Sports Markets and the Sports Economy

The following link contains the actual daily MLB SRI data for the Arizona Diamondbacks during the 2007 season. This is the real data points used to verify the validity of the model by D.C. staff and the C.F.T.C.

Each daily figure represents the computed reset number and estimates the market value of the Arizona Diamondbacks in millions of U.S. Dollars on any given day.

If there are any Diamondbacks fans here, I would be interested to know if you see any particular price movements that surprise you. This could mean that the price moves in exactly the way you would expect or opposite the way you would expect. This could be games, series of games or major team or player events. Also, I would be interested to hear any comments on the general trends in price.

Here is the link:

http://thenewsportseconomy.com/wp-content/uploads/2010/08/SRI.Arizona.Diamondbacks.2007Season.xls

When discussing how our licensing revenues will be remitted, we decided to settle the entire sum for trading across all teams to the league as a gross amount. The funds would then be distributed according to existing league licensing revenue sharing policy. I can see this becoming a point of serious argument between the owners and the league as revenues grow. The main alternate proposal will be a new regime whereby each team would receive the licensing revenues tied directly to trading in their instruments subject to some sort of ”tax” by the league. The basic positions will closely resemble discussions about our government. The ”democratic” position is lumping all the money together for all teams and remitting to the league to be distributed according to policy. The ”republican” position is to give the revenues directly to each team and put a minimal ”tax” by the league on each team. Each of these is a MAJOR policy direction that will have short and long-term effects on how the SRI functions and the impact it will have on the underlying teams and surrounding economies… not to mention trading patterns…I guarantee you that the day will come when this battle goes out front and center. It will be positively fascinating to see how it all plays out. It will be a tug-of-war between the shifting powers of the league versus the owners. In fact, I bet it will change many times and be under constant surveillance.

I have no concerns about the hedging (or any other) economic use of the SRI. Education, simulation, broker briefing, marketing and messaging will drive liquidity. It is not too early to start building that up leading to approval and trading. The regulatory environment is in a state of flux. So, now is not the time to approach with our new innovation. That being said, we can spend this interim period designing and building a robust infrastructure of tools and educational materials and have ready demand going into approval. This demand will further strengthen our case for approval. In the meantime, our patent application matures and hopefully reaches approval about the time we go live. That would be ideal.

I will say this again as I’ve said from go: We are building an industry not just a product offering. My mind has always been there but we should all get on the same mental frame. As far as the patent, I will state again: This will be one of the most (if not the most) economically valuable patents ever awarded. We WILL get paid for our hard work and dedication through the commercial exploitation of our invention directly, licensing fees, patent infringement awards or any combination of these. I see a good 15 years of absolute legal protection. By that time, it won’t matter what competitors enter the space. We will be Coca-Cola… #1 by consumer choice. And, that is as it should be.

Yes, I agree Chris.

Think in terms of the stock markets when thinking of the SRI. How often does the market capitalization of an equity match the book value? How often are actual earnings a REAL indicator of value and/or market capitalization?

In our case, as in the equity markets, the SRI should be a forward-looking indicator of the team’s total economic impact (ultimately worldwide). That is not something that will be represented on a team’s (ever changing) internal financial statements.

Although I don’t know who within our community has direct communications with Chris on a regular basis with respect to forward progress of the SRI I’m a bit disappointed in the lack of participation by members who stand to gain substantially should the SRI take off as anticipated. Myself, I’m just as guilty. About all I do is opine on Chris’ comments. Aside from that that’s as far as I’ve gone. I’ll be completely forthright and say I don’t have the skill set needed to make the push forward but as I’ve mentioned to Peebs if there is anything I can do to help please ask. I’ll do what I can.

Chris Garcia is right. I feel the same way and whatever we can do to help, we are doing it for all of us. I think we should all do what we can, even if you think it’s a small contribution.

This was taken from an internal discussion regarding the development of the publishable SRI educational primer document and how to describe what the SRI measures:

Remember that simplicity is beauty.

Our target is the general public. Let’s not beat around the bush. We can play games all day long and talk about hedging, industry use, economic purpose.. blah.. blah.. blah… Mark my words.. that will be a TINY FRACTION of our global trading volume. Why Because if we talk directly to Joe Q. Sixpack in a language that he can understand, he will watch his SRI portfolio just like he watches his T.V. and his fantasy sports teams on his iPhone. Since there are hundreds of millions of Joe Q. Sixpacks, it is just math. Let’s be honest here. The whole economic purpose and industry usage arguments are based on regulatory elements. The winds are clearly blowing back toward stronger rules and this is positioning for that inevitable paradigm shift. Thankfully our product was written to the old standard by the very same guy that wrote the new rules removing it. Hats of to Paul Architzel. That took some serious forward ego-less thinking on his part that went directly to our best interest. Let’s NOT get fouled up by worrying ourselves to death by creating this elaborate case for the regulators based on industry use and hedging only to get approved and have the marketplace YAWWWWWNNN…. when we go live. We’re going to have to fight our way through the regulatory process anyway. So, let’s get what we really want. We saw a live example of what happens when you don’t get industry support (Cantor) so we know where we need to focus. CFTC will approve our contract for trading. Why?: Because Paul Architzel wrote it and he did so to the pre-CFMA2000 standard. We’ve already had it vetted legally and economically by CFTC. The only reason why that won’t happen would be interference from Congress. Congress won’t interfere if we get the “nod” from the industry.. or just plain silence (the latter is what we should expect.. initially)..

