As we wrote in April 2022, last year’s Super Bowl was the publicity peak of the crypto bubble. Celebrity-studded ads made the case for the rank and file to join the billionaire “crypto bros” surfing the wave of the financial future. The ignominious crypto exchange FTX, now bankrupt and synonymous with fraud, was a notable newcomer.

Headlining the blockbuster event is often a sign of waning popularity. For instance, most of the musical acts in 2022 were already in their 50s, well past their halcyon days of pop-world stardom. Crypto companies had already been weak for months and imploded later in 2022. The general malaise that settled over the equity markets for much of last year has been widely portrayed as taming animal spirits. With the return of nearly forgotten real interest rates in 2022, historic overvaluations have moderated, and the headline excesses manifest in early 2022 have failed to re-emerge. This has some hoping that the worst is over, that policymakers have successfully stabilized the post-pandemic economy and prepared it for steady growth, that there is virtually no cost to be exacted for the tsunami of monetary and fiscal largess dating back to 2008.

While the frothiest financial assets have come off the boil, the conditioning born of easy money and quick gains seems to have not been successfully reversed. Take as Exhibit 1 the Super Bowl of 2023.

This annual event is one of capitalism’s high holidays. Its ritual of novel advertisements is performed by both Wall Street giants and hungry startups alike, all seeking the continuing or nascent patronage of the American public. Consequently, the artistic productions of the marketing departments are a cultural barometer of the economic zeitgeist. Last year the Super Bowl exhibited the hallmarks of mania. Crypto ads will be absent from this year’s lineup, and only time will tell what unexpected stories the marketers will spin. At this vantage point it doesn’t appear that the wealth destruction of 2022 has changed the appetites stirring for Super Bowl LVII.

The Wall Street Journal estimates that 50 million viewers will be betting on the game. Since a 2018 Supreme Court ruling, 36 states have legalized sports betting. Arizona, which hosts this year’s game, is one of them. The chief executive of the American Gaming Association claims the option of legally wagering on the Super Bowl is “a testament to the progress we’re making.”

The centerpiece of this “progress” is DraftKings, the still unprofitable, mobile, sports-betting platform that launched just before the pandemic. Fantasy sports leagues have been big business for more than two decades. Fans got to try their hand at management. DraftKings is the logical next step. It tempts sports aficionados to monetize their expertise. When fans were cooped up during the pandemic, DraftKings took the equity capital it had raised at its IPO and set about acquiring customers. By offering $5 here and $100 there, the company bought consumer participation. It was the era of largely free money. The government credited your bank account; DraftKings credited your betting account.

The resulting surge in sports betting seems a two-sided phenomenon.

The Speculative User

The first was speculation as pastime. Flush with cash, forced homebodies piled into meme stocks, cryptocurrencies, and sports betting. While cryptocurrencies are the poster child of this trend, sports betting is likely more ubiquitous. The projected gamblers on the upcoming Super Bowl outnumber all U.S. holders of cryptocurrency ever.

Sports offer an intimate familiarity that novel cryptocurrencies lack. They also can be similarly lucrative for the savvy gambler. Given its deep coffers, DraftKings customer acquisition apparently has not been as efficient as one would think it could be. In 2020 the company reported that its customer acquisition cost was $371. Customers had a predicted lifetime value of $2,500, a rather bold forward-looking assumption given the company is less than 10 years old and only went public in 2019. Its target demographic is also schooled in YouTube channels that teach users to game the company’s incentive system rather than just bet on sports events. In short, “the house” might not currently be winning. With constant financial incentives awarded to keep users wagering, quite a few DraftKings devotees are making multiples on their contributions—not from insights into sporting events, but just by bleeding the company. Their success stems largely from the loose standards by which DraftKings conducts its business.

Still, Reddit boards abound with stories of major user losses. For those who are seeing their losses increase (and that number continues to grow), the bloom may be off the rose.

“I think we maybe hit a soft landing with advertising, where it isn’t so in our face, for this Super Bowl and for the next 12 months,” says Rick Arpin, a gaming consultant. Mobile sports gambling has fallen 42% over the last two fiscal quarters, according to TransUnion. As with cryptocurrencies a year ago, the environment for gaming also seems past its prime.

The Speculative ‘Investor’

This is the second side of the sports-betting phenomenon: speculation masquerading as investment. The enthusiasm with which sports fanatics jumped into gambling was mostly matched by investors plowing into the stocks of companies feeding the betting frenzy. Gains in digital enterprises seemed almost risk-free. Revenues at DraftKings surged. Though earnings remained conspicuously illusive, investors had been programmed to discount profits far into the future, if they cared about them at all. DraftKings’s shares rose from $10 in 2019 to $72 in 2021.

It’s ironic that the speculation on Wall Street also required speculation on the part of sports spectators. Bubbles tend to be vicious cycles of magical thinking. What can’t go on, though, won’t. DraftKings’ stock has fumbled away more than three-quarters of its value since its peak. Still, the façade has not wholly cracked. The company is spending big to engage users during the coming game. It is deploying capital raised at minimal interest rates to win customers who, in betting, are acting like money is still free. But it isn’t.

This is a telling case study that speaks to broader global issues and markets. Debate is heated over whether the stupendous January rise in the S&P 500 is a bear market rally or the sustainable start to a long-term bull run in the index. Labor market strength continues, and inflation has clearly cooled. Many hope this implies that a soft landing will avoid recession. They pine for a continuation of economic growth despite the measures taken by global central banks. Those who understand the lagging effect of monetary policy, however, are generally convinced that the economic ramifications of the hawkish policy shift in 2022 have yet to hit the markets. To put it in Super Bowl terms, the fading engagement of gamblers is just the beginning.

Macroeconomic data, especially with the distortions of the pandemic, are seldom more than a cloudy crystal ball. If market cycles are partly determined by investor psychology, though, the mood of the producers and consumers, which sets market prices, can be an insightful addition to the quantitative metrics on which economists hang their predictions. The popping of speculative bubbles requires a drastic revision in the speculative attitude of investors. At Super Bowl LVII, the speculation of fans has waned, but reckless risk taking elsewhere is alive and well. Indeed, the speculative impulses of investors seem to be barely blunted.

Consequently, MCM sides with those who worry that the S&P 500 is in a bear-market rally. Valuations have moderated off their highs, but they’re well above long-term averages. More importantly, there has been no washout in either equity prices or sentiment. The last decade has preached a gospel of perpetually high asset prices. Investment-risk profile has been formed around those hopes. Such an ingrained fervor will take more than a few moderated months to significantly dissipate. Major bear markets are painful affairs. Broadly speaking, the slower economy has so far been little more than inconvenient.

As long as the Super Bowl is framed as a money-making opportunity for the spectator, the economic and psychological cycle is likely incomplete. But when marketers tout such a football game as an inexpensive form of home entertainment, when the food conglomerates advertise value for the money, when the struggles of working-class families are a key theme of Super Bowl news coverage rather than the smartphone wizard about to hit it rich … that will be when psychology has shifted. Is this a pipedream? Probably.

And on the investment front, the price of publicly traded equities will likely be starkly lower than they are today. Super Bowl jinx or not.

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