Even in the realm of sports, they enable businesses to hedge against real-world risks.
Why would a sports bar across the street from Chicago’s Wrigley Field put a money stake on the Cubs failing? Rizzo’s, a 20,000-square-foot bar in Wrigleyville, did just that. It bought a contract that would pay if the Cubs hosted fewer than two home playoff games. The Cubs then lost both Wild Card games to the Padres in San Diego, triggering the payout.
The logic is called “hedging.” Rizzo’s revenue depends heavily on the Cubs going deep into the playoffs. A longer run means a packed bar and thousands of dollars in higher takings. An early exit means empty stools and ...
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