as the opportunity to create something novel.
00:04:55
Speaker 4: So just to go over that a little bit, your main audience, at least at first, would be people who are invested in sports but need to hedge. Say, I know you're running an airline company. Maybe you buy Oil Futures because it hedges the gas movements or something like that. Is it similar to what you're talking about here?
00:05:11
Speaker 2: Very similar.
00:05:11
Speaker 3: Okay.
00:05:12
Speaker 7: Okay.
00:05:13
Speaker 3: It seems like.
00:05:13
Speaker 4: They're designed for the sort of calci polymarket audience, but that is interesting in that it's for people who are invested in sports.
00:05:21
Speaker 7: Yeah.
00:05:22
Speaker 2: A real misconception. So we created the indexes with institutions at the heart of what we were trying to look to create. We were trying to create utility for them to be able to hedge these risks. We've got retail groups on the cap tables. We've got Robin hood on the cap table, which we're proud of. And they've been a huge supporter of ours. We haven't once discussed with them the index composition. We're going out and discussing that with industry, making sure that the constituents or the statistical categories that we capture and measure within our index methodology reflect real-world capital investments in sports.
00:05:54
Speaker 6: And so, Jodi, just to talk a little bit more about the index composition, what does that look like? What do you include? I know you guys have a lot of statistics that you're incorporating, but how does it track Each team, you know, does it move up and down during a game, for example, if it's during market hours?
00:06:13
Speaker 5: Or how specifically does it work?
00:06:15
Speaker 7: So the team indexes are really designed to measure the performance throughout the game and the season. And every stat that's provided from the league has a fixed value that is in a publicly published table, right? And in hockey, there's 53 different stats that go into it. One of them is a win in baseball. There are 70 different stats. And what we do is we follow a rule book that takes these stats and puts them into an index level. That's one number that can act as a benchmark or a reference for the industry. And the way that the stats point values were developed were by looking at 10 years of history and the rarity and how much a stat influences the game and the performance is what determined what the point values were.
00:07:07
Speaker 6: Okay, and just to follow up with that, so let's say I'm watching the Sabres game. The index wouldn't be moving after hours, right?
00:07:16
Speaker 5: Or when could I see it moving up?
00:07:18
Speaker 6: Is it the next morning if they win that the index rises? Is there a potential for them to lose and the index still rises? Like what are the different scenarios that maybe a retail investor could wrap their mind around?
00:07:31
Speaker 7: Yeah, the indexes are calculated throughout the games as the stats are coming in. And the official value is published at 9 a.m. Central Time. So that's the official close. And then they've got, you know, any of the values people can look. and see what stats, what they expect and what they can do with that is they can take the current index level and then what's their expectation of the accumulated points either throughout the game or until a contract expires. So part of that value is already on the board and the rest is just expectation and there's calculators that they can use or they can put in their own expectations to really decide whether the value of a contract is undervalued or overvalued.
00:08:16
Speaker 3: Let's talk about that a little bit.
00:08:18
Speaker 4: I'm looking at baseball just because I know baseball better than hockey, but like a single is worth 2.5, double 3.5, triple 4.5, home run six. If you strike out, it's a negative one and on and on. Those are like intra game stats. And then there's like milestone stats. Like if you have a four plus home run game, you get 12.5 points. So there's, I could go on and on. There's, it's all in this like PDF you have. This is interesting because, All that happens, right? So those stats would, in fact, impact the index pricing that you calculate. But then the futures are based on the index, and that could deviate a little, you're saying, so that if a team is on a good run, the futures might trade higher in the future and almost have, I guess, like contango?
00:09:04
Speaker 6: And addendum, what if there's an injury, or does it calculate for that?
00:09:11
Speaker 7: The injury is not a statistic in the table. To the extent that anybody expects an injury to impact any of the stats that are in the table, they can incorporate that in their expected value of the contract through the season or at expiration. The fair value is just the index value currently plus the expectation, right? So all of these stats that you're seeing.
00:09:38
Speaker 2: Yeah.
00:09:38
Speaker 7: They all have values. So as a spectator, a business owner, an investor, whoever you are, you can look at this table and be like, this is what I expect to happen. And you can add it up yourself because it gives you all the values. And then you can say, all right, this is what I think is going to happen. And this is where the market says the price is based on the fair value. So is it higher or lower? And then you can take your position on that.
00:10:06
Speaker 4: Is it normally trading near the fair value?
00:10:08
Speaker 3: Have you had experience?
