A risky business! The Irishman hedging millions at The Masters

Ian Mallon

Risky Business

Ian Mallon

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Ross Garvey has been to more than enough major tournaments without having to make his way to Augusta National this year.

The trader has learned after eight years at the top of sport’s most successful financial services business that it doesn’t matter whether he’s behind the 18th green, or on his living room couch – assuming the executive position – that come Masters Sunday, he no longer controls the market.

Whatever happens in the final hours of April 14, the performance of his group of superstar clients will be decided with or without the Dubliner’s influence.

The only thing that will matter as the players make their way through the final day’s play is that each and every one of his star names fails to win the green jacket, and better still (for him), makes zero impression on the almost $20m prize purse on offer.

What will make the Airton Risk managing director even happier is if his stable of supreme ball strikers are already on their way to Hartsfield-Jackson Atlanta International by early evening, or better still, already home.

That’s because Ross Garvey likes nothing more than a loser, and as long as they’re his losers – well that’s just great for the business of risk.

Welcome to the intriguing and complex world of golf hedging, through the eyes of the Irish firm which is leading the way in performance speculation investment, across the PGA Tour.

Airton Risk is a division of Flutter Entertainment – owners of Paddy Power, Sky Bet and Betfair – and is not dissimilar in strategy to the marquee betting brands under the umbrella of the New York Stock Exchange-listed gambling and gaming empire.

While Flutter’s multi-business strategy is based around maximising the outcomes of the staking market, those who stake in Ross Garvey’s world are not sportsbook investors, rather the golfer’s agents and their business associates.

And while large volume investment is key – the more investors the better – hedging is the name of the game, not as a break-even strategy, rather a winning formula.

Here’s how it works.

For obvious reasons, Ross Garvey doesn’t name the names of his star clients. For the Masters he has a highly valuable portfolio of eight players in the field, two of whom he says: “I will really be sweating on.”

The pair, who have a short odds chance of winning the tournament outright, are joined by two more who can be strong contenders, and four others who each have a sporting chance. For the purposes of this article, let’s call one of those favourites on Garvey’s books to win the green jacket, ‘John Driver’.

Driver’s Masters commercial and prize-winning value is based on two financial performance indexes – tournament outcome and world ranking. Sticking with the live event side of the business first, Driver goes into the Masters with a strong chance of earning multiple millions of dollars through two significant revenue streams – prize money and sponsor’s bonuses.

The top players in the world will have approximately 15 to 20 commercial partners, and not just the ones we see on the shirt, hat or bag, but the automobile, resort, sunglasses, fashion, financial services, tech and other less overt stakeholders.

Even if John Driver wins the Masters, and a cheque for $3.24m, that money will feel like an expense account when multiples of that value are achieved through various bonus clauses inserted across all of his commercial contracts.

This is where Airton Risk comes in and that’s mainly through the purchase of bonus payments from sponsors, at a reduced rate, in anticipation that the player will fail to reach his contracted goal. In other words, if a client – sponsor or agent – sees his player achieve the result required to force a bonus payment, Airton Risk as the coverer, or owner of that liability, must pay out the full amount due from the sponsor.

Let’s say John Driver’s equipment provider has agreed to pay the player $2m for winning the Masters – but has then done what more and more sponsors and partners are doing – sold that risk to Ross Garvey.

Here’s what happens. Airton Risk, who may have agreed to own that bonus liability for $300k, will pocket that trade if John Driver fails to achieve his commercial objective. The sponsor loses out, and moves on, Airton Risk pockets the cash and credits itself with a wise investment. However, if Driver wins the tournament, the risk investor (Garvey) must pay out the $2m to the player, while the commercial partner takes a much less-significant hit of $300k – money it will make back in spades in immediate publicity and engagement following such a landmark win.

Similarly with prize money, and sticking with the Masters for modelling purposes, with purses divvied out in numbers ranging from that $3.2m winner’s cheque, scaling downward to $486k for tenth spot, $234k for coming 20th, right down to $45k for 50th. Depending on the value of the player, Garvey and the agent will agree a figure on the chances of that golfer achieving X amount, and Airton’ will cover that potential – paying big if the player wins, and making a considerable profit if he doesn’t, based on agreed terms.

While the golfer and his performance at Augusta is vital on both ends of the scale for the risk investor and the sponsor – it allows the player a consistent return from tournament-to-tournament and all through an industry which thrives under the surface.

“Basically the agent will say to the sponsor that ‘the better my player does, the more exposure for your brand’, and that’s why we exist,” explains Garvey. “We are helping sponsors manage their risk, we’re taking that risk for a fee, they get all of the good stuff, all of that logo and brand exposure when times are good.

