Alex Rodriguez is among the investors and co-founders of a sports stock exchange called Mojo, which hopes to get regulatory approval and launch later this year. [Image: Shutterstock.com]
Serious money behind the venture
This week, Vinit Bharara announced the creation of Mojo, a sports “stock market” he hopes to launch later this year. His introduction of the company grabbed headlines because of the involvement of legendary baseball slugger Alex Rodriguez as a co-founder, his business partner Marc Lore, and Thrive Capital, which has injected $75m in funding.
Mojo is (or, to be exact, will be) a sports betting site, but not one in the traditional sense. It is essentially a sports futures market for individual players. Buy shares in a professional athlete, hope that athlete succeeds on the field, and watch the shares increase in value. Buy and sell, profit and loss, just like on a stock market.
I’ve always thought the idea of a sports stock market was the holy grail”
“I’ve always thought the idea of a sports stock market was the holy grail — the vision could transform sports, and fandom as a whole,” Lore told Bloomberg.com. “For years, I’ve heard people throw around the idea — but nobody has been able to do it. For the concept to truly work, you need underlying principles like intrinsic value and instant liquidity.”
A sports stock market sounds like fun. Use your knowledge to “buy” players who you believe will perform and reap the rewards as their share prices increase. If this sounds familiar, it’s because it is, and it did not end well. Remember Football Index?
Don’t be Football Index
Football Index was a UK-based regulated sports betting site where users could buy shares in soccer players. Like with what Mojo intends, Football Index had a marketplace where customers could buy and sell their shares as values went up and down.
The key to Football Index, though, was the dividend that each share threw off depending on how a player performed on the field on any given day, or even how active their profile was in the media. The dividend is what value was given to the player shares. Shares that paid hefty dividends because the associated player did well day in, day out went up in price because they were in high demand.
But it was also those dividends that killed Football Index. The company eventually realized that it couldn’t afford to keep paying these cash awards every day, so in early March 2021, it announced that it was slashing the maximum dividend per share from 14p ($0.18) all the way to 3p ($0.04). With the potential cash flow from player stocks destroyed, share prices plummeted across the board, many losing almost 100% of their value. In turn, user accounts were decimated.
To make matters worse, much of the market liquidity was driven by Football Index issuing and selling new shares, not just from users buying and selling with each other. Football Index actually issued hundreds of thousands of new shares between the time it decided to cut the dividend and the time it made the announcement.
Football Index is now defunct, if that wasn’t obvious.
“Intrinsic value” based on cumulative statistics
So knowing what happened with Football Index, should Mojo be worrisome? Hopefully not, and though much of the hype from its founders right now is pretty vague, my initial impression is that Mojo will work differently.
The big question with Mojo is how player share prices will go up and down. It’s one thing to collect baseball cards in hopes that they will increase in value – this generally happens with scarcity and time (and player star power) – but with Mojo, we’re just talking about shares floating around in the ether. It feels like there needs to be something to drive prices other than someone being willing to buy a share for a penny more than I paid for it. Football Index had dividends, which worked great until the company couldn’t afford it anymore. Then it was disastrous.
shares need to have “intrinsic value and a resulting price integrity”
Marc Lore mentioned it to Bloomberg and Vinit Bharara used the same phrase in LinkedIn post: shares need to have “intrinsic value and a resulting price integrity.” In other words, there needs to be an objective way to value shares, rather than banking on the “greater fool” theory.
Bharara said that the solution, without going into detail as to exactly how it will work, is “users would trade and bet on an objective cumulative statistic of athletes,” adding “if you correctly predict an athlete’s performance, you’ll make money. ”
It remains to be seen how it will all work in practice. Bharara said that the exchange will be “based on predicting uncertain athlete statistics that can accumulate for several years and as long as a player’s career,” so one would think that day-to-day volatility would be minimal. Mike Trout’s or Joe Burrow’s share price won’t sink just because they had a bad game or two.