00:10:10
Speaker 4: I mean, I know they're brand new, but we're a team, yet the expectations make the price higher than the fair value?
00:10:18
Speaker 7: So the closer you get to the expiration or the end of the season, the closer your futures price is going to be to your spot price. Because remember, part of it is already on the board and the rest is expectation. So as you get closer to expiration, there's not as much expectation left because most of it's already on the board.
00:10:39
Speaker 3: So you could buy one of these.
00:10:41
Speaker 4: And if the expectations that this like, for example, this is not baseball, but the Jets.
00:10:48
Speaker 6: Okay.
00:10:48
Speaker 3: Everybody expects them to lose every game.
00:10:50
Speaker 4: So you'd have the futures trading at a lower than the fair value. If they start winning, then it could go the other way quickly. And the futures could even rise faster than the stats themselves.
00:11:02
Speaker 1: Absolutely. Yeah.
00:11:02
Speaker 2: The futures will be the market's expectation of where the contract will fix. So there's, I don't want to speak for CME, but there'll be three lengths and this is sport dependent. So you're talking about football sports where there's only one game per week. We'll not have future weekly futures. But for hockey and baseball, there are weekly futures, monthly futures, and you can think of it as an annual or seasonal future. So the market's expectation, the Sabres are not a bad example. I don't have the indexes in front of me, but I believe they are something like the fourth lowest out of the 32 teams this year, their index price.
00:11:35
Speaker 3: Opportunity.
00:11:36
Speaker 5: I wish the people could see my face.
00:11:38
Speaker 2: I know, it's a sad face. But the futures would potentially, I don't know where they're trading and I don't have an order book in front of me, but they could be trading higher than where the index value is right now if the anticipation is that the Sabres pick it up and turn their season around. They finished, obviously had a really good year last year.
00:11:53
Speaker 4: What's the dispersion if there's 30-something teams in a league? Again, we'll go back to baseball just because, again, I can use names better.
00:12:02
Speaker 3: But who won the World Series? Oh, no, we're in the playoffs.
00:12:05
Speaker 4: Okay, well, let's just say the Yankees are out, but there's 30-something teams. If I bet on all of them at the beginning of the year, what's the dispersion typically? What would the best team return and what did the worst team return? I'm curious of how much volatility or reward there is for the risk.
00:12:27
Speaker 2: Yeah, I might throw to Jody for the second part of that, but I had a look this morning and out of the 32 baseball teams, 17 of them are up on the year. So they have risen above the seven and a half thousand point index starting value. The number for hockey is up 17 as well. So Jodi, you can throw to like how far the highest performing teams and the lowest performing teams have traditionally traded. It's obviously different year to year. So we'll give you some guidelines of what it's looked like.
00:12:54
Speaker 7: Yeah, generally. So the rules state that the index levels start at 7,500. And the best performing teams end up in the 11,000 to 14,000 point range. And the worst teams end up in the 2,000 to 5,000 point range. And generally in the games, about 50 points get added. It can go higher or lower depending on what's happening in that game. But there's quite a bit of opportunity for dispersion there.
00:13:42
Speaker 4: Like if you pick the right team, let's say you pick the Seattle Seahawks. I'm mixing sports here, but my brain is just so, yeah, we're in football season. If you pick the Seattle Seahawks last year, you probably made a hundred percent. If you pick the.
00:13:56
Speaker 3: Who was the worst team? Not the Giants or the Panthers, some, you know, whatever. One of those teams, you.
00:14:00
Speaker 4: Probably lost 80%. That's 180% dispersion. That's about what thematic ETFs are based on the numbers you just gave me. That makes sense because we were curious how much these could actually pay off. And that seems pretty good. Now, if you bet on a game right now, tonight, I don't know who's playing, but if you bet $ 10, it's 100% up or down after the game's over. So this doesn't give that quite a hit. It's more like taking the concept of an index and applying it to sports betting in a way. I'm talking about for people who just want to trade these, not the stadium owners who want to hedge.
00:14:34
Speaker 3: But is that the.
00:14:36
Speaker 4: Idea here is that it's a little kinder, friendlier version of betting on sports where you are to binary bet?
00:14:43
Speaker 7: It's not. In fact, if you look at the table, the winner loss isn't even on there in baseball because the runs add up. Yeah. So you'd be double counting if that were the case. So it's really very different than a bet because a bet is binary. You win or lose. And in this case, the index is calculating and accumulating points throughout the season. So it's not a win or lose. And you can actually be the losing team and come out ahead for the night.
