End FUTURE Fan Lockouts, Grow 100,000 New SPORTS Jobs & Rebuild The American Dream!
October 14, 2012 in public
The New Sports Economy as a Job Creation Engine
The Search for Jobs
It is no secret that our country needs more jobs.
The latest report from September 2012 shows that President Obama has been a net job creator. While it is good to see the trend has turned upward and the unemployment rate has finally dipped below 8%, unemployment will continue to be a significant problem for the foreseeable future.
Small businesses have always been touted as the engine of economic growth and job creation. There is some truth to that. But recent research reveals that new jobs do not necessarily come from small firms. Instead, they come from new firms. Indeed, nearly all jobs from 1980-2005 were created by new firms.
But what creates new firms? Simple. Innovations that are game-changers and ideas that lead to ecosystems. Put another way, core businesses that spawn satellites to develop around them.
It is convenient to think about ecosystems as geographical clusters – Silicon Valley is one that readily comes to mind. However, in this day and age, entrepreneurial ecosystems are best defined by subject area or industries, not by geographical location. Apple’s competitive advantage does not come from the fact that they are in Cupertino, CA. Its real strength comes from the fact that its hardware and software have spawned new business models and incentive structures that were simply not there before. Think about your next door programmer who now has a legitimate shot at creating the next successful app. At a time when book publishers, authors and the music industry were seeking alternative business models and revenue channels, Apple came along and harnessed the collective energy of the community by building an ecosystem on which new business models could be created.
Many think that entrepreneurs who create game changers capture all of the profits associated with their innovations. That is far from being the truth. The entrepreneur only captures about four percent of the profits. The rest “leaks out” to the rest of us who benefit by using the invention in some manner. Most of this wealth creation shows in the form of GDP. Some does not, but nevertheless would still be of value to the consumer. Either way, the process is socially valuable. And it creates jobs.
Our journey started with a simple question. Why is there not a stock market that trades teams like stocks? This curiosity eventually led to the creation of the SportRiskIndex (SRI) and the associated financial product, SRI futures. The SRI index is a barometer of a team’s revenue generation capabilities. The more valuable teams tend to have higher index values. This invention is made “tradable” by the creation of the SRI index futures. This is the first and only risk management product that caters to the sports industry. The invention is currently patent pending in 45 countries, including the U.S.
The technical merits of the SRI index futures and how it serves the public interest are discussed elsewhere on this site and are beyond the scope of this discussion. In terms of the progress we have made to date, the index construction for Major League Baseball (MLB) was ready as early as 2008, and an agreement with an exchange was in place. The last step was regulatory approval and launch. Then came the financial crisis that touched all facets of our economy. Our exchange partner was out of business and the regulatory process was never completed with the U.S. Commodity Futures Trading Commission (CFTC). In the midst of all the economic uncertainty, funding dried up and no new exchange could be found. The project stalled.
Fast forward to today. A new exchange partnership is needed upon which the regulatory approval process can begin again. Assuming this process gets completed and regulatory approval is granted, what would that new world look like? To answer this question, let us start painting our vision – a vision which we call the New Sports Economy.
Do you feel locked out? Chances are the same economic crisis that put this project on hold for four years put your life on hold as well. If you don’t feel passionate about your profession, you are not alone, 79% of people are in the same boat. Not to mention the fact that you are perhaps not employed, or were unemployed for a while and were under tremendous stress. That’s your personal lockout, and it is probably much more permanent than the current National Hockey League (NHL) lockout.
If you are a full-time American employee, you essentially have a little over three hours a day to spend on leisure and sports throughout the work week. Wouldn’t it be great to increase that? Well, there are only so many hours in the day and unless you want to cut back on sleep or quit your job, this is the hand we have all been dealt. The only way to increase that number is making sure that life becomes play. That doesn’t mean you will work less. In fact, you may end up working more because your hobby becomes your work. But since you are doing something you love and you are passionate about, it won’t feel like work at all.
