Sports ALM (Asset-Liability Management)
The main story on the capital markets page of the FT today was titled: “World Cup offers investors a sporting chance”
It’s a big question for many large companies but most sports fans do not care. Does commercial sponsorship of big sporting events yield any benefits to the corporations who are doing it?
Official sponsors of this year’s soccer World Cup in Germany have paid up to €45m each for the privilege of becoming an official partner of the tournament and seeing their names beamed into billions of television sets around the world for a month.
The article describes a structured principle-protected basket equity-linked note that is designed to pay-out or outperform if the shares in companies who are major sponsors of this summer’s soccer World Cup in Germany outperform their peers. The investment thesis is that the boost to their respective businesses on the back of the exposure afforded them through their sponsorship of this event will trickle down to their bottom line and ultimately to their share price.
Assuming that today the relative prices of the ’sponsors’ vs their ‘peers’ is appropriate, and that the share price will indeed be positively correlated with the amount of ‘exposure’ the company gets during the World Cup, then surely the sponsor companies (and the investors in these notes) are exposed to what I will call the ‘eyeball value’ of the tournament. I don’t have a formula by which to calculate this factor to hand but I know that it is a positive function of who - the favorites, the home team and most populous countries - does well and how, - how many goals are scored and one (not more!) cinderella team in the pools - the tournament plays out.
So the arbitrageur, or hedging sponsor should be able to trade the basis between the basket note described in the article and a basket of bets on the tournament outcome. ie Someone long of the note (or one of the sponsors) would want to lay Germany (ideally at short odds) and the total number of goals. That way if Germany is knocked out before the play-offs and every game is 0-0 or 1-0 - a real snoozefest - they mitigate the lowered effectiveness (’eyeball value’) of their note (or advertising spend) through their wins on their layer positions.
