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BOA Warns of Emerging Credit Risks Tied to Sports Gaming & Prediction Markets
“Easy access and gamified interfaces encourage frequent and impulsive wagers, which can lead to overextension of credit and rising loan defaults,” wrote a team of analysts led by Mihir Bhatia. “For investors this convergence of entertainment and speculative finance signals heightened behavioral risk that could pressure credit quality, increase delinquencies, and impact earnings for issuers and subprime lenders.”
“At its best, the embrace of events-based contracts could represent a new asset class: event outcomes traded with derivatives-grade infrastructure transparency and liquidity,” the report said. “At its worst, it could serve as a potential regulatory arbitrage path around state gaming laws, one with thin consumer protections and opaque payout mechanics.”
The chief executive of Robinhood Markets took the stage at the online brokerage’s annual summit in Las Vegas this fall decked out in a race-car driver’s jumpsuit and customized Nikes.
Vlad Tenev told the hundreds of cheering traders in the audience that they had chosen “one of the most intense lifestyles out there.” He compared trading to driving a race car. “A finely tuned machine can make all the difference,” he said, “and that’s the role we feel Robinhood plays for our active investors.”
Risk-taking is back for individual investors, and few people have done more to stoke those spirits than the 38-year-old Tenev. Robinhood’s trading app makes it easy not just to buy and sell ordinary stocks, but to invest in options, cryptocurrencies and other exotic financial products, even to make sports bets and play the prediction markets.
The company’s critics liken the environment to a casino, but its fans credit Robinhood with democratizing the lucrative world of sophisticated investments.
“He’s almost building a cult,” said Aaron Cook, a 28-year-old plumber who was in the audience in Las Vegas. Cook said he had used his profits from trading stocks, options and memecoins to buy a Jeep Wrangler and a $60,000 home.
A host of new products have entered retail-investment markets in recent years and worked their way into the mainstream. Investors are wagering on the price of bitcoin and piling into ultrarisky types of options, such as the “zero-day” variety that expire rapidly and require perfect timing. They are buying futures contracts tied to all sorts of events, betting on whether a Taylor Swift album will top the Spotify charts or whether the Green Bay Packers will beat the Detroit Lions on Thanksgiving Day.
Comments: • Gambling from your own home! What can possibly go wrong? (Other than maybe losing the home?)
@Old_Joe, Thanks for the awesome excerpt & source. It’s truly mind-blowing. Maybe because I’m one who plays with nickels and dimes on DraftKings (MLB / NBA) I can better appreciate the dire situation here. Since Michigan taxes you on everything you win but does not allow deducting losses it’s a no-brainer for me. I’m not tempted to make big bets. But the harm being done to lower income families by the legalization and constant promotion of sports gaming (and every other kind) has to be enormous, if largely unreported.
More to your post … Using one’s IRA or other accumulated savings to “invest” in a sports contest outcome has to be one of the dumbest ideas ever. Was this “investment” even contemplated or allowed back in 1929? Shows how out of control our markets are today.
BTW Bloomberg had a slightly better story last evening than the 2 stories i linked. But I didn’t think it worth posting their site with the tracking apps that seem to come along.
Comments
• Gambling from your own home! What can possibly go wrong?
(Other than maybe losing the home?)
• A $60,000 home? Say what???
More to your post … Using one’s IRA or other accumulated savings to “invest” in a sports contest outcome has to be one of the dumbest ideas ever. Was this “investment” even contemplated or allowed back in 1929? Shows how out of control our markets are today.
BTW Bloomberg had a slightly better story last evening than the 2 stories i linked. But I didn’t think it worth posting their site with the tracking apps that seem to come along.