Volatility Shares Trust has filed paperwork with the SEC to create a separate exchange-traded fund (ETF) for each of the 32 National Hockey League (NHL) teams. These proposed ETFs would not confer any ownership of the teams, equity stakes, or a share of ticket sales or media rights. Instead, each fund would primarily invest in cash-settled futures contracts linked to a "CME FSPI NHL [Team] Index," which is a Sports Performance Index based on 55 statistical measures of each team's on-ice performance.
The idea is that FutureSports creates an index measuring an NHL team's performance using statistical data, and CME Group offers futures contracts tied to that index. Volatility Shares' ETFs would then provide investors with exposure to these futures by buying shares of a fund that invests in them. For instance, a "Maple Leafs ETF" would see its value fluctuate based on events like Auston Matthews scoring a goal (adding value) or Max Domi getting a penalty (subtracting value). These contracts are designed to be cash-settled, meaning the fund receives cash when contracts increase in value and pays cash when they decline, with the fund selling expiring contracts and replacing them with newer ones.
These products are currently awaiting regulatory review, and neither the U.S. Securities and Exchange Commission (SEC) nor the Commodity Futures Trading Commission (CFTC) has approved them. Critics, including Dimitri Busevs and Samer Nusier from RBC Direct Investing, argue that these ETFs closely resemble prediction markets and gambling, potentially misleading investors about what constitutes true investment. They highlight that these funds would not involve traditional financial instruments like dividends or capital appreciation from company profits, but rather speculate on team performance for entertainment value.
The proposed ETFs face skepticism regarding their viability. Todd Sohn of Baird Strategas ETF doubts their immediate launch due to potential issues like liquidity, market making, tracking accuracy, and what happens during the off-season. The prospectus itself notes that there's no guarantee the performance of the futures contracts will be highly correlated to the team's actual performance index. Furthermore, team performance is susceptible to various risks including player injuries, suspensions, trades, and labor disputes, which could increase volatility. While CME plans to launch the first index-based hockey futures on September 28, pending regulatory approval, the approval and eventual success of these ETFs remain uncertain.