Let’s not forget who is driving perception here: WE ARE.

I say lay this down as follows and let the challenges come.. however, defend this position because it means commercial success. Mark my words.

1. The index trades at cash value (multiple of 1)
2. Margin is 10% (Easy math.. conservative and nobody will seriously hurt themselves trading at 10 to 1.. unlike Forex at 100+ to 1)
3. Give this a simple name that means market value without setting it in stone. Think of it as a patented “opinion” on the value rather than a firm declaration. The latter is what will upset the teams. An “opinion” will be a matter of debate… and the more debate about the SRI in the media, the more it will trade.
4. Position reporting over 5,000 contracts (Paul and Sharon both advocated this). This will add serious liquidity to the market and keep down manipulation by big players. Assuming SRI ranges from 100 to 1000, this means that your “hand will be shown” if you hold $500,000 - $5,000,000 in a single SRI (depending on the index). Those figures seem sensible to me. Big players won’t be able to “rule” the market and rob the retail public quite so easily and they will add serious liquidity .. meaning better prices and more “action”.

Run the SRI simulator. 1x and 10% work. There is enough movement to make profits/losses outside the commissions. That commission figure of $2.40 per side is conservative. This setup works.

Joe Q. Public example 1:

“Hey Joe.. check this out… ”
“Check what out?”
“There is this new way to invest (but not really) in sports teams called the SportsRiskIndex”
“Invest.. but not really.. huh?”
“Yeah.. the SRI is an industry hedging tool that can be used on more than an occasional basis to mitigate risk”
“Hedging.. mitigation..” (..eyes begin to glass over)
“Yeah, you see the SRI measures relative current and forward earning power quoted in millions of dollars.. it’s like a “market capitalization”.. but not really”
“… uh…” (.. getting sleepy)
“If you want to buy or sell one, you open an account with a futures broker and complete 14 pages of financial information like a mortgage application. Then when you are done, you can buy or short these contracts on margin. Monday through Wednesday the margin is 12.5% meaning that you divide the contract price by 8.. Thursday and Friday, the margin is 15.7% meaning that you divide the contract price by 6.3694… Oh.. don’t worry we have an online tool to help you manage your profits and losses. Nobody can handle this stuff in their head”
- THUD — (Joe’s head hits the table)

Joe Q. Public example 2:

“Hey Joe.. check this out”
“Check out what?”
“There is a way you can “invest” in sports teams legally”
“Really?”
“Yes, it is called the SportsRiskIndex. It is like a stock market for sports”
“Wow.. a stock market for sports.. cool.. how does it work?”
“Each team has a price like a stock price and the number means about how much the team is worth in millions”
“Ah… I see… ”
“So, if a team is quoted at 500, that means they are worth about $500 million dollars”
“WOW.. that IS cool”
“And, check this out… you can buy 1 “share” for 1/10th of the value..”
“So.. I would pay $50.. right?”
“Exactly”
“Now.. here is the best part.. each day the value is published and your account is adjusted up or down according to the change in the value. So, if the number goes to 505, your account is credited the FULL $5.. even though you only paid 10%. Of course.. the same holds true if the number goes down 5. $5 will be subtracted from your account.. and this happens EVERY trading day as long as you still own the contract!”
“Wow.. cool… where do I sign up?”

Believe me… example #2 will be hard enough.
Always begin with the end in mind. Joe Q. Public (global) is our target.

I believe our reach is equal to Facebook if we create and execute our strategy carefully. They have 500 million users now and will make it to a billion and beyond. When my wife told me that her relatives that live literally in the middle of the jungle had Facebook accounts (they recently got telephone service… no lie), that did it for me. There is no stopping the social network transformation of planet Earth. Period. On top of this, they are looking to deploy a virtual currency system for wide use. This thing is becoming scary big. Watch their moves and “model” as much as possible. “Success leaves clues”.

Now… these kids in the middle of the jungle also have another passion… sports.. and guess what? They understand math at a pretty high level… certainly well beyond simple multiplication, division, addition and subtraction.

Facebook + Facebook Dollars + Sports.. hmm…