Alpha in Final Four tickets?

CAPM / Alpha Theory 17 Feb 2008

After Duke’s absolutely crushing and embarrassing defeat of North Carolina earlier this month (okay, not quite “crushing“), we got to thinking about the upcoming US College Basketball championships (a.k.a. “March Madness”).  As TV commentators pointed out ad nauseam, every time Duke has beaten Carolina when Carolina was ranked in the top 5, Duke has gone on to the Final Four.  If only there was a way for us to get tickets to this event contingent on Duke actually being there.

Turns out that there is now a service that let’s you do just that.  Yoonew is a start-up that has created a “free market” for tickets to events like the Final Four and Super Bowl.  By bizarre coincidence (or guided by the hand of God), Alpha Male learned about this firm at the O’Reilly Money:Tech conference in New York the day after the Duke/Carolina game .

If you thought Steve Sapra’s application of the CAPM to NFL betting was interesting, you’ll like this story.  Yoonew has created a “options market” for sports tickets so you don’t have to wait to find out of your team actually makes it to big game.  Now you can buy an option on the ticket – to be executed only if your team is successful.  Of course, if your team chokes you are out your initial payment.  But the risk may be worth it though, since buying a ticket at game time could be many times more expensive that buying the futures contract right now.

The concept is rooted in academic research from Arizona State University. This article on the ASU website explains the logistics:

“…a Vikings fan might have bought an option for Super Bowl tickets early in the season. Since the team’s chances, even early on, were slim, the option would have been priced low. If Minnesota had made it to the Big Game, though, that fan would have received the seats at a bargain price. Patriots fans, on the other hand, would have paid much more for their options, because the team was highly regarded in the preseason, and that price would have risen as their dominance became obvious. The savings on the best teams, therefore, would not be as great.

“YooNew makes its money on the options bought for teams that don’t make it — like those Vikings — thereby funding the purchase of the tickets it has to supply to holders of the successful teams’ options. Fans can play, as can brokers, and those with normal financial trading experience are encouraged as well, regardless of their affiliation as fans.”

Each contract has a ticker symbol (e.g. “CCB.FF08.DUK.A” means A-section seating if Duke makes it to the Final Four this year).  Since the Blue Devils are now ranked #2, the asking prices for these options are pretty high – averaging about a thousand bucks a seat.  However, you can buy an option on the same seat for a few hundred if you think the #20 Notre Dame Fighting Irish are going to be in the Final Four.

Naturally, the price of an option on a seat would be influenced primarily by the likelihood that the team would make the big game (another factor according to Yoonew are game conditions – think Green Bay).  Below is a chart from showing the value of an option on a seat for the New York Giants in next year’s Super Bowl.  Notice the huge leap on February 3rd – the day the Giants beat the Patriots in this year’s match-up.

This, while the actual odds of a Giants win seems to have been steady at 12:1 – suggesting some sort of arbitrage opportunity.  The firm tells AllAboutAlpha that the absence of a middleman (i.e., the odds maker) means Yoonew is a more “continuous” market that better reflects the opinions of fans from moment to moment.

If this new marketplace was to become liquid enough, you can imagine how volatility might affect the fair price for these options.  For example, options tied to a mediocre team with a reputation for being a “Cinderella story” might be priced higher than those for team that shows more consistent mediocrity.  Or you could imagine a convertible ticket to a dinner and show in Tampa – convertible to a Super Bowl ticket at your option.  Could convertible arbitrage hedge funds then short the dinner and a show to isolate the Giants-in-the-Super Bowl option?  The mind boggles.

Someday, when your perennial losers the Chicago Cubs or Toronto Maple Leafs eventually make it to their respective finals and you have a pair of pre-purchased gold-level tickets in hand, people will remark in amazement “Who knew?…”


Be Sociable, Share!


Leave A Reply

← Why the common expression "all correlations go to one" may be overstated Manufacturing Alpha from Beta →