We are big believers in following your passion. Most people are very passionate about sports. Our vision is to open up a whole new world for you where you can find your own niche to make you the happiest person on earth. As more people do that, the collective result will be people that are happier and more productive. But something else will be accomplished. The New Sports Economy will make a dent in the chronic unemployment problem. We estimate that the New Sports Economy may save or create up to 100,000 jobs.
What does this new sports economy look like? The world is an inherently uncertain place and we don’t claim to have all the answers. We believe we have developed a good tool, which will grow the pie. In the end though, it will be up to you to decide how you will participate in this new world. You will claim your slice and call the shots.
How Does the New Sports Economy Create Value and Jobs?
As established above, core innovation creates new firms that come to life around it. The new ecosystem then leads to job creation. The SportsRiskIndex is the core innovation and the entire ecosystem is the New Sports Economy. This is visualized in the graph below.
The NHL lockout is glooming over hockey these days. A lockout impacts fans emotionally for sure, but it also impacts businesses – both large and small. In a letter to the NHL, two U.S. senators argued that a delayed or cancelled regular season would be a major setback for Newark, NJ resulting in a loss of millions of dollars in economic activity.
The NFL and the NBA also had their own recent lockout scares. The NFL is a $9.3 billion dollar economy and a lockout would have had major implications for owners, players, broadcasters, sponsors, and stadium workers. Similarly, in the NBA, various estimates pegged the size of its economic activity around a team between $59 million and $223 million a year.
A lockout is one of the risks to the sports industry but it is by no means the only one. Most of the sports businesses and individuals are subject to risks with or without a lockout. Attendance could decline if people decide to use their leisure time differently. People may start watching fewer sports on TV. If incomes decline, people may buy less sports merchandise and apparel. Businesses with significant portion of their revenues tied to sports are at risk of losing a substantial amount of their revenues if any of these risks above were to materialize.
Similar to an insurance product, the SRI provides a hedge against these risks. Risk management will keep businesses from shutting down and protect jobs. In addition, even when it is not possible to save a job, it will at least make the unemployment period more bearable as wages lost could be partially offset by the monetary gains on the SRI future positions.
Sports Related Businesses
In addition to being a risk management tool, sports trading will be a new channel to keep existing fans and attract new ones. In a world where sports teams are competing not only with each other but also with other forms of entertainment, branding is very important. The interest in sports will draw more people to the stadiums, which will help bars, restaurants, and other related businesses grow and create jobs. The heightened interest level will also create corporate jobs in the broadcasting, sponsorship and advertising spaces. The sports-related support services industry that includes personal trainers, physicians, nutritionists and other medical specialists would also benefit. Over the long term, increased team attendance would require larger stadiums, which, in turn would create construction jobs.
It is also plausible to think that the level of sports activity itself would increase. To the extent that happens, it will lead to a healthier population and cut down on healthcare costs – quite a significant problem for the U.S. economy today. A bigger interest in sports could also result in a higher number of people pursuing college education through scholarships. This would also increase the pool of talented athletes and will provide the necessary labor supply for potential expansion teams as well as new professional leagues.
In asset management, diversification is a big deal. Currently, short of buying an ownership share of a sports franchise, it is quite difficult to get exposure to the financial health of sports franchises. With the SRI, sports would become an asset class. The SRI contracts will help asset managers diversify their portfolios since the financial health of a sports franchise is generally not highly correlated with other market instruments. In addition, some asset managers may deliver alpha using those contracts. We expect that a few “sports asset managers” will join the workforce. More broadly, the additional diversification opportunities will make portfolios more stable and blowouts less likely, thereby protecting jobs.
Sports have always attracted big audiences. Back in 1947, sports actually comprised 60% of all TV programming. That number may be lower today as a percentage of the whole, but sports remain the biggest weapon that programmers have. In the 2011-2012 season, 22 of the top 25 TV programs were sports. The most viewed program was SuperBowl XLVI between the New York Giants and the New England Patriots with a TV audience reaching a record 111.3 million viewers. Responding to the higher demand, the cost of SuperBowl ads increased 59 percent between 2001 and 2012 with advertisers paying $3.5 million dollars per spot in 2012.
