Asset & Wealth Management
ScoutX.io turns sports into a fintech investment product
Forget online betting: this DeFi startup is replicating stars’ earnings performance as futures contracts.
A startup called ScoutX.io is looking to raise a Series A funding round to launch an investment app based on tracking the financial performance of sports stars.
The founder, Amay Makhija, believes people’s knowledge of sports can be transformed into the equivalent of investment research – and that this will benefit more investors than trying to teach them the intricacies of finance.
“Name 10 companies you understand,” he told DigFin. Put this in the context of a barstool conversation. “Could you discuss an earnings analysis on them? Now compare that to the sports fan who knows 10 players.”
From barstool to betting
ScoutX is building structured products based on an investor’s prediction of a star’s annual financial performance. Say you follow a big Wimbledon champion who’s already brought in $2 million this year. ScoutX would let you go long or short bets on how much more she’ll earn this year (or over the next three or five years, for example), based on her contractual schedule.
The result is a sports derivative, trading on the real-world earnings of athletes. Because the betting is done on a blockchain, the marketplace, the overs and unders, and the star’s performance are all transparent.
ScoutX’s model will only work for sports organized around prize money, and it doesn’t count sponsorships or other income unrelated to what the athlete wins in a tournament. Therefore it’s not suited to team sports, where players are salaried, but will work on individual sports such as tennis, golf, badminton, and darts, as well as for eSports.
- Read more:
- Nature’s Vault offers “digital gold” of another kind
- DeFi under threat as stablecoin Terra crashes
- BSN is building blockchain future without the crypto
“Ronaldo’s money is not based on his performance on the pitch,” Makhija said, referring to the Portuguese soccer star. But the money earned by the likes of tennis champion Serena Williams is. “Each tournament has a clean prize structure,” he said. “You can predict performance in the form of a sports DeFi futures contract.”
Makhija says the company will target users in Asia and Europe.
There exists another “ScoutX”, a U.S. tech company called ScoutX (at scoutxsports.com). It is unrelated, providing a digital platform for the sports recruiting industry, matching teams, agents and prospects. For the time being, Makhija’s LinkedIn site registers his company as Singapore- based Beryllium, which built a fantasy game for cricket players called Sixer. Under that corporate holding, the company has a site at scoutx.io.
Using crypto models increases the transparency of the trading. ScoutX is building on Polygon, a technology platform that enables blockchains such as Ethereum to connect and scale, using smart contracts to transact on the Ethereum network itself. Because Polygon (whose governance token is MATIC) operates a Proof of Stake consensus mechanism, it is faster and cheaper – and a business like ScoutX, with lots of trading and turnover, needs a chain that doesn’t charge high gas fees.
Makhija says the business is using ERC-standard smart contracts that can be used on any blockchain or protocols related to Ethereum, so it won’t be limited to Polygon should it wish to select other technologies.
To access ScoutX, an investor would need to be in the crypto world. The platform will exchange its tokens for USDC, a stablecoin tied to the U.S. dollar.
But Makhija says the business model is different from DeFi lending shops that are now troubled, such as the failed Anchor protocol attached to the collapsed Luna/Terra algorithmic stablecoin, or Celsius, the latest DeFi brokerage that has recently refused to meet redemption requests.
“Meme tokens are just about hype and momentum,” he said. “In our case, you are predicting the truth. There’s a factual underlying. The value of the token is based on the player’s earnings. There’s no scope for a rugpull by a whale or an Elon tweet,” he said, referring to the mercurial Musk. “I love him, by the way.”
He adds that ScoutX does not enable an investor to make momentum bets. “It’s anticipating a rigid truth: a player’s gonna earn what a player’s gonna earn. This is a zero-beta asset, totally uncorrelated to financial markets.”
Tokenomics of sports
ScoutX involves two tokens. One is for placing longs and shorts on a player’s earnings over a period of time. These contracts must balance out among punters – at one moment, say, the betting pool is 62 cents long the golfer’s payout and 38 cents short. Those figures may change over the year as the golfer wins or loses tournaments, and punters adjust their positions – with smart contracts acting as clearing houses instead of a central counterparty.
The other token is for the platform’s governance, designed to be a utility token (not a security). Makhija says once the platform is up and running, his executive team will cede control to tokenholders, with the intention of creating a decentralized autonomous organization (DAO) to manage the process. The tokenholders will then make decisions on matters such as what to do with the platform’s revenues.
The business takes a trading fee of 0.5 percent to 2.0 percent, depending on the underlying asset (star): the bigger the betting pool on a given contract, and therefore the more liquid, the lower the fee.
ScoutX is currently seeking an undisclosed amount of Series A venture capital to bootstrap this liquidity. It is also keen to operate in both Dubai and Singapore and is now in talks with regulators to see where to make its primary domicile. For now, the platform will be limited to accredited or professional investors, such as family offices.
Down the road, if ScoutX works as envisaged, Makhija sees the potential for expansion. Creating a model for team sports is one. Another is to create more financial products around sports, such as savings products or an ETF. A third is to get licensed for retail. A fourth is to sponsor its own eSports tournaments.
For now, though, it needs to complete both VC and token raises. Then it can play ball.