(no subject)

[seekingferret]

Obligatory baseball post time that nobody reads time.

Yankees lost Michael Pineda for the season with a torn labrum or something like that. I think it's something in the shoulder. The economics of injuries and sports are really dissimilar to anything else. Where else do you commit millions of dollars to an employee who, if they get even a minor injury, could be unable to work for you for a year or more?

There are ways in which the free agent market resembles a junk bond market. You buy risky assets, betting on their growth potential. If you get caught in a bubble you end up overpaying for those assets. Even if you don't get caught in a bubble, you're still risking a lot of money on something that could end up losing your whole investment, but you try to mitigate that risk with insurance policies and with diversificat... err.. bench depth.

And this takes me to a fascinatingly ghoulish idea I have. Fans love having an investment in their teams. Teams loving mitigating the risk on an investment. In the subprime market risk was mitigated using an instrument called a credit default swap, an insurance policy against default that was then securitized and sold to investors...

Why couldn't teams buy injury swaps on their players? The fans would love it, getting a chance to profit from the fluctuating risk of an injury to Johan Santana. Make lemons out of lemonade. Yes, it's ghoulish, and utterly morally bankrupt, but other than that, what objections do you have?

Comments

Injury swaps

[best-ken-ever.livejournal.com]

What would the structure of the product be?

Would investors pool funds to sell injury policies to teams who want to protect their players (and buy new players with the funds if needed)? The teams pay some premium, and then receive a payout if the player gets injured? I guess the variance depends largely on what constitutes an insurable injury (say the player hurts his knee playing golf on an off-day...probably not covered?), and how many players are insured.

Also, I think it'd matter heavily if the players knew they were insured. If they're more likely to play rough or have a history of playing dangerously, the insurance group may want to charge the team a higher premium due to this adverse selection.

The underwriting would probably be crazy, but how is this much different from targeted health insurance? I feel like I'm missing a significant piece in my understanding of your proposal.

I think I mentioned to you several years ago that Guardian has sold life insurance to a number of professional sports teams on particular players for investment reasons. This is clearly different, but it makes me feel that it's not out of the question for a team to be interested in this sort of instrument.

Re: Injury swaps

[seekingferret]

The only difference between this and what happens now is public securitization. This gives fans (and others) a way to place bets on whether players will be injured. To hedge their enjoyment if their team gets knocked out of the playoffs because Derrick Rose blew out his knee, for example..