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I smiled. The way he talked about his sport so passionately, made me feel warm inside.
“Why are you smiling like that?”
“Like what?”
“Like I’ve just offered you a lifetime supply of nachos. Don’t think I haven’t noticed the incessant amount you eat of those, by the way. It can’t be good for you.”
Crossing my arms, I leaned forward, my grin now getting wider. “I’m smiling because you just explained chapter eight of Economics without realizing,” I said smugly. Then I skipped past him, down the field to the football.
He watched me. “What?” When I didn’t answer, Tanner followed behind me, quickly catching up to me with his wide strides.
When we’re walking side by side, I explained. “Chapter Eight describes Risk Shifting and Bondholder – Shareholder conflicts as conflicting incentives between the bondholder and shareholder. One of the most important conflicts that arises is the risk preference of these two groups.”
“You’ve lost me.” Maybe this wasn’t as simple as I thought, but I’d persist since we were out here.
“Okay, you’re the shareholder in this scenario.” Still looking perplexed, I continued. “If a company goes bankrupt. The first person to get paid is the bondholder. The bondholder is Covey U. Even if the team loses, the college will still get paid and make money from ticket sales.”
“Okay.” It wasn’t easy and his brows were furrowed, but he hadn’t completely backed away from the idea.
“And your team are the shareholders. If you don’t win, you don’t get paid. i.e. you won’t get into the NFL.”
He was still confused, but I smiled, waiting for him to take it in. “You know, I’m not one to question your methods, but this feels a lot more complicated than having chapters read out to me.”
I slapped him playfully on the side. “It is more complicated when you keep asking so many questions.”
“Sorry.” He held his hand out, giving me an amused grin. “Continue.”
I closed my eyes, trying to remember the whole scenario in my head, because yeah, he was right. It was a little complicated, but I was certain once I got through the explanation, it would click into place.
“So when you’re down and have a couple minutes left in the game…”
“We’d take higher risks,” he finished the sentence, and I pointed at him with a smile.
“Exactly. Just like in football, it doesn’t matter if the worst-case scenario happens because the shareholders would have lost, anyway.”
“I think I get it, but part of it doesn’t make sense. Covey U would want us to take the risk to win the game, so it doesn’t work.”
“Ah, but that’s when the bondholder's and stakeholder’s appetite for risk matches. That’s not always the case.”
I could see him thinking, trying to make sense of the analogy. “Like when we’ve missed out on a playoff spot, so they don’t care about this year’s results. They’re focusing on next year.”
“Exactly! But you’re still focused on every single game because every opportunity counts. It’s the same in business. Appetite for risk can shift and varies depending on who you’re talking to in the business and what’s at stake.”
He looked at the ground for a minute, and then at me, shaking his head. “You know, as crazy as it sounds, I think I get it… Kind of.”
I tipped on my toes, trying to hide the excitement because this was new to me too, and I still wasn’t entirely sure it would work, but I was happy that Tanner was at least trying.
“Well, that’s a start.” I fished another football out of the bag and threw it at him. He caught it easily, and although that was a lot better than my first attempt, I still had a way to go. “Now, let me explain the economic theory behind The Draft to you.”
Throwing the ball back at me, he said, “Please tell me you’re talking about the NFL Draft and not that stupid dating event they hold here every year?”
“I don’t even know what you’re talking about.”
“Of course you don’t. The Draft is a semi-speed dating event where athletes can meet the rest of the student body.”
I glared at him emotionlessly. “Why did you ever think I’d waste my brain cells thinking about something like that?”
“Don’t know. But you have just tried ‘kinesthetic’ learning on me. Who knows, you might have gone to watch human selection in action.”