“More importantly they get to enjoy their player winning and they don’t have to worry about paying the bonus, because they’ve already paid a fee and so I’m looking after their liability. They want to see max exposure, enjoy the celebrations on a Sunday night and they don’t have to worry about paying out on a Monday morning – but I might have to go and pay this guy a million bucks instead.”

Almost like a 200-yard drive over a watery dogleg – the risks for not making it are considerable, but the rewards if you get to the other side are incredible.

Airton Risk doesn’t share its investment details for good reason, but a typical major tournament may have a value of €10m at stake for the Irish firm. Of course, the numbers and values of risk will change “depending on the standard of players” which for the lesser knowns may mean bonuses as small as 100k for a major win, or $2-3m for the bigger names.

“These star players have multiple sponsors, with each one paying big,” adds Garvey. Not all agents or sponsors take cover, and some choose to hold the risk themselves, but the really astute ones will cover all options to maximise the player’s earning potential and keeping levels of income consistent and thereby reducing the player’s exposure to financial loss.

While Garvey covers a multitude of events across the two key tours in the US and Europe, covering bonuses and prize money, a significant area of growth is performance within the Official World Golf Ranking (OWGR). Like tournament achievement, success within the official global ratings index is key, with players contracts providing rich potential for movement up and down the order of merit.

“We’ve seen a lot of sponsors taking cover on the rankings, whether that’s to finish in the top five, top 10 or wherever, based on points earned in the calendar year rather than overall values, which run over three years,” continues Garvey.

“Points will carry over on previous years, but points earned on the (financial) year is what is measured commercially, and where they stand in the current rankings.”

The bulk of Garvey’s work comes through the PGA Tour, and to a lesser extent the DP World Tour, but this year also sees business moving to the Olympics with three players covered to medal in Paris – a first for Airton Risk. But it’s the majors and FedEx that really hold value and volume, and the bigger the numbers and the more players covered the more chance of success to the Flutter firm – only so many players can win big at tournaments, right?

“Our business model shows that volume over time is better for what the outcome should be, and our records demonstrate that it is a very profitable business, and one that is also extremely valuable to our clients.”

The former sports book trader with Paddy Power uses a myriad of complex data and analytics assessment to price his product, values that are assessed and determined through a team of 200 quants and analysts from Melbourne to New York to Dublin.

One area which is proving an interesting puzzle to crack is the impact of LIV Golf, where volumes of cash for the leading players and those down the ranks are so high the need for clever financial strategies by agents have temporarily lessened.

“The impact of LIV has been really interesting,” explains Garvey. “When it first came on the scene we anecdotally thought: ‘Have we seen a bit of downturn in golf here?’ and we gave it a bit of time. “When we went through the data and came up with a report it confirmed that, yes, there was a bit of a downturn in golf turnover.

“We concluded that this was essentially because these guys going to LIV are getting a big lump of cash up front that suddenly the need for clever or strategic financial management had decreased. The agents aren’t as pressing with the sponsors as they would have been historically on the performance element of the contracts, and they’re also saying: ‘We’re getting a huge lump sum from LIV, but our preference is for our sponsors to also pay, minus a few deductions.”

But that will only last so long with sponsors not getting anything like the value or exposure on the LIV tour that they do on the PGA Tour, and Garvey believes the long-term value and volume of fans watching the Saudi-backed tour will be key.

“The sponsors aren’t fools, they understand that these guys are playing 54 holes on a shotgun start on YouTube,” he continues. “I’ve probably watched about 10 minutes of LIV and that’s someone who lives and breathes the sport. “It’s not rocket science that something is not getting as much attention as the behemoth PGA Tour on CBS or on Sky every Sunday night, and while it’s frustrating for the golfers and the agents, they’re still getting such incredible lump sums the dynamic has certainly changed.

“We had cover for a golfer with a sponsor, that golfer went to LIV and that sponsor didn’t renew cover, they’re happy to run the risk due to the money now involved,” he adds. Garvey believes that one area which may correct this issue on LIV will be for the tour to achieve OWGR ranking status – something which many neutral observers say must happen – but which is a million miles away at the moment.

If you have the world’s best golfers – Jon Rahm, Brooks Koepka and others – not being ranked you have sponsors unable to measure the rating value of their clients, and that is not good for the business of risk.

Something else that’s not good for Ross Garvey is ‘too much stress’ something which he has learned to cope with over time, particularly as we enter ‘Major season’. “I’ve been doing this eight years, and I used to live all of the ups and downs of results whether that’s golf or football or American football,” explains the former Paddy Power trader.

“You do get better in time, particularly with golf because it’s run over four days and you can’t allow yourself to get stressed over such a long time period.” Still though, if John Driver or whoever is on Airton Risk’s books is standing on the relatively risk-free 18th at Augusta with just a par required to win the Masters, Ross Garvey may not be so reasonable. Because failure is the name of the game for risk investors, and failure’s a good thing.

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