Investors have referred to the futures market as Wall Street’s version of a casino. So it could be poetic justice that a proposal going around lets casinos trade futures.
The unusual coupling of the gambling industry and high finance comes courtesy of a cryptocurrency exchange and a Washington lawyer. The goal is to get a piece of the action flowing into the U.S. sports betting industry by devising futures contracts based on National Football League games—if regulators approve, according to Bloomberg.
Here’s the challenge. Congress banned marrying financial instruments with gaming back in 2010. But supporters say the futures, linked to the outcome of a football game, are not really about gambling. They are simply marketing the contracts as risk management tools for sportsbooks. Think of them as a financial device designed to offset potential losses or price fluctuations. To put another way, casino operators are farmers using futures as a hedge against a bad crop, or a Tampa Bay Super Bowl win.
Trading in such activity would be limited to licensed sportsbooks, vendors, and companies that set prices. Individuals and hedge funds need not apply.
“This is not a substitute for gaming,” said Thomas Chippas, chief executive officer of ErisX, the exchange that wants to list the contracts. “There is underlying economic risk that is being hedged.”
In December, ErisX asked the Commodity Futures Trading Commission to approve the idea, which kicked off a 90-day waiting period while the Commission seeks comments.
The exchange and its partner, gambling law attorney Jeff Ifrah, met for months with commissioners to pitch their idea, aided by commission lobbying firm, Delta Strategy Group. If the idea gets a green light, look for futures in baseball and basketball also.
One of the issues the commission must consider, among others: whether futures can be used to affect the outcome of a game. If the agency says OK, critics could yell foul since the commission was established to police agricultural commodities and protect farmers. They know something about this arena, but little about athletics.
Also, offering gaming companies the right to transfer some risk could lead casinos to take on larger wagers.
“The only winner under this type of proposal are the casinos themselves,” said Les Bernal, national director of the Washington advocacy group Stop Predatory Gambling.
The commission is not expected to approve the idea, said Patrick McCarty, who runs his own government affairs firm and as a Senate Agriculture Committee aide helped draft the derivatives provisions in the 2010 law. Some might construe support as an end run around state regulation of gaming, he said.
“It’s like opening a door that the commission doesn’t want to go through.”
The NFL and NBA seemed to distance themselves from the concept.
“But we want to work with the sports leagues to make sure their concerns are addressed,” Ifrah said.
ErisX wants approval of the outright winner of the game; the point spread; and the over-under or total points.
