What capitalism can learn from the NFL

First aired on The Sunday Edition (25/9/11)

If popular culture is to be believed, American football can teach us everything we need to know about life. The movie Rudy showed us that an indomitable spirit can lift even the smallest among us to achieve big dreams. Remember the Titans reminded us that although we're from different backgrounds and cultures, we can always find a way to work together. And who could forget Varsity Blues, the film that rightly points out that there's more to life than football.

But can football teach us something about capitalism? It may seem a bit far-fetched, but Roger Martin, dean of the University of Toronto's Rotman School of Management, argues that the NFL has a system in place that our financial movers and shakers should take a hard look at, especially given the fragile state of the global economy. In the past decade we've seen two major capital market crashes, the dot-com bust in 2000 and the financial meltdown of 2008.

According to Martin, another crash is inevitable as long as companies devote themselves to maximizing returns for their shareholders. Companies are relying too heavily on the expectations market (trading stocks, paying dividends) and ignoring the real market (making products, serving customers).

So what can the NFL teach Bay Street?

"Well, in the NFL they have...created a strict separation between the real market and the expectations market," Martin said in a recent interview on The Sunday Edition. "So what's the real market in football? Well, it's when two real teams go out on a field to play for 60 real minutes and throw real passes, yard by yard, score touchdowns, field goals, and there's a real winner and a real loser.

"There's also an expectations game. It's not very legal, except in Nevada, but that is betting on NFL football. In this game, what betters do is between Monday and Saturday, they imagine what's going to happen on Sunday, on the real field, and on that basis, place a bet."

Martin says the NFL forbids anyone who's involved in the games — from coaches to owners to the players themselves — to gamble (i.e., participate in the expectations market). The consequences could mean banishment from the league.

"Contrast this with the world of business, where the moral equivalent of the quarterback is the CEO, and the moral equivalent of the point spread is the stock price, and in business they say the CEO (i.e., the quarterback) must play in the expectations market."

You can find out more about Martin's ideas in his book Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL.