Sports and Risk Management

by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

It seems as if there is no end of sports talk shows.  There are many reasons for this – in part because sports fans like to talk about, and hear about, and discuss their favorite teams.  Another reason is that there is no end of sports experts / pundits.  A third reason is the sheer quantity of data to analyze and discuss.  Particularly for the major team sports like baseball, football and basketball, it seems like there is an endless stream of statistics that allow one to analyze every angle of the game.  With all of this analysis, and all of these experts, you would think that the outcome of virtually every game ought to be completely predictable.  However, we still tune in to watch the "big game".

Sports are complex, and thus despite all of the analysis, there is great variability in the outcome.  This is despite the volume of data and analysis that is available to coaches.  (Has anyone read Moneyball by Michael Lewis?)  Players perform in unpredictable ways to pressure referees make unexpected calls, the ball bounces in strange ways, the wind blows etc. etc. (the Bud Light Fans do not align their bottles correctly http://adsoftheworld.com/media/tv/bud_light_very_superstitious ….)

Risk management is also complex.  Despite all of the analysis, we still have to watch the game unfold, and just as a coach is limited in what they can do to affect the results of a game, as risk managers we are also limited in how we can affect outcomes.  Data, analysis, talk, debating, etc. etc. all help, but they do not make outcomes predictable.  Gotta go – game is starting.