00:15:13
Speaker 2: I can kind of go back to the conception of these indexes. They're born out of institutional financial market backgrounds. There's very few products. Obviously, we've got a lot of stuff happening within the prediction market space at the moment. But when we created this concept four years ago, there's very little within traditional financial markets of this trading around binary outcomes. So it's continuously priced, continuously measured, and there is a way to track that price across the time continuum.
00:15:39
Speaker 6: But Lee, can you actually talk a bit more about what you were saying about the need for hedging? So presumably you were in conversation with institutions. Feel free to name names here and what that would look like because I think there's an obvious comparison for a lot of people just maybe not knowing all of the details to prediction markets or hedging. to the idea that on Kalshi you can also, one of the arguments that Kalshi makes for itself is that you can use various bets on Kalshi to hedge for various outcomes. I think there's that now famous example of the ice cream shop in LA that's hedging whenever it's supposed to rain and so they're making money off of that. But that's one example and I think the examples are kind of few and far between. And so tell us a bit more about the institutional side of this conversation, who would be hedging how, you know, and what the volumes.
00:16:36
Speaker 5: Might look like?
00:16:37
Speaker 1: Yep.
00:16:38
Speaker 2: We won't get into guessing volumes, but I can share a couple of interesting stories with you. So a bit over a year ago, we went and met with one of the major TV broadcasters who had said their worst case scenario was the Blue Jays making the World Series. They lost the Canadian media rights to Rogers, right? So it's a substantial or material drop in their advertising revenue. That's hedgeable. We've met with another network who said every game that a seven-game playoff series doesn't go through to the seven, they leave $ 50 million on the table in lost advertising revenue.
00:17:09
Speaker 6: But then it's hedgeable, right? But will they actually act on it? So if it's NBC, for example, does Comcast go and buy those?
00:17:19
Speaker 2: Respectively, yeah, we hope so. Creating a benchmark, this is not a play that is a two-year play and we'll see what happens if there's a change in government or anything like that. We're trying to create a 50-year business here, like creating a benchmark and something that the industry understands and can price their risk out is something that's going to see across a long time. So that's what we're trying to create here. We think that accumulation indexes or something that is continuously priced is the best way to hedge. We don't think that a binary market is the best way to hedge. We don't think that groups that have capital at risk in sports really care about who wins tonight's game, right? So we think that these groups being able to hedge in the way that they do across other asset classes with behaviors like movements in the index from a volatility perspective, from a range perspective that institutional traders are used to, we think they will use that as a hedge. We've only launched two weeks ago. We launched Hockey Futures via CME two weeks ago, so we can't answer the question yet about whether they're there. Our concept is build it, and we think that they will come.
00:18:21
Speaker 7: I might add to that, too, that The playbook for bringing new asset classes is now pretty well established. I think as the data and the technology developed, we've followed a certain method in the industry that was done for stocks. Like in the 1800s when the Dow was started, just get your transportation stocks for the Wall Street Journal predecessor print. And then it took until, what, probably the 30s to get another sector. And then probably nothing was tradable until Vanguard's fund in 1976. And that sat empty for years until the derivatives markets came, until you had the options and the futures in 82 and 83. And then everything started trading. And then the ETFs came in the 90s. And then you had the sector. So, you know, that process of knowing, collecting data, creating an index that's a reference and a benchmark, and then getting product and a combination of funds and derivatives in order to manage that risk. It takes all of that in order to bring it to the market. But now we can do it so much faster than we used to do with equities. And we've seen commodities, we've seen hedge funds, we saw crypto, and now it's sports. So it's the same thing again. And that's what I would expect us to come and serve the market in the same ways that the other assets did.
00:19:56
Speaker 2: And without avoiding your question about volumes, we can talk about the size of the market. So Apollo Sports Capital recently produced a report saying sports is a $ 2. 5 trillion market. Our own research, we think there's about $ 650 billion per annum invested into sports across ticketing, media rights, merch, sponsorships.
00:20:16
Speaker 5: Half of that is me buying bills.
00:20:18
Speaker 2: That's you with all your merch material part of the market.
00:20:21
Speaker 3: Hey, stop trying to make the bills happen, okay?
00:20:23
Speaker 5: The bills are happening.
00:20:24
Speaker 4: By the way, I can see the bills being really one of the better teams, even if they get bounced in the second round every year, because their stats are really good. They're really good for their record and their playoff bounce. Does that mean the Bills could be like the second best performing team, even if they get bounced in the second round?
