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The SportsRiskIndex™ (SRI) is a published index figure that represents approximate market value for any given sports entity. The sports entity can be a team or league.
How is the SRI derived?
The SRI patent pending formula takes into account such variables as attendance, TV ratings, and other publically available economic data to calculate the SRI for the sports entity.
The SRI for my team is $800. What does that mean?
Based on the revenues your team is generating, the SRI predicts that your team has an approximate market value of $800 million. It is recommended that you compare this number to the SRI of the other similar teams and the league.
How do I buy/sell the SRI?
The SRI cannot be purchased directly. Brokers sell SRI contracts at a price based on the SRI price. An SRI contract for a sports entity can be traded like any other futures contract. Long or short positions can be used by a trader depending on their trading strategy.
How much does an SRI contract cost?
The value of a contract for a sports entity will vary based on the cash value as calculated by the SRI formula plus or minus any premium or discount built in by the market. In order to take a position, a trader will only need a fraction of the full SRI value in their account. The fraction amount required in the trader's account is called the 'margin'.
Why should I trade the SRI?
The SRI can be used like any other trading or investing instrument. But since the SRI focuses specifically on sports related financial data, it is uniquely positioned to help businesses in that industry. Businesses with exposure to fluctuations in finances related to sports can use an SRI as a hedging tool to limit their risk. Individuals may want to trade SRI contracts as a tool to put their knowledge of a specific sports entity or sports in general to diversify from the usual stocks and commodities.
SportsRiskIndex™ Example:
For this example we will look at a fictitious Major League Baseball team called the Anchorage Huskies.
Before the Trade. We will assume the SRI futures contract for the Huskies is trading at $1,100.
Why Trade? A trader believes the MLB Huskies team is about to sign a contract with one of the best players in the league. The trader thinks the revenue this player will bring in through higher attendance and TV ratings will result in an increase in the SRI, so he decides to purchase a single Huskies SRI contract.
How Much Does the Trade Cost? Assuming the margin requirement is 10 percent, the trader will be required to maintain $110 in their account, 10% * $1,100 = $110. If their account falls below this amount, they will be required to add more funds or close the position.
After the Trade. As the rumors of the Huskies signing the player start to spread, a premium is built into the SRI contract driving it up to $1,200 a contract. The trader now believes the value of this player is fully reflected in the price, so he decides to close his position. When the transaction is completed, the difference between the selling price, $1,200 and the purchase price, $1,100, less fees, is credited to the traders account. Therefore, in this example, the trader's profit is $100 ($1200-$1100) less transaction fees.
Source: http://thenewsportseconomy.com/2010/10/14/sportsriskindex™-sri-what-is-sports-risk-index-trading-and-how-does-it-work/
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