The success of ESPN is further proof of the power of sports. The Bristol-based company is expected to generate 8.2 billion in revenues. With its diverse portfolio of TV channels, over 700 affiliated radio stations, a magazine, a web site, restaurants, and an award show, the ESPN empire has became a major force in the industry.
On the other hand, finance related content can hold its own. The news media are naturally attracted to financial markets because of the provision of constant news flow. TV channels boasting significant programming around financial news and with high circulation numbers for top business magazines attest to the importance of finance in the media. Finance is a popular topic in the blogosphere as well.
What about the combination of sports and finance? Shiller considers sports as the only other regular generator of news that can create comparable scale to finance, and observes that financial news and sports news together account for roughly half of the editorial content in newspapers. This gives us some clues. A lot of content is likely to develop around the SRI in various forms: TV programs, or even channels that provide continuous analysis and commentary, radio programs, magazines, and certainly blogs. This activity will create jobs in all segments of the media industry.
The President’s Advisory Council on Financial Capability was created in 2010 to assist the American people in understanding financial matters and making informed financial decisions. It cited a financially capable population was necessary for entrepreneurship and job growth, restoring economic mobility and reducing the widening income gap, and an informed civic dialogue. More financial literacy is needed at all levels in our society and efforts in this area have the potential to impact 138 million Americans. In addition to the government’s efforts, many private sector participants have their own initiatives. Despite these efforts, these programs are unlikely to deliver the big bang change that is sorely needed as it is difficult to get over the intimidation of finance that is as complex as ever.
On the other hand, teachers already recognize that sports can be a useful tool to drive finance concepts home for students. The problem is that these efforts today are only limited to a few isolated classroom experiences throughout the country.
The result is a big problem in desperate need of a solution. Real learning shouldn’t feel like learning at all and education is much more than just schooling. The key to teach finance is to make people want to learn finance. The New Sports Economy is our best chance to give lifelong learners the proper incentives. Sports are a familiar place for many. As such, we believe it is the best starting point to learn finance. Once people get their feet wet with sports finance, the intimidation will be replaced by a passion to gain control and a real hunger to learn more. Short of sports trading, however, this penetration is unlikely to happen.
The current trends in open online education are great news. Now anybody with the right expertise and skills to produce meaningful, engaging content can be a teacher to the world. The perennial fan that happens to be good with the numbers will finally have a way to mesh the content in unique ways and publish it to the world. They will have fun doing so and earn a living along the way.
More broadly, an improved financial literacy will drive job growth across all segments of the economy through informed decision making.
Data Analytics, Mobile & Tablets
The search continues to make sense of all the data that is now produced each day. Indeed, big data has been touted as the next big opportunity for innovation and growth. The New Sports Economy has the potential to create new big data through the dissemination of indexes, trading and independent analysis. This new data will be used by asset managers, advertisers, sponsors, media and anybody else who view themselves as a stakeholder. The intersection of sports, finance and data will be a very powerful tool that drives innovation and growth, which will deliver both value and jobs.
The indexes themselves will provide significant price information to the economy, which can be used in commercial transactions. Without the SRI, no substitute for this information exists. The usage of this data itself will create more publicly available information and value for the industry stakeholders.
The increased usage of smartphones and tablets means the consumer is hungry for more content. Android alone has been responsible for a half billion activations, with 1.3 million arriving each day. The number of mobile devices will exceed the world’s population by the end of 2012. In a world where we are always connected, the New Sports Economy will produce more apps and provide more content and creative ways for analyzing the data. In the New Sports Economy, somebody will also figure out how to make mobile advertising work, as sports could potentially create new ways of making mobile ads more relevant, engaging and fun.
Sports games are already popular. More interestingly, some studies now show that there may be a link between video games and fandom. FIFA Soccer’s EA Sports was credited with the transformation of soccer into the nation’s second favorite sport (after football) among the ages 18-24.