00:20:41
Speaker 5: Well, you don't have NFL, right, yet.
00:20:43
Speaker 2: We don't yet.
00:20:44
Speaker 5: So that is another question of mine.
00:20:45
Speaker 4: That's the holy grail.
00:20:47
Speaker 5: That is the holy grail. Clearly, it keeps coming up. It's America, you know.
00:20:52
Speaker 6: But I am curious, like, so when you guys are putting your executive teams together, it seems like there's the derivatives background, the index background, but also you have to like sports, yes? Plus, then when you're approaching the various teams, you have the MLB. And the NHL, how does that work? Like, are you in talks with the NFL? When do you hope to have the Holy Grail, as Eric says?
00:21:15
Speaker 2: Yeah, so I'll take the first question first. Liking sports is probably an understatement. We're all pretty obsessed. So to an unhealthy level sometimes. So yes, everybody loves sports. We're looking to combine a love of sports and a background in markets. And to use a sports analogy, we're looking for all-stars here, people who are known within their individual part of the business. So we've got guys on our team who have done really deep work within sports data. For example, our CTO's company got bought by Sport Radar when they're entering the States. So we've got a number of people like this across the team. We're passionate about the team and bringing the right people to the table.
00:21:51
Speaker 6: Presumably you have some pre-existing relationships where you can go to the MLB or... I noticed you dodged my question about the NFL.
00:21:58
Speaker 2: Yeah, so I'll get there. We had no relationships coming over here, to be honest. So myself and my co-founder, Rhett, were coming from Australia. We've got capital markets backgrounds, so we have a lot of relationships within that space. We basically asked, begged, and groveled our way to introductions with leagues. The first league we met out here was the NBA, who introduced us to the MLB. We met all of the leagues via introduction. So it's been legwork and hard work and jumping on planes and being willing to sit down. We've invested a huge amount of time. Like we've been engaged with the leagues for four years to explain to them what's an index, what a derivative is, what is exchange trading. They've gotten very smart very quickly and ultimately become partners. So we've worked hard and we've educated and we've been patient. We've made sure that we haven't done what other groups have done and jumped before the league partnerships are in place. That's been important to us. And again, speaking to what we hope is the longevity of this business and Being patient, we hope, sets us up for very long-term relationships with these leagues. We're speaking to every league, every league that you can think of. The subset for us globally is probably about 15 leagues. We are not looking to start indexes in synchronized swimming, for example, not to throw shade. I think you're throwing shade. I love synchronized swimming. I watch the Olympics.
00:23:13
Speaker 3: Don't do pickleball. Please don't do pickleball.
00:23:16
Speaker 4: Why?
00:23:16
Speaker 3: I don't know.
00:23:17
Speaker 4: It's just … The noise, just stick to tennis.
00:23:22
Speaker 5: You're really setting yourself up for a lot of Twitter hate.
00:23:25
Speaker 7: I know.
00:23:26
Speaker 3: For a lot of stuff. But you would do individual sports too, like tennis and golf?
00:23:31
Speaker 1: We will.
00:23:33
Speaker 2: We have met the ATP. We've met the PGA. We know both those groups well. We can build out indexes on athletes. This will never be a product. We will never build indexes or tradable indexes on athletes who sit at the end of the bench. integrity is the number one concern here for us, for the leagues, for the CME, and for the FCMs that trade on CME. So we will be looking to measure performance of top athletes only if and when we do go down that path.
00:23:59
Speaker 7: Wow.
00:24:04
Speaker 4: So I'm going to buy the Carlos Alcaraz ETF, I think.
00:24:14
Speaker 3: I'll Can I do that this time next year?
00:24:16
Speaker 6: Well, I was just thinking if you have a Bills index, you'd also maybe have a Josh Allen specific index because he clearly is the best quarterback in the league.
00:24:26
Speaker 3: Yeah, I mean, look, the Bills, I root for them.
00:24:30
Speaker 1: Don't worry.
00:24:31
Speaker 3: This could be their year. They're just something.
00:24:34
Speaker 4: They lack the clutch gene, which is going to show up here because I'm noticing if you win the World Series, you get 750 points, which is like, That's a combination of a lot.
00:24:44
Speaker 3: Of other stats. Like, that's really big.
00:24:46
Speaker 4: You don't need to do March Madness, and each win gets bigger and bigger points. And the person who picks the actual, the points are so big that the people leading at the beginning of the tournament are never the people at the end.
