Custom Swaps & Collars

Bilaterally negotiated OTC instruments for institutions that carry real player-performance risk: clubs, agencies, insurers, funds. Symmetric exposure, ISDA documentation, Eligible Contract Participants only.

The problem these solve

A club guarantees a star $51M a year for fifteen years. The club's true exposure is the gap between salary paid and on-field value received — and today the only hedge on offer is disability insurance, which pays on a single trigger: a medically adjudicated injury. Claims are contested, settlements take months, premiums on long guarantees are steep, and carriers routinely exclude pre-existing conditions or decline the risk outright.

More importantly, most of the ways a guaranteed contract goes bad are not medical events, and insurance covers none of them:

• Suspension — PED, gambling, off-field conduct
• Mental health and personal leave
• Pure underperformance — the skills decline and nobody gets hurt
• An early aging cliff, role loss, load management, nagging sub-clinical injuries
• The quiet middle: healthy, playing every day, producing half the projection

A WAR swap doesn't ask why. It settles on published output — cause-agnostic, no adjudication, no claims process. Every scenario above shows up in realized WAR, so every scenario above is covered. That is why these instruments complement insurance rather than compete with it.

Hedge: the out-of-the-money WAR put

The core club structure. The club buys a floor struck below projection and is paid dollar-for-dollar (per index point, at the negotiated notional rate) if the player's season lands beneath it — whatever the cause:

Projection 6.5 · floor 3.0 · $1.5M per point:
April injury      (0.5)  →  club receives $3.75M
Suspension year   (1.5)  →  club receives $2.25M
Quiet decline     (2.0)  →  club receives $1.5M
Solid season      (5.0)  →  expires; cost is the premium

The injury row is the only one insurance could have touched — and the put pays all four identically, with no adjudication of cause. Pricing is empirical: the premium comes from the historical distribution of outcomes for comparable player profiles, plus the writer's margin.

Align: the WAR call

The upside instrument is not a hedge — it's an alignment tool for the club-player relationship. A club negotiating an extension with performance escalators can buy a call struck where the escalators begin, so the bonus liability arrives pre-funded:

Escalators keyed to index ≥ 6.0 · $1M per point:
Player posts 8.0  →  club owes +$2M bonus · call pays +$2M
Player posts 6.5  →  club owes +$0.5M     · call pays +$0.5M
Player posts 4.0  →  no bonus owed        · call expires

Why clubs want it: they can offer richer pay-for-output terms without balance-sheet risk — star seasons cost nothing net of the call. Why players and agents want it: bigger, transparent upside keyed to a published, versioned index instead of negotiated incentive language and its edge cases.

Combining them: the zero-cost collar

Buy the put, sell the call, and the premiums net to zero. Between the strikes nothing changes hands; only the tails transfer:

Floor 3.0 / Cap 7.0 at $1.5M per point:
Index < 3.0   →  club receives (3.0 − Index) × $1.5M
3