Income risk-sharing in baseball

coinwww (30)in #economics • 6 years ago

The story was originally published in https://www.si.com/mlb/2018/11/21/mlb-prospects-salary-risk-pando-pooling

"Pando Pooling is a startup headquartered in Palo Alto, Calif. The company’s founders, Charlie Olson and Eric Lax, met in 2015 at Stanford’s Graduate School of Business where they dreamed up an endeavor that would support people in high-volatility careers—entrepreneurs, primarily. (Pando is Latin for “I spread out,” and also refers to a colony of aspen trees, whose roots intertwine to make a massive underground network.) What if, they wondered, a large enough group of entrepreneurs pooled shares of their earnings, ensuring that each entrepreneur stood less chance of going bust? In theory this would allow entrepreneurs to take more risks in pursuing their ideas.

Olson and Lax didn’t start with entrepreneurs, though. They took their idea to a different field—literally. Just as MLB teams pool a third of their revenue to support smaller-market teams, Olson and Lax saw an opportunity to give young baseball players more security. As with entrepreneurs, only a small set of players go on to earn fortunes; many talented, driven players leave with little. (Less than 25% of first-round draft picks play more than three years in the majors.) Unlike tech founders, though, players are paid at regular intervals.

Here’s Pando’s pitch: A young player contributes a fixed share of his salary to his pool after he receives at least $1.6 million in MLB earnings. There is more than one pool, but every member in each pool must agree on every other poolmate, and Pando takes 10% of each pool. Pando recruits players through agents, financial advisers and players who have already signed with the company; Olson says he has 150 members so far. Once a player is on board, Pando then tries to match him with a handful of similar players to form a pool."

This idea is amazing and is exactly the typical innovation of business model. This also reminds me the share buying practice in today's texas poker tournaments. This simple idea of risk pooling has great business potential.

#risk #sports