Ronaldo sponsors face red card over risky market bets
Last month, Cristiano Ronaldo sent a short message to his 59 million Twitter followers.
"Happy with my new partnership with @EXNESS," the Real Madrid striker and world's most famous soccer star wrote.
He also retweeted a statement from a firm called Exness Group, in which he praised how it "gives back to the world", offers the "highest quality of services" and fosters a "socially conscious culture".
European regulators may disagree. Ronaldo's new partner, an online brokerage based in Cyprus, deals in contracts for difference, or CFDs, complex derivatives that officials across the Continent are seeking to curb because of the risks they pose to retail investors.
Exness offers leverage, or borrowed funds, of as much as 500 times traders' deposits, a feature that rule-makers say helps people lose money on market bets they don't understand.
Real Madrid and Ronaldo aren't alone in signing deals with CFD firms. Some of the biggest soccer clubs in Europe have links to brokerages similar to Exness, ranging from Real Madrid rivals Atletico Madrid to Manchester City and Liverpool in England, even as regulators impose advertising bans and consider capping the risks CFD investors can take.
"One has to question the legitimacy, credibility and morality of teams endorsing products around which there are some serious regulatory misgivings," said Simon Chadwick, a professor of sports enterprise at the University of Salford in Manchester.
"Clubs and players need to become more mindful of the ramifications their commercial partnerships can have."
Read Madrid spokesman Pedro Corrales Alvarez declined to comment. An official at Ronaldo's firm referred inquiries to Marisa Mendes, who didn't respond to emailed questions.
Exness said in a statement that arrangements between brokerages and top-tier football clubs are common and that the firm includes appropriate warnings in its customer marketing.
Its sponsorship strategy, it said, "aligns our business with organisations and individuals that stand for excellence, fair play and being the best in what they do".
CFDs, called "a volatile form of gambling" by an Irish judge in 2014, make up one of the last bastions of opaque, lightly regulated financial speculation in Europe.
The contracts, which allow investors to bet on the direction of stocks, bonds, currencies and commodities without buying the underlying assets, aren't traded on public exchanges and are largely prohibited for retail customers in the US.
They've surged in popularity across Europe since 2010, triggering concerns of regulators, who say customers don't grasp the risks involved.
Big London-based companies have long dominated the CFD market in Europe, but its a different kind of player now attracting attention.
These are small, privately held firms that offer high-risk trading not available elsewhere. They often get a licence from regulators in Cyprus.
Exness is a case in point. It was founded in 2008 by CEO Petr Valov (32) and Igor Lychagov (35) who listed their nationalities and residences as Russian in 2014.
Both now have Cypriot citizenship as well and home addresses in Limassol, on the Mediterranean island's south shore, a recent filing in Cyprus shows.
The firm offers traders in the EU leverage of as much as 500 times their deposits, many multiples of what some regulators say is appropriate for retail investors. Some customers outside the EU can access what Exness says on its website is "unlimited leverage".
Regulators from the Central Bank of Ireland to Polish markets watchdog KNF are now circling the CFD industry, and several countries have imposed leverage caps, limits on client losses and marketing restrictions. Cyprus introduced rules last year requiring CFD firms to offer a default leverage amount of no more than 50 times and limit client losses.
Still, investors can get more if they ask for it and pass a firm's "appropriateness test," according to a statement from the regulator, known as CySEC, which declined to comment further.
The European Securities and Markets Authority said it's concerned that those local measures don't go far enough and is considering EU-wide rules for the derivatives.
"It remains a lightly regulated, highly non-transparent pool of speculative investments, leveraging upon the weaknesses of those who don't truly understand the risks they're taking,'' said Shaen Corbet, a former CFD trader who teaches finance at Dublin City University.
The UK's Financial Conduct Authority said last year that it's considering a cap on leverage, banning the bonuses that some firms offer to encourage clients to open accounts and introducing more disclosure requirements.
A spokesman for the regulator, which reiterated its concerns in June, declined to comment.
France has already taken action. Some of the biggest football clubs there, including Paris Saint-Germain and AS Monaco, had deals with Cypriot CFD firms. Those ended after the French highlighted them at a March 2016 press conference. The country also curbed non-print advertising of the derivatives late last year.
"Many investors, reassured by the trustworthy appearance of these companies' websites with their EU authorisations or sponsorship deals with major football teams, allowed themselves to be tempted," Marielle Cohen-Branche, ombudsman for the French regulator, wrote in her annual report in February.
Spanish regulators may have a tougher time. They'll have to compete with the local obsession about whether Ronaldo can help his club retain its titles.
"I don't think fans would be surprised or bothered by the Exness partnership," said Dae Hee Kwak, a professor of sports management at the University of Michigan. "Ronaldo and Real Madrid have nothing to lose." (Bloomberg)