Dominique Basulto, the extraordinary blogger who writes for Endless Innovation, sends me a couple of intriguing links.
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New York Post (about Portfolio, the new business magazine I told you about on Sunday):
[...] One of the more riveting pieces was a Michael Lewis prediction about a sports stock market exchange in the near future, in which the average Joe – or hedge-fund Joe – will invest in an athlete like a stock, the investment rising or falling on the sports star’s performance. We’re still not sure what he’s talking about, but it sounds fun! [...]
The Jock Exchange
Wall Street is about to launch a new way to trade professional athletes the way you trade stocks. A piece of Tiger, anyone?
When financial historians look back and ask why it took Wall Street so long to create the first public stock market that trades in professional athletes, they will see ours as an age of creative ferment. They’ll see a new, extremely well-financed company in Silicon Valley that, for the moment, sells itself as a fantasy sports site but aims to become, as its co-founder Mike Kerns puts it, “the first real stock market in athletes.” And they’ll find, in the bowels of the U.S. Patent and Trademark Office, an application from a cryptic entity called A.S.A. Sports Exchange containing a description of a design for just such a market: The athlete would sell 20 percent of all future on-field or on-court earnings to a trust, which would, in turn, sell securities to the public. They’ll also single out the birth of the first European hedge fund that runs a multimillion-dollar portfolio of professional soccer players, the value of which rises and falls with the players’ performances.
“The fans have always had an emotional investment without a [legal] financial one,” says a leading sports agent, one of the principals of the A.S.A. Sports Exchange, who prefers to remain nameless. “This is taking emotion and putting it to financial use. Screw this putting 300 bucks into a pot at work. This is ‘everyone get online and open your account at Ameritrade.’ The fans will be in the same position as the owners of sports teams—they’ll be making money off [the players] or losing money on them. They’ll just have more flexibility than the owners.” [...]
ProTrade, co-founded by Mike Kerns.
ProTrade – (San Mateo, California, U.S.A.) — Cross between a prediction market game and an American-style fantasy football game. Traders buy and sell shares in players. These stocks pay dividends according to how well a player performs in each game. — Founded in 2005 by Jeff Ma and Mike Kerns, and advised by Justin Wolfers.
You can find many comments about this piece on the Marginal Revolution blog:
http://www.marginalrevolution.com/marginalrevolution/2007/04/markets_in_ever_3.html
(((Waiting for the CFTC canary to put some comment of his, here.
)))
Niall O’Connor asks me:
- “Wasn’t this the world’s first sports stock market?”
http://www.allsportsmarket.com/Index.asp?affiliate=4432
http://www.allsportsmarket.com/
And the CFTC canary, Jason Ruspini, tells me he may have heard a similar idea from Mark Cuban.
http://riskmarkets.blogspot.com/2006/05/our-friend-dere-in-burbank-you-want-i.html
Protrade: The Sports Stock Market
http://mvn.com/mlb-braves/2007/04/20/protrade-the-sports-stock-market/
Markets In Athletes
http://www.thestalwart.com/the_stalwart/2007/04/markets_in_athe.html
ProTrade co-founder Jeff Ma gives inklings.
http://www.midasoracle.org/2007/04/20/protrade-co-founder-jeff-ma-gives-inklings/
The Jock Exchange: Wall Street is about to launch a new way to trade professional athletes the way you trade stocks.
http://www.midasoracle.org/2007/04/21/the-jock-exchange-wall-street-is-about-to-launch-a-new-way-to-trade-professional-athletes-the-way-you-trade-stocks/
I love the NFL much more than MLB, but I am thinking that baseball is more suited to something like this (having played and served as commissioner in both types of fantasy leagues).
In football, the play of one player is much more interdependent with–and therefore, much harder to isolate from–fellow teammates. Take Willie McGinest, the all-pro defensive end previously of the New England Patriots. Depending on the 3-4 vs 4-3 scheme and the players surrounding him, his defensive statistics are quite volatile over his 13 year career–he makes the Pro Bowl in 1996 and then in 2003. Likewise, take the stars of the vaunted Baltimore Raven defenses–upon leaving for richer free agent waters, they do not replicate their past success.
In baseball, it is easier, although pitcher win shares are more difficult to isolate than hitters (which is why in Michael Lewis’ Moneyball, he talks at length about hitters like Youkilis, but fails to really talk about the statistical contributions of Hudson, Mulder & Zito).
I guess I am more interested in these instruments than, say, David Bowie bonds. But I need more information to see how much more interesting these are.
How can Protrade make the leap to real-money in the US? Its markets are unlikely to be approved by exchange regulators, and so it seems that OTC is the way to go, as it is for many interesting markets in the US. (PM enthusiasts have a bias for exchange-based markets and standardized contracts.)
Cuban’s venture “Content Partners” planned to buy equity in certain film projects, but it was unclear if any real secondary market would exist.
One thing about Lewis’s article.. he writes:
Therefore trade will be concentrated in shorter-term contracts on young athletes — and it can be expected that some athletes’ considerable risk appetites in other areas of life will increase, even if they are as motivated to perform well. This is not an argument against the idea, but it is something that comes to mind. (Maybe my model is too rational though.)
Interesting stuff! I also agree with Jason in regards to OTC way to go…
Sounds a little dehumanizing. What happens in the worst case scenario if an athlete underperforms and someone invested in him loses their shirt? Celebrities already are potential targets of stalking by unbalanced people who don’t even know them. Now sane people would also have an actual ax to grind, making even more people capable of stalking the athlete than usual. Maybe I’m overstating the potential problem, but I think it needs to be thought through a little more.
The real question is who gets the money. Do the players sell thier stock againts future earnings and contracts. Not sure how this could work out and the fact they could get hurt at anytime makes this a risky stock in my mind.