The Time Has Come For the First Sports Team Fixed Indexed Annuity, by Scott Stolz, CFP, RICP (week 59)

 

Twenty years ago, I put together a training session on fixed indexed annuities (FIAs).  The annuity world was much different back then.  Variable annuities made up almost 70% of total annuity sales.  FIA sales were only $25 billion in 2006 – only about 20% of what is being sold annually today.  To say that most financial advisors didn’t know how these products worked back then would be an understatement.  In order to take away the mystery of how a product could provide upside with downside protection, I needed a simple way to explain the mechanics of the product.  I invented a fictional FIA I called the “Sports Team Annuity.”  Rather than base the returns on a stock index, I proposed that an insurance company credit interest based on how a particular sports team performed during a season.  I explained that the insurance company would take a portion of each policyholder’s deposit and place bets on that team in Las Vegas.  I reasoned that this was a concept that most of my audience would understand.  Particularly since I first delivered this training at a conference in Vegas.   Given the current acceptance of sports betting sites and prediction markets, it’s time for my fictional product to become a reality.

The image is a promotional advertisement for a sports team annuity, specifically an Indiana Hoosiers' sports team annuity, which offers additional interest credits based on the team's performance, such as winning games and championships. AI-generated content may be incorrect.

 

Still basking in their remarkable college football national championship, Indiana Hoosier fans are undoubtedly expecting another great season.  The betting sites have the same expectations.  According to BetMGM, Indiana is expected to win 10.5 games this season.  Why not offer a strategy within an FIA that will credit interest based on how many games the Hoosiers win?  If they win five games, a small return is credited – perhaps 3%.  Then add 1% for every two wins after that.  Therefore, if they win eleven games as expected, the policyholder will earn 6% - pretty much what one would expect to earn on an FIA on average over time.  The betting sites give Indiana about a 25% chance of winning the Big 10 Championship.  If an insurance company placed some of their “option” budget on this outcome, perhaps a 5% bonus could be paid should Indiana win the Big 10 championship.  Of course, not everyone is an Indiana fan, therefore the product would need a strategy for multiple colleges.  The crediting rates would differ based on each school’s expectations.  For example, Illinois and Florida (2 teams I cheer for) are both expected to win 7.5 games this year.  Therefore, if I choose their strategies, I should get the 3% minimum rate after just three wins and then get an additional 1.5% for each win after that.  And of course, there is no reason to limit this concept to just college football.  Why not an NFL FIA as well?

As crazy as this product idea may sound, all of this could be easily hedged.  And I honestly believe sales in such a product would be many multiples of today’s FIA sales.  After all, it’s much more fun to cheer for your favorite sports team than a stock index.  So why not get the extra pleasure of knowing your retirement becomes a little more secure with each victory?

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