FutureSports looks to take sports trading beyond entertainment products

FutureSports emerged from stealth last month with backing from CME Ventures, Robinhood Markets and other sports and financial industry investors. CME Group last week confirmed plans to launch futures based the inaugural National Hockey League (NHL) index on September 28, pending regulatory review. The news is the culmination of a multi-year effort to develop an alternative to binary, event-style contracts that dominate the market.

“The genesis came out of our own experience trading in traditional derivatives markets including crypto, and essentially wanting to do more in sports,” Rhett Dinsdale, FutureSports co-founder said in an interview. “We set out from a very early point to try to build a continuous price so that there would be a legitimate sports product for real time risk management. We saw that there was a huge appetite in sports for exchange traded risk mitigation.

“Most of these people and businesses in the sports ecosystem are paying away tens of percents to insurers to get their hedge away – and in some cases that translates to millions a year. We thought it would be better to make a lot of that risk at least exchange traded – reducing the price to the end user and increasing efficiencies in the sports ecosystem.”

In a methodology guide for the FSPI NHL Team Indexes, published on Monday, FutureSports said that the benchmarks are built to provide real-time outputs based on a mix of official league statistics and performance metrics. The measure is enhanced with uniquely assigned multipliers that affect the generated scores for each team.

“There is more corporate capital flowing into sports, and that brings more sophisticated entrants; we are seeing hedge funds, private equity and asset managers coming into the space,” Leigh Taylforth, FutureSports co-founder told FOW. “When these kinds of entities come in, they start asking for tools to be able to manage and mitigate the risks associated with those investments.

“We like to see our indexes giving them back some control of their balance sheet. Traditionally when sports was more in its infancy, protecting the downside wasn’t as big a factor. We believe we are a part of the infrastructure that will grow the pie in sports.”

A big part of those growth plans is the development of a liquid derivatives market based on the continuous benchmarks the firm provides.

“We have always tried to represent our concept as something that is relatively traditional,” Taylforth added. “It fits into traditional rails; the derivatives on the index will trade on an exchange that is mature and conservative. The product sets – futures and options on futures – and tenors are those the institutional market knows well.

“Parts of our business are exciting for people to hear about – particularly in the sports world – but we also take a bit of pride in the fact that we offer traditional pricing and index methodology while staying away from certain parts of newer offerings like using quoting techniques from other industries.”

The launch of the index family has been followed by the first exchange traded fund (ETF) filing using the benchmarks. Volatility Shares Trust on Friday filed a prospectus with the Securities and Exchange Commission aimed at listing 32 separate ETFs referencing the different hockey teams. Each fund will invest in the relevant cash settled CME FSPI NHL Index futures, according to the prospectus.

“We anticipate ETFs coming in fairly quickly,” Taylforth said ahead of the filing. “We have had really strong interest from ETF sponsors and providers. At the foundation of these wrappers will be a liquid futures market.”

The firm is already working with other leagues to expand coverage, as part of a wider plan to provide comprehensive risk management in the sector – including sophisticated retail investors.

“This is very much a roadmap towards other launches,” Dinsdale said. “We intend on rolling out partnerships with a number of other leagues domestically here in the United States and ultimately internationally too.

“We were looking to create something that was innovative and solved a problem. We came up with the index methodology based on statistical performance, then started coming over to meet US sporting leagues.”