Trading Athletes

In the premiere issue of Portfolio Magazine, Michael Lewis (author of The Blind Side, Moneyball and Liar's Poker) penned an article entitled "The Jock Exchange". The basic idea behind the article is that with all the innovation that has taken place in the finance world over the past 25 years, why has nobody created an exchange where we could trade athletes.

Athletes are really not much different than stocks, bonds, commodities or any other asset. Their value is based on supply and demand and they have fair values assigned to them by what the market is willing to pay. Just like a stock, an athlete can be overpriced (think JD Drew and Google) or they can be severely undervalued (David Ortiz and JP Morgan).

As we find out in Lewis' article, the infrastructure is already in place thanks to a company called Protrade (http://www.protrade.com/). Currently you can only use pretend money to trade but all of the logistics are the same.

If this ever went mainstream, the ramifications would be huge. The ability to have a financial stake in the success of an individual player would revolutionize the sporting landscape. Teams would be able to hedge their bets (for instance Theo would probably be short about 2,000,000 JD Drew shares) and sponsors could do the same. Fans could put their money where there mouths are and institutions would have a new way to diversify their funds.

The simple idea of all this taking place has had my mind spinning since the moment I read the article. Imagine my glee when I discovered we might be one step closer to making this a reality.

With no exchange ready to handle the business, one minor league pitcher is striking out on his own to raise a little capital.

Via Marginal Revolution -

Randy Newsom, relief pitcher for the Cleveland Indians, is selling 4% of his future major league salary. There are 2,500 shares in the IPO so each share gets you a claim to 0.000016% of his future salary including bonuses. Shares sell for $20 each.

The fundamentals are pretty simple. Randy gets $50,000 up front and the buyers get a tiny stake in his future. Granted, this guy is a nobody and statistically, his odds of making to the big leagues are rather slim. Worse case scenario, you plop down a Jackson on the guy and he's a bust. But what about the upside? He only needs to make 1.25 million over his career for you to break even (ignoring opportunity costs of course). What if he is the next Mo Rivera? If he brings down half of what big Mo has received over his career, your $20 is now worth $560 (a %2600 return).

I'll admit, this is one small step towards my ultimate dream of being able to buy and sell humans from all walks of life. But it is a step nonetheless and progress is progress. Let's not forget, in 1980, mortgages were something that consumers bought from banks and banks held onto until you paid them back. In 2008, everybody and their mother owns a piece of the mortgage market and they are the primary cause behind the unraveling global economy.

In 2020, we'll be looking at our next financial crisis except this time it will be caused by an athlete bubble led by the overvaluation of Patrick Patterson, Kyle Singler, Jacoby Ellsbury, Darren McFadden and OJ Mayo. I can't wait.