Carfado: Managing Risk

[weams]

http://www.bostonglobe.com/sports/2015/12/18/bringing-risk-managament-big-leagues/KQJQ410bcfAcz8raPWXuxM/story.html

Sapient Global Markets in Boston is bringing risk management to major sports.

Donovan, a Marblehead native and Natick resident, is talking to teams about building financial risk management models to help make better financial decisions and protect their assets - essentially their players.

"Because there's such an emphasis by teams on acquiring the right players, especially now where you have financial constraints with luxury taxes, etc., we're looking at it the same way as we do with banks," Donovan said. "Banks want to make as much money as they possibly can. Their constraint is regulation. They have stress tests they have to do for the government after banks almost took down the world because they weren't financially compliant. We've been working with these banks to measure their risks and you can apply the same concepts in sports."

"Banks have portfolios of securities and they need to have those securities managed in a way that they can understand their risks at all points, 24/7. They measure it against a number of outstanding events that could happen that could potentially affect that portfolio, whether it be oil rising to $100 a barrel or unemployment going up to 10 percent or a nuclear war and a number of other things. We model against that. In baseball, you can do a similar exercise and get a good read on your portfolio."

"Your roster is no different than a portfolio of securities. Those are your assets. That's what you've put your investment in, so it only makes sense that you should monitor your assets."

[waroriole]

Costanza is a better source. I think he majored in it.

[weams]

Costanza is a better source. I think he majored in it.

[srock]

Further down the article, an interesting quote for Duquette about opt-out clause's:

3. The baseball world is split over the issue of opt-out clauses. Zack Greinke opted out of his deal with the Dodgers and received $206 million over six years from Arizona. The Red Sox gave David Price an opt-out after three years. The Giants gave Johnny Cueto an opt-out after two years. The Cubs also gave Jason Heyward an opt-out after three years. ?It?s complete leverage for the player,? said Orioles GM Dan Duquette. ?It?s not something our organization would be interested in. In some cases, teams feel they?re deal-breakers. If you?re going to agree to something like that, there should be a parachute where if the player has a bad two or three years, the team can opt out as well.?

[incubus]

Further down the article, an interesting quote for Duquette about opt-out clause's:

One could argue that in many cases, the opt-out clause gives the team leverage. They can offer a lower AAV and would receive the best years of the free agent (sans 1-2 years) and let the next team over pay for the downward slope part of the players career. This could minimize their risk of poor value statistically.