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Message: [QUOTE="The Yakk, post: 4981201, member: 9988"] Lol but nah, we could buy this policy again if we wanted it. I don't know the details of UConn's deal, but I have been involved in this business on the insurance side and can add a little more color. 1. The company mentioned in the article--"Game Point Capital"--is not the actual risk-taker. They are a specialist agent who arranges the coverage, but there is a real insurance company with a big balance sheet behind them who takes the risk. Someone like AIG or Berkshire Hathaway, or maybe a Lloyds syndicate. Game Point Capital will continue to try to sell this policy to UConn; if the actual insurer gets gun shy because UConn is too good, then Game Point will find someone else. 2. The insurer who wrote this policy did not insure UConn alone. They are in the sports/promotions business, and likely have dozens of similar deals with other teams. Most of those will be loss-free. It is a niche insurance business, but incredibly profitable. More on this below. 3. You might ask, how is an insurance company allowed to get involved in sports futures betting? Technically they cannot; the key is there is an insurable interest that the insurer is protecting. In UConn's case, it's the coaches' bonuses; more commonly, it's some kind of marketing promotion. Like, Filene's in Boston gives everyone their money back for their TV if the Sox win the World Series. So technically they are insuring something, but their pricing analysis is exactly the same as if they were booking a futures bet. 4. Since the deal is mathematically identical to placing a futures bet (or a series of futures bets in UConn's case), you might ask--why did UConn not just go to a sports book and get a better price? Two reasons: 1) the size of the bet; sports books are not in the habit of taking one-off exposures in the $millions; and 2) credit exposure to the counterparty. Insurance companies pay claims in the $millions all the time; sports books are a bigger credit risk. 5. Because of this advantage, the insurer can price these deals with a much bigger profit component. Essentially, the "vig" for the insurance company is massive. It's very profitable business in general. One would hope that UConn is not buying coverage like this as a matter of routine. It's nice that we were able to exploit the insurance this year--and that DB is able to brag about the results--but he is bragging about a pretty dumb financial decision. The way these deals are priced, it is a losing proposition for UConn. [/QUOTE]

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