The SRI ecosystem will create additional opportunities. The contracts will create an interest not only in sports but also in the business of sports. A sports business game where players can choose to be owners or league commissioners in addition to athletes and can make decisions on whether to relocate a team to a different city or negotiate over a lockout may be quite popular. In more advanced versions of these games, real-life events can be integrated into the games to some extent creating some additional randomness. These games will also make sports truly global as a U.S. gamer may decide to own a cricket team in India. Conversely, people who are introduced to the business of sports via these games will have a broader interest in sports business and general financial literacy.
It is very difficult, if not impossible, to predict all sorts of businesses that will spring up. Nevertheless, American creativity will take hold and we have no doubt that there will be innovative business models developed which were inspired by the New Sports Economy. These models will create jobs and will lead to further opportunities.
You can make sports a bigger part of your life. You can choose to be part of the New Sports Economy. You can choose to pursue your dreams.
And if you pursue your dreams, then all of us will be better off. Please sign the online petition here: http://TheSportsVote.com/ and tell your friends. We will make this happen!
The New Sports Economy will create 100,000 new sports jobs. To learn more click here: http://thenewsportseconomy.com/2012/11/06/100000-new-sports-jobs/
For more detailed information, please see the “Learn Finance Through Sports”, “Patent & Vital Documents” and “Trade Teams Like Stocks” tabs at the top of this page.
Want to trade sports like stocks? Go to TheSportsVote.com and help us make it happen!
 Dane Stangler and Robert E. Litan, “Where Will the Jobs Come From?” Kauffman Foundation, November 2009.
 Kauffman Foundation, State of The Union Address 2011.
 McKinsey estimated the value of the search at $780 billion worldwide and concluded that only 4% of the gross value created by search was captured by the search industry. “The Impact of Internet Technologies: Search” McKinsey & Company, July 2011. See also “Schumpeterian Profits and the Alchemist Fallacy”, Yale Working Papers on Economic Applications and Policy, Discussion Paper No.6, 2005 by William Nordhaus who estimated essentially the same percentage. “The Inventive Billion Dollar Firms: A Faster Way to Grow” by Kauffman Foundation uses the Nordhaus estimate and argues that the annual creation of 60 firms with a billion dollar in sales on average would account for a full percentage point growth in GDP.
 “The 2011 Shift Index: Measuring The Forces of Long-Term Change”, Deloitte.
 Bureau of Labor Statistics, American Time Use Survey, 2011 Results. http://www.bls.gov/news.release/atus.t11.htm
 Letter by Frank R. Lautenberg and Robert Menendez, dated October 1, 2012.
 “The Gross Football Product”, Sports Illustrated, March 14, 2011 Issue. http://sportsillustrated.cnn.com/vault/article/magazine/MAG1182955/1/index.htm
 “The Elusive Fan: Reinventing Sports in a Crowded Marketplace”, Irving Rein, Philip Kotler and Ben Shields, Mc-Graw Hill, 2006.
 TV Basics, TVB Local Media Marketing Solutions, June 2012.
 Bloomberg Businessweek, September 3-September 9, 2012 issue citing research by SNL Kagan.
 “The Elusive Fan: Reinventing Sports in a Crowded Marketplace”, Irving Rein, Philip Kotler and Ben Shields, Mc-Graw Hill, 2006.
 “Irrational Exuberance, Second Edition” Robert J. Shiller, Broadway Books.
 Per Wikipedia, Bloomberg Businessweek, Forbes, and The Economist each had circulation numbers close to 1 million in circulation.
 “Irrational Exuberance, Second Edition” Robert J. Shiller, Broadway Books..
 Interim Report, President’s Advisory Council on Financial Capability, January 18, 2012.
 Ibid. This figure is driven by the employment numbers reported by the Bureau of Labor Statistics, and is even higher today.
 See “The Siege of Academe” at Washington Monthly for a detailed summary. http://www.washingtonmonthly.com/magazine/septemberoctober_2012/features/_its_three_oclock_in039373.php?page=all
 Big Data: the next frontier for innovation, competition and productivity, McKinsey Global Institute, June 2011.
 Bloomberg Businessweek. http://www.bloomberg.com/news/2012-09-20/soccer-beats-baseball-thanks-to-young-electronic-arts-fifa-fans.html?cmpid=yhoo