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protrade-the-sports-stock-market-2 | April | 2007 Articles

2007 Archives

Protrade: The Sports Stock Market

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Heard of Protrade? If not check out the site -- it is definitely one of the more interesting websites to sprout up this year. For the uninitiated, Protrade calls itself the Sports Stock Market. What it does is create markets for every baseball (and football and basketball) player in the game and assigns an initial price to that player based on how many fantasy points he'll get. After that buyers and sellers (Protrade's users) trade the players on the open market and their price adjusts accordingly. It is a form of prediction market. If you've read some of my THT columns you'll know that I'm a big fan of prediction markets. I'll be writing an article about Protrade in a couple of weeks so be sure to look out for that. Back to business. The folks at Protrade are expanding and have just launched team IPOs. In other words they have created markets for teams as well as for players. Similar to the player markets the teams trade at a price that reflects how well they're expected to do. What's more is that they want Chop-n-Change to be the featured blog for Braves news and views! Of course, I was more than happy to oblige. Here is the points system:
  • $1 for each regular season win
  • $10 for qualifying for the playoffs
  • $4 for each playoff win
  • $10 for winning the league division series
  • $20 for winning the pennant
  • $30 for winning the World Series
You can check out the Braves value here. At the time of writing it is $103 -- which seems pricey. That assumes we win 91-92 games, qualify for the playoffs and lose in the division series. Remember, that is supposed to be risk adjusted too! Let's see if that's fair. Before the season I had the Braves with a 24% chance of going to the playoffs. A team that has a 24% of going to the playoffs typically wins 87 games (I realize you're going to have to take my word for that, but I'll prove it in an upcoming THT article). Here are four scenarios, with expected price based on the Protrade points system:
  1. Braves win 87 and lose in World Series =$163
  2. Braves win 87 and lose in League Championship =$127
  3. Braves win 87 and lose in Division Series = $105
  4. Braves win 87 and fail to make playoffs =$87
Wow ... making the World Series pays in this market. Now I realize there are many more scenarios but I'm trying to make life easier here! Assuming rough probabilities for each scenario of 5%, 10%, 10%, 75% then you get a weighted price of $97 Last time I checked the price was $103. That would seem to indicate SELL, but those probabilities were based on preseason estimates. The Braves have had a hot start so $103 seems about right. Check back into Chop-n-Change for your ongoing Protrade news!
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