Every year I join about a dozen high school buddies and head out on an NFL roadie. Every year it’s a different team – with New England, Green Bay, Cincinnati, and Indianapolis being among the most recent destinations. Many of the tickets are VERY hard to get – particularly when you’re angling for a dozen or so in the same area of the stadium. But since we’re willing to pay a relatively high premium to to the re-sellers (or if you prefer, scalpers), we tend to get to the games we want. In the last few years, sites like StubHub have made this far easier than before.

But I’ve always wondered why professional sports teams have allowed such a large portion of their potential profits to be captured by these intermediaries – particularly teams that could sell out their stadium several times over at their current prices. The simplest argument has been that it lowers their risk – sell at a particular price, lock in the revenue, and let the re-sellers worry about whether the tickets will go for a premium or not. But my belief has been, and remains, that teams are “paying” far too much for this – and that some sort of “auction market” could make them a lot more money in the long-term.

In turn, I’ve recently come across a platform – OptionIT – that is a step in that direction. Instead of buying a ticket for a game, fans (or speculators) can purchase an option to buy that ticket at a later date – it functions just like options do in the stock market. If you assume that team itself will eventually get at LEAST face value for each of these tickets, by taking a cut of the option price they directly accrue additional revenue. And if the market becomes really active / speculative, it’s notable that the team could get a cut every single time the option is traded.

This will be an interesting development to watch. While some commentators are noting that this is “just another way for teams to rip you off“, it doesn’t bother me one bit. I really have no problem with teams charging what the market will bear, and given that every year I pay a premium well above face value for a ticket to one game or another, I’d rather have the money go to the teams themselves – particularly since a vibrant options market would likely give my road trip crew a lot more options for when and where we go…

As the equity markets have imploded over the last year, a lot of explanations for what’s happened have been popping up. Most of these involve pointing fingers at a variety of problems tied to debt – sub-prime and otherwise. However, I think there is a far more fundamental problem that has long existed that not only has very little to do with the now “common” explanations for what has transpired, but also points towards a collective irrationality that has existed for many decades. The basis of this fundamental problem is a disconnect between per-capita real GDP growth, and expected investment returns.

For those that might need a refresher, Real GDP is a macroeconomic measure of the size of an economy adjusted for price changes and inflation. It measures in constant prices the output of final goods and services and incomes within an economy. In other words, it’s an aggregate measure of what an economy produces, or if you prefer the income a defined group of people (typically a country) earn over a given time frame (typically a year).

Economists pay a lot of attention to the growth rate applied to Real GDP, which indicates how much our collective wealth is increasing. But the more interesting measure here is the per-capita growth rate of Real GDP, which is an indicator of how much wealthier each of us get, if – and this is crucial – the gains were distributed “equally” across the population.

So here’s the thing that strikes me as odd. If you run the numbers for a variety of “developed” economies (like the U.S., Canada, etc.) for the last 20 years, the average is around 2% – how much wealthier, theoretically, each is could have been each year, again if the gains were distributed amongst the population.

With that in mind, think about the investment returns people have achieved, and expect into the future. Over the last few decades real returns have been well, well above 2%, and even today people continue to forecast 4% + real returns, on an annual basis.

So taking a REALLY long-term perspective, these expectations are certainly impossible – if your individual wealth increases faster than the per-capita GDP growth rate, eventually you will control all of the wealth in the world. But taking a shorter term perspective, how many people can reasonably enjoy the benefits of their individual wealth growing at a rate in excess of the per-capita GDP growth rate?

Now one answer people might give is that this is just the rich getting richer, while the poor get poorer – and there is certainly an argument to be made here. But let’s throw out a couple of specific pieces of data to further bring the issue into context.

Everybody that works in Canada contributes to the CPP – our social security system. This plan expects to keep piling up a portion of these contributions, and investing them in a fund that earns a 4.1% real return annually. In turn, every single worker in Canada is, in effect, depending on their “individual” share of the wealth growing at 4.1%  a year. But if you go back to the per-capita GDP growth rate, in Canada it’s been 2.25% the for the last 45 years or so, and 1.7% for the last 20.

So… the social security system that supports virtually all Canadians is depending on earning investment returns several times higher than the per-capita growth rate of the Canadian economy, and they expect this to happen for at LEAST the next 75 years. Sounds kind of weird when you think about it that way, doesn’t it?