00:24:58
Speaker 3: Seems like there's a similar phenomenon here. And there should be.
00:25:01
Speaker 4: Winning a championship's really hard. I just think the bills are, they're.
00:25:04
Speaker 3: Due, but I wouldn't.
00:25:06
Speaker 4: I wouldn't. I would bet on them in the right, here's what I would do. I'd buy the bills and then rate the playoffs.
00:25:11
Speaker 3: I would sell them. They're so good in the regular season. That would be my move.
00:25:15
Speaker 4: But anyway, you're going to go down with the ship.
00:25:19
Speaker 6: To sort of synthesize all of this. So we have the indexes for those two major athletic leagues, I guess, possibly more to come. But then a number of ETF issuers, because this is an ETF show after all, have filed to use your indexes to put out maybe sometime soon, a number of exchange traded funds, right? And so there's a lot of questions actually around this, like who would be market making for you? Like who have you talked to or signed up already? Or who the target audience is? Because in my mind, it is retail, even if you have had discussions with institutions about how they might.
00:25:58
Speaker 5: Use this for hedging.
00:26:00
Speaker 6: Clearly, I am a Bills fan, and everybody in Western New York is a Bills fan, and maybe you're hoping that all of those people eventually buy the Bills ETF. There's just a lot of questions about the ETF concept of this.
00:26:12
Speaker 2: I totally get that. The important thing to remember here is that we are the index. We're the index administrator. We are the reference. The ETFs that are coming out will hold futures. The futures are made available via CME. So those groups will hold futures. They will do different things with the futures. There's a lot of interplay here in the way that the ETFs will be able to work. They may be long only. They may be short only. They may be active. They may be levered. There have been applications for levered. So there will be a lot of different things that the futures can do. There will be a lot of index concepts that we haven't brought to market yet that would be able to sit within an ETF wrapper. We think this is exciting for the ETF space. This is somewhere where we do see retail getting involved. Somebody for... For you to trade futures, you have to be a sophisticated retail trader. There's a bar there where any of the FCMs or brokers will need to understand your trading background, source of funds, trading history. They need to make sure it's margined. So they need to make sure that you can meet a margin call if you have an out-of-the-money position. So for a retail investor who doesn't trade futures or isn't comfortable or doesn't have that background, an ETF provides access.
00:27:17
Speaker 4: Yeah, I mean, the futures for oil ETFs, Nobody really wants to trade those. But I will say that when ETFs track futures, there is some roll costs involved. I assume the futures are what the market makers will use. They'll just trade the futures. That's why I think the ETF will be approved. I don't even think they have to think about it because it's not that different.
00:27:36
Speaker 3: Than an oil or corn.
00:27:38
Speaker 5: Curious which market makers, you know?
00:27:40
Speaker 1: Yeah.
00:27:40
Speaker 5: Who's signing up?
00:27:42
Speaker 3: If you have a year and I bought USO, that's the oil futures ETF.
00:27:46
Speaker 4: If oil went up 10%, actually might lose 10% because of the roll costs.
00:27:52
Speaker 3: Are there roll costs like that? And is there any way to put a number on that?
00:27:56
Speaker 2: Yeah, it depends what tenor of future you hold. So within this space, we know that CME already have seasonal futures. So some ETFs may choose to hold the season future and then there won't be a roll cost. Say that there was tighter pricing on a weekly, which there will be because there's less room that a weekly future can move or an index can move over that shortened period of time. then if they wanted to hold long-term, then yes, there would be roll costs.
00:28:20
Speaker 3: So if you have the near, we'll call it the weekly futures, would be like the front week. Micro.
00:28:24
Speaker 4: That would be more sensitive to moves in that sports team that week, which is the benefit there. The longer ones would be less sensitive, but you would have less roll costs. Yeah.
00:28:35
Speaker 5: Is that right?
00:28:35
Speaker 3: Absolutely.
00:28:35
Speaker 2: So if you think about how weekly, I don't want to get into saying how a future will trade because we, again, we're the index, but if Jody has just said that an index will generally put on 50 points during a game, which is less than a percent. There's only so much that the index can move across a week. If you think about, you can extrapolate out opponents and how many games there are during the week. It could be between two and say six for baseball versus a year. You're going to have somewhere between 82 and 184 now for NHL. They changed this year at 162 games in the MLB that trade across a season. So the indexes can move a lot further across that time period.
00:29:12
Speaker 6: But Jodie, what happens with the indexes and performance presumably down the line with the ETFs when the season's over?
