Sports
The Jock Exchange
Portfolio.com
By Michael Lewis
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.”
As a number of smart people seem to have noticed at once, professional athletes have all the traits of successful publicly traded stocks, beginning with enormous speculative interest in them. Americans wager somewhere between $200 billion and $400 billion a year on sports, and between 15 million and 25 million of them play in fantasy leagues—which is to say that a shadow stock market in athletes already exists. That market may not know everything there is to know about the athletes it values, but it probably knows more than New York Stock Exchange investors know about the N.Y.S.E.'s public corporations. “People worry about lack of transparency in sports,” says the leading sports agent. “My newspaper this morning has two and a half pages of business news and 17 pages of sports. The day after the game, you know Peyton Manning's thumb is hurt. What do you know about the C.E.O. of I.B.M.?”
Professional and even pre-professional athletes have a long list of investors who might like to hedge their bets—a list topped by the athletes themselves. In general, athletes with the least-certain future will be the most likely to want to sell a piece of it to advance themselves a bit of cash, just in case. Tiger Woods is a prime candidate to launch the new market. But Tiger Woods' financial future is secure; he's the sports equivalent of a blue-chip stock. The 21-year-old who is new to the tour or the 18-year-old who is still a few years away from the tour is a different story. They need capital.
Again, the analogy with the stock market holds. The early-stage company (or young and less proven athlete) makes for a volatile asset. At 28, after seven years in the major leagues, pitcher Barry Zito has just signed a seven-year, $126 million guaranteed contract with the San Francisco Giants. The market knows with near certainty that Zito will be paid that amount over the next seven years, so all the action in Zito's stock would be bets on what he'll earn after the age of 35. Two years ago, Zito would have been a lot more interesting. An investment in the 26-year-old Zito would have come with big risks—a wager not only on his talent and health but also on the market for starting pitchers in the major leagues—but would have paid off nicely. Seven years ago, Zito would have been where the action was. A gamble then on the 21-year-old star of the minor league Sac-ramento River Cats could have made you rich.
The Jock Exchange
Portfolio.com
By Michael Lewis
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.”
As a number of smart people seem to have noticed at once, professional athletes have all the traits of successful publicly traded stocks, beginning with enormous speculative interest in them. Americans wager somewhere between $200 billion and $400 billion a year on sports, and between 15 million and 25 million of them play in fantasy leagues—which is to say that a shadow stock market in athletes already exists. That market may not know everything there is to know about the athletes it values, but it probably knows more than New York Stock Exchange investors know about the N.Y.S.E.'s public corporations. “People worry about lack of transparency in sports,” says the leading sports agent. “My newspaper this morning has two and a half pages of business news and 17 pages of sports. The day after the game, you know Peyton Manning's thumb is hurt. What do you know about the C.E.O. of I.B.M.?”
Professional and even pre-professional athletes have a long list of investors who might like to hedge their bets—a list topped by the athletes themselves. In general, athletes with the least-certain future will be the most likely to want to sell a piece of it to advance themselves a bit of cash, just in case. Tiger Woods is a prime candidate to launch the new market. But Tiger Woods' financial future is secure; he's the sports equivalent of a blue-chip stock. The 21-year-old who is new to the tour or the 18-year-old who is still a few years away from the tour is a different story. They need capital.
Again, the analogy with the stock market holds. The early-stage company (or young and less proven athlete) makes for a volatile asset. At 28, after seven years in the major leagues, pitcher Barry Zito has just signed a seven-year, $126 million guaranteed contract with the San Francisco Giants. The market knows with near certainty that Zito will be paid that amount over the next seven years, so all the action in Zito's stock would be bets on what he'll earn after the age of 35. Two years ago, Zito would have been a lot more interesting. An investment in the 26-year-old Zito would have come with big risks—a wager not only on his talent and health but also on the market for starting pitchers in the major leagues—but would have paid off nicely. Seven years ago, Zito would have been where the action was. A gamble then on the 21-year-old star of the minor league Sac-ramento River Cats could have made you rich.
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