Do professional sports teams belong on the stock market?

Professional sports clubs exist to win, but this often requires money. Different models have developed in this regard. The US model is private ownership of clubs within a cartel, where private ownership is meant to be a single person, or a small group of people. The European model is broad membership with few benefactors who do not own the club, and clubs operate within an open league system (promotion and relegation based mostly on sport results). But over the last two decades a good number of European clubs went public and are now listed on stock markets. This highlights a change of priorities, profits over sport results, although the two are clearly correlated. But how well do these clubs fare?

Michel Aglietta, Wladimir Andreff and Bastien Drut note that the performance of sports stock is rather weak, and thus has not attracted institutional investors as was probably hoped for. This weak performance is not that surprising, I suppose many hold such stock to frame it above the TV set. It may also be due, as the authors argue, to the fact that sports clubs have poor governance. So, maybe the next step is to run them like a business where the objective is to maximize shareholder value, and make sport results only a means to generate these profits.

The psychology of the equity risk premium

There is a huge literature on the equity risk premium that probably could sustain its own journal, trying to document it or explain it. But somehow, people keep finding new ways to look at the equity risk premium, so it sometimes worth checking out what they last came up with.

Georges Prat looks at the equity risk premium at various horizons and studies how and why they evolve differently. The study highlights that there is a time-varying term structure of equity risk premia, and that it depends on interest rates (expectedly) and a hidden state variable that the author attributes to psychological factors. Now, it is easy to blame changes in tastes for anything one cannot explain, but this is hardly convincing, here or elsewhere. The study uses the S&P 500 index and Treasury bonds and calculates premia at one and ten year horizons. If taste shocks make that risk tolerance of some people changes, they may get completely out of particular maturities. Looking at big aggregates is then not appropriate to measure how risk-averse they are. For example, if I find that long term risk is getting too high for me, for example because I am approaching retirement, I will get out of the blue chip stocks I was holding and into ten-year government bonds. Blue chips will then be priced by a different demand. There is thus a composition effect, that is, the risk tolerance of those holding these stocks is different, but it is because these are different people. That is not psychological, this is demographic.