Guest Commentary By Philip McBride Johnson:
The debate rages over whether there should be derivatives on sporting events (like the Super Bowl). Might there be legitimate hedging needs. Let’s look at the facts.
- We don’t wince when lawyers and surgeons bet on the next cotton crop. Why? Because cotton producers and processors need their capital to hedge against adverse commercial outcomes.
- We don’t recoil when hedge funds and teachers bet on oil prices because their deposits help fund the hedges needed by the energy companies.
- Why should those who face potential large losses from decisions affecting sporting events be any different?
- Take the upcoming Super Bowl. Many cities spend copious amounts to vie for the venue. Indianapolis won this time, allowing hotels to quadruple their daily rates and generally lifting the local economy. This is largesse lost by losing bidders, making their expenditures a waste of time and money. Should they not be allowed the same hedging opportunities that other ventures enjoy.
- And consider advertising revenues. Both the advertisers and the networks carrying the Super Bowl stand to gain mightily if (as this time) the teams reside in major demographic areas, but could lose big if the teams were from smaller cities where viewership is substantially lower.
- What about local vendors of Super Bowl paraphernalia? Hosting the Super Bowl is a bonanza for them. Vendors in other NFL locations suffer substantially.
- Not so sure about the team owners or players, however. Moral hazard lurks if they can profit from their own failure.
Whatever, it is my view that any enterprise that operates legitimately should have hedging tools.