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I haven’t written much here lately.  I’ve been writing so much stuff between class assignments and outside business stuff I’m doing that I just couldn’t find the time or energy.  Well, all those class papers are over now so let’s open up the floodgates.

The topic for today: staking people in life.

VentureBeat had a post today titled Entrepreneurs offer their life’s future earnings for an investment.  The basic premise is people were offering to sell a small portion of their life earnings (typically 1-5%) in order to get cash up front.  One 26 yo girl is profiled who is trying to sell 6% of her future earnings for $600,000 to help pay off debts and start a new venture, valuing her future stream of income at $10m present day.

This idea is similar to the staking economy in poker.  Unfortunately the Poker staking page in wikipedia is woefully short, so I’ll do my best to explain it in a little more detail.  I’ve been on the receiving end of a few stakes and bought a percentage of others’ action a couple times so, while I’m no expert on the inner-workings like sheets is, I can offer a little experience.  In a staking agreement, I offer to pay your buyin to tournaments (you can get staked for cash games too but let’s stick with this) and then I take a portion of any winnings you get.  Usually these agreements last for a longish period of time since the world of tournament poker sees huge swings, and it’s also common for there to be a payback clause where the staker takes close to all of the profits until all previous buyins have been paid off before they split the remaining winnings at a predetermined percentage.  There’s obviously a lot more you can talk about here, but that should cover the idea in enough detail for the rest of this post.

So, given that, it’s not surprising at all that one of the founders of a fund currently offering to buy a percentage of promising young workers was champion poker player and Georgia Tech graduate Phil Gordon.  If you can identify a talented young performer and have capital available that they lack, it can be a great deal for both people.  Also, I like that they offer a buyout option for everyone so that you aren’t stuck with a lifetime debt if you want to get out of it.

Is it possible that people could get screwed with this system?  Certainly.  Over time people have shown a remarkable ability to consistently use things that should be beneficial (hello credit cards) in harmful ways.

More importantly, I like this idea because I have developed a couple business ideas around this same idea.  It would be wrong of me to not give a little credit to Bill Simmons here for his meme of “I wish I could buy stock in X” where X is something like “the Patriots falling apart this year as Randy Moss goes into ‘I don’t care’ mode.”  However, instead of that, I want to buy stock in John Wall’s future earnings.

Coming out of school, Wall is looking at something like a $5m/yr rookie contract and sponsorships that probably get him to about $7-10m/yr initially if he gets a shoe deal like I expect.  Meanwhile, you have to expect that his next few contracts and endorsements are going to be HUGE.  Max contract big.  Looking at a couple $60-100m contracts and various endorsements spread out over a 15 year career (obviously all optimistic projections) that’s probably somewhere around $200m in present value.  Actually, it’s probably not even close to right, but humor me.

What if he could sell 10% of his future revenue stream on a stock market and suddenly have $20m in walking around money?  That would be AWESOME.  It’s legalized gambling, wrapped up in unrealistic price inflation by hometown fans!  Similarly, you could do that for music acts.  What if Bruno Mars could sell a profit percentage of his first CD to raise money to get it produced himself?  Automatic democratization of the music industry, and no more predatory tactics by the record labels trying to milk an artist for everything they can.

So yeah, I love this.  I’m also open to receiving stakes