A U.S. Jock Stock Market Gains Ground as Football Index Suspended
Jock MKT (Jock Market)—a marketplace that allows users to buy and sell virtual shares of NFL, NBA and PGA Tour athletes with real money—recently announced the addition of the National Hockey League to its platform. Inspired by a traditional stock exchange, share prices on the fantasy gaming app rise or fall—along with the value of player portfolios—in real time, based on the player’s performance.
Now available in 34 states and on pace to have 25,000 total user accounts by month end (+10,000 MoM), Jock MKT is gaining momentum at an opportune time. Day trading, sports betting and digital collectibles are all having their day in the sun. But as evidenced by Football Index’s (a comparable outfit based in Europe) decision to suspend the platform, a company that resides at the intersection of the three is not guaranteed sustainable, long-term success—they must also have a sound business model.
Our Take: Back on March 3, Football Index notified users the terms and conditions of the platform would be changing and that dividends paid on shares (think: cash rewards for goals) would be slashed moving forward to preserve the “long-term sustainability of the platform.” The prospect of reduced payouts drove away shareholders, a mass exodus that resulted in the market collapsing. According to IndexTrak, on March 5 the total value of the Football Index platform (at sell prices) was north of $77 million. Just two days later, that figure had fallen to under $10 million. On Thursday March 11, the company issued a statement saying it would suspend the platform until it could “find a more agreeable way forward.”
Football Index CEO Adam Cole said in June that the platform could grow as much as 10x over the next two years. He followed that comment up with a November statement claiming the company had never been a stronger financial position then it was at the time. So, with the Football Index now claiming the need to slash dividends to stay afloat, some have suggested Football Index was operating more like a Ponzi scheme than a business. The presumption is the slew of positive updates was an attempt to bring in new money that would fund dividend payments to existing players. The company has categorically denied the allegations.
Football Index’s current troubles stem from a faulty business model. As Albachiara SAGL founder (and Are You Not Entertained? co-host) Roger Mitchell explained, pre-COVID the company “offered players a buyer for their shares at a small discount. They were essentially a market maker capturing a small spread.” By serving in that capacity, they were providing underlying value to player shares and de-risking the platform for users.
The company since turned the platform into a peer-to-peer exchange without a central market maker. Presumably, the decision was financially driven (i.e., it lacked the capital to be buying back shares). But the shift in strategy inadvertently eliminated liquidity on the exchange. With no market for the shares, shareholders were unable to exit their “investments” and prices dropped. “Removing the instant sell [option] changed everything overnight. [Football Index] became the Wild West (because tight liquidity markets are ripe for manipulation). Now that they’ve moved the goalposts again [by reducing dividends and having minted new shares), the platform has lost trust,” Mitchell explained, and the market has collapsed as a result.
The Albachiara SAGL executive remains bullish on the concept for a sports stock market. “It’s wonderfully entertaining, and in moderation, gives [the user] a real edge to watching a sport.” But as we saw with Football Index, it doesn’t work long-term with a peer-to-peer marketplace—at least not one that is also guaranteeing dividends in perpetuity. There are also problems directly tying fantasy stats to dollar values. As Tyler Carlin (founder, Jock MKT) said: “You can’t, as a company, predict how many points are going to be scored on a given night. You could have some black swan event where you essentially have a ton of overachievers, and now you’re on the hook for a number that you can’t cover.”
Jock MKT has long studied the Football Index model, along with previous failed attempts to create a traditional stock market around sports (see: One Season), and taken a more daily fantasy-sports-style approach to the concept. The company uses fixed payouts (as required by U.S. DFS legislation) to eliminate user concerns about liquidity. “Regardless of how many other people have shares, who else has shares or if they are being traded, there is a set payout,” Carlin explained. By guaranteeing payouts for each finishing spot, Jock MKT is providing an underlying value to the shares. Shares will never be less than $1.
On Jock MKT, “IPOs” are held daily, in which the market sets the price of player shares. Users can then trade those shares in-game or hold them until the end of the night and collect their respective payout. Carlin said nightly turnover “introduces a lot more price volatility and trading” than one might find on a platform like Football Index, where shares can be held for an extended period (and often are due to the dividend payment model), which in theory makes playing more fun and engaging.
Aside from giving users confidence, Carlin says providing fixed share payouts on a nightly basis makes the company’s model more sustainable. Because payouts are not based on supply/demand or scarcity and rosters turn over each night, there is no “unlimited” upside potential for users. It also means if users decide to sell off en masse the market isn’t going to collapse (like it did with Football Index and One Season).
While that doesn’t mean Jock MKT is guaranteed to succeed like DraftKings or FanDuel, if the business goes under, users won’t be left holding the bag (as they would if Football Index goes under). That’s because U.S. DFS consumer protection laws require player funds be maintained in a separate LLC and ensures they cannot be used to cover operating expenses.
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