Trying to derive value from the Pavlik-Hopkins bout

Anyone see the stock market last week? Another once-in-a-lifetime event. The fabled Chinese adage says, "May you live in interesting times." We've got those. But, man, what does this have to do with boxing?

An economic look at Pavlik's next fight. (Getty Images)

Therein lies the rub. Do folks read boxing columns to forget about catastrophes? Or do they feel moments spent on boxing in times like these are inappropriate? Well, let's see if there's a way to marry boxing and current economic events.

Derivatives. We have heard a lot about these lately. They are appropriate culprits because they're mysterious to most of us. Politicians can cast them as evil devices that imperil us all. Not until we are through this existential crisis and someone tries to regulate derivatives will we learn that our leaders never understood them.

Did you know boxing promoters have used derivatives for decades? Surely you remember some Don King controversy or other where the term "options" came up. Derivatives, when used properly, serve one primary function: insurance.

Take the situation with the WBO heavyweight title a few years back. King was then-champion Lamon Brewster's promoter. In market parlance, King was "long" (invested in) Brewster. But when Brewster fought Liakhovich, King paid Liakhovich extra for an option on his next fight. Had Brewster won, King's option would have expired worthless -- exactly the way your auto insurance payment does any month you're not in an accident. But Liakhovich won.

King then exercised his option and promoted Liakhovich's first title defense. King was long Brewster but willing to buy an option as insurance against the future revenue he would lose if Brewster was no longer champion.

Take that intelligent approach, add a little "trickeration," and you have one of the reasons for King's astounding success.

As fight fans, we can play this game too. Saturday, middleweight champion Kelly Pavlik fights former middleweight champion Bernard Hopkins 10 pounds above the middleweight limit. The fight is on pay-per-view. It will cost you $49.95.

Golden Boy Promotions CEO Richard Schaefer recently likened boxing events to a place where folks can huddle and find refuge from economic downturns. Working off this superfight-as-hearth idea, I'm going to invite 10 friends over to watch Pavlik-Hopkins. I'm going to go long Pavlik because I think a Pavlik victory is better for boxing.

(From this point forward, things will get a little complicated, slippery and opaque. Bear with me. Derivatives' complexity, slipperiness and opacity are some of their charm.)

My compensation will be joy. That is, I have made a value judgment: The joy brought by a Pavlik victory is worth $50. Half my invitees are also Pavlik fans. They will pay no door charge. The other five, though, Hopkins fans, are going to have to pay $10 each Friday.

But there's a caveat. In the event of a Pavlik victory, I will return the Hopkins fans' money. I am long Pavlik and willing to part with $50 for the thrill of seeing him win. If Pavlik should lose, though, I'll need the Hopkins fans' collective $50 to revive my sprits by paying for the evening.

But now let's imagine I am wealthy enough to invite a million friends over and purchase 100,000 pay-per-view licenses from promoters Top Rank and Golden Boy. In national economic terms, that makes me something like an investment banker -- though I'm doing it to celebrate boxing, not turn a profit. Friday, I will collect $10 from each Hopkins fan.