Sportsbooks only, speculators not invited

With all the interest lately in hedge funds, shorting stocks, and different financial derivative vehicles, it is perhaps appropriate that a cryptocurrency exchange wants to operate a system to help US sportsbooks trade National Football League (NFL) futures contracts. Such financial instruments have been illegal for a decade, but ErisX and attorney Jeff Ifrah – a gambling law expert – aim to change the government’s mind on the matter.

help sportsbooks hedge their positions on certain games

The idea is to allow licensed sportsbooks, vendors, and companies that position themselves in the middle as market makers to buy and sell futures contracts on games on which they are taking bets. Unlike on Wall Street, investors and speculators would be banned from participating in the market. It would supposedly just be a market internal to the industry to help sportsbooks hedge their positions on certain games.

ErisX made the official request to the Commodity Futures Trading Commission (CFTC) for the futures contracts market in mid-December, which triggered a 90-day public comment window. The company has hired Delta Strategy Group to help lobby the CFTC.

Trying to ease risk for sportsbooks

The goal for such a market is to give sportsbooks the opportunity to lessen their exposure to lopsided sides of a game. ErisX told Bloomberg that the state-by-state legalization of sports betting has exacerbated these types of occurrences because people tend to bet on their local team. Thus, in a state that has legalized sports betting, sportsbooks can face tremendously imbalanced betting volume on the fan favorite team in that state.

With the exchange, a sportsbook in Tennessee, for instance, might not like how much downside exposure it has on a game between Tennessee Titans and the Denver Broncos because local fans are pounding the Titans’ side. The sportsbook would go to an exchange and sell Broncos futures and buy Titans futures. This way, if the Titans win, the sportsbook has to pay out all the bets it took, but it makes money on the Titans futures contracts.

On the other side, a Colorado sportsbook would do the same thing in reverse: sell the Titans futures that the Tennessee bookmaker would buy and purchase the Broncos futures contracts. Neither sportsbook would maximize their win if the outcome of the game is in their favor, but they would also reduce their losses if it works out in the bettors’ favor.

ErisX is seeking the ability to trade futures contracts on NFL moneylines, spread bets, and over/unders. If approved, other sports would likely follow.

Uphill battle

Generally, the opinions of a sports betting futures contracts market – aside from those of the sportsbooks and of the ErisX/Ifrah team – are negative. It is seen as the proverbial “slippery slope,” potentially opening the door to more gambling-on-gambling products and possible involvement of investors and speculators.

Patrick McCarty, who was involved in writing the law that banned such gambling contracts and who is now the head of a government affairs company, told Bloomberg that “approval is highly unlikely.” He believes the CFTC could see this as the federal government stepping on the toes of the states when it comes to gambling regulation.

The only winner under this type of proposal are the casinos themselves.”

Les Bernal, national director of Stop Predatory Gambling, believes that even if the market remains restricted to just the sportsbooks working to smooth out their risk, it could be a bad thing for customers. If sportsbooks are able to mitigate their risk more easily, he opines, they could then feel braver in taking larger bets, with the downside falling on the customers who make those bets.

“The only winner under this type of proposal are the casinos themselves,” Bernal said.

The NFL and NBA are reportedly at least somewhat interested, but are at best “lukewarm,” wanting the CFTC to study the topic very carefully.