00:29:19
Speaker 7: When the season is over, then the indexes stay at the levels. 32 days after, say, the World Series or the Stanley Cup, they reset to 7,500. And the index levels stay at 7,500. The futures contracts can move based on whatever expectation the market participants have due to anything that they hear that they think will influence the index levels in the future until expiration. So if you hear about something about management changes or trades between players, You can look, all right, I think that this guy moved from this team to this team. He generates a lot of homers. Homers are worth X in the stats table, and I think that this is what it's going to add. You can add that yourself. So the futures can move around even if the index level is not.
00:30:15
Speaker 3: Yeah, I'm a Sixers fan.
00:30:17
Speaker 4: Obviously, the Broncoming was like earth-shattering news. I could see it just going up 10% in a day even if the index was flat because the expectations are the Sixers will be better. You see the same thing in the betting markets. All of a sudden, the Sixers' odds to win the championship go from 12-1 to 6-1, just like that.
00:30:34
Speaker 3: Okay, I think I get it. Now, we've got all these issuers.
00:30:38
Speaker 4: There's four issuers per league, I think. There's LeagueShares, Roundhill, AlphaShares, and then RecShares is doing this new company called Alpha Sports or something, where they're only going to do this, and they're going to get into all kinds of things. I don't... All of this has to use these CME futures, which are based on your company. So as you keep getting these deals, the ETF issuers will just follow suit, four or five of them will swoop in, make the ETFs, and they'll just compete in the marketplace.
00:31:08
Speaker 3: Is that the idea?
00:31:09
Speaker 2: That's the idea. We will bring different index concepts to life. But yes, the amount of funds that are out there, and I know this is giving people some heartburn, it will be in the thousands, right? Long-term, potentially tens of thousands. if you think about other indexing companies that are out there, and I know the SEC has a lot on their plate.
00:31:28
Speaker 5: My eyes almost just bulge out of my.
00:31:31
Speaker 7: No, this is typical because if you think about what happened in commodities, so the S & P GSCI, that one index composite, it was 90 single indices because one for every commodity, one for every sector, and then the composite, and then you had a price return and excess return and a total return. And then in the course of about three years, we had 5,000 indices because of the different strategies that were being built based on the rolling or where to hold in the curve, long, short strategies, dispersion strategies, you name it, a strategy for everybody. And so in a set of futures contracts that are available through different index combinations, it's up To anybody's imagination what they can do with it.
00:32:24
Speaker 4: Same with prediction markets. There's endless possibilities in some of these new areas.
00:32:29
Speaker 3: This is one of them.
00:32:30
Speaker 4: I think what people underrate about ETFs is that you can have a ton because all they're doing is standardizing all this other stuff that's a pain to get. Futures are not that easy. So ETFs make everything trade like an equity. Equity is the best, most.
00:32:46
Speaker 3: Convenient way to trade things. There's price transparency. It's in a ticker. It's regulated.
00:32:52
Speaker 4: It's in your brokerage account like everything else. So it standardizes everything, including sports. So the open question is, will there be demand? How will this work? Would a bear market make it less attractive because people have bigger fish to fry? These are all open questions.
00:33:08
Speaker 3: But it's, like I said, never a dull moment in the ETF world.
00:33:12
Speaker 7: As you were saying how ETFs standardize everything, that aligns perfectly with the index system. strategy that we're taking in standardizing sports performance. It hasn't been standardized. The data's been around forever, but to be able to take that data, assign these point values and a methodology, and have a reference that the whole industry, whether you're a sponsor, journalist, analyst, business whose revenues are tied to the sports performance, or an investor who's looking for diversification because turns from the field and the ice don't move the same as the market. It's standardized. And that's the key. And that's what brings accessibility.
00:33:56
Speaker 4: Thank you for tuning in to Trillions. And thank you both for coming on and sharing all this with us. And we'll look forward to having you back.
00:34:02
Speaker 2: Appreciate you guys. Thanks for having us.
00:34:11
Speaker 1: Thanks for listening to Trillions. Until next time, you can find us on the Bloomberg Terminal, Bloomberg.com, Apple Podcasts, Spotify, or wherever else you like to listen. We'd love to hear from you. Hit us up. Trillions is produced by Magnus Hendriksen and Keshav Pandya. Amy Keene is our executive producer. Cheryl Brumley is the head of Bloomberg Podcasts.
00:34:31
Speaker 7: Bye.
