Playoff drama is unfolding across the NFL. Closer to home, even casual fans know the Indianapolis Colts have clinched the AFC South. Do you think they will win the divisional round and AFC Championship, thus qualifying to play in Super Bowl XLVIII on Feb. 2?
Would you love to join them, but don’t want to shell out thousands of dollars and multiples of face value on StubHub?
Sports are big business and continue to grow in size and influence. The worlds of sports and finance have been overlapping with increased frequency. So, it’s not surprising that financial wizards continue to develop new products to feed the insatiable appetite of the sports beast.
One new product a diehard Colts fan can use is an option granting you the right to purchase a ticket to the Super Bowl at face value, if the Colts qualify.
First, some brief background. In finance, an option is a contract between a buyer and seller giving the buyer the right to buy (a call) or sell (a put) an underlying asset at a specified price (the strike price), on or before the contract’s expiration date. The buyer pays the seller of the contract a premium to assume the corresponding obligation.
Options are widely used for hedging or speculating. They are part of the universe of derivative securities, which means their value is derived from the value of the underlying asset. Derivatives played a prominent role in the financial market meltdown. One of my professors at the University of Chicago, Myron Scholes, won a Nobel Prize for his work on the pricing of options.
Going back to the Colts and Super Bowl tickets, you now can buy a call option on a Super Bowl ticket with a strike price equal to the face value of the ticket. Unlike an “American” option, which can be exercised at any time before expiration, this “European” option can be exercised only at the expiration date, in this case once the AFC and NFC Champions have been crowned.
If the Colts win the AFC Championship, you can buy a ticket at face value. If they don’t, your option expires worthless.
According to The New York Times, Forward Market Media originally offered options (known as “TeamTix”) priced at $20 for weak teams like the Jacksonville Jaguars and $100 for strong teams like the Denver Broncos. During the season, TeamTix for all 32 NFL teams have been bought and sold, with prices fluctuating based on the likelihood of a team’s advancing to the Super Bowl and/or the level of delusion among the team’s fan base.
Broncos TeamTix have surged in price with the team’s success and are currently offered at $860. The Jaguars have been eliminated from playoff contention, so their TeamTix have expired worthless, as will TeamTix for the other 29 teams not qualifying to play in the Super Bowl.
Go to Forward Market Media’s website at www.teamtix.com to sign up. You can currently buy a Colts TeamTix for $170.
It’s hard to say whether this financial innovation will become popular or fade into oblivion. Most fans probably won’t want to risk their TeamTix expiring worthless. Still, the world of finance has given them the opportunity to dream of owning a ticket to the Super Bowl at face value. What could be more fun than that?•
Kim is the chief operating officer and chief compliance officer for Kirr Marbach & Co. LLC, an investment adviser based in Columbus, Ind. He can be reached at (812) 376-9444 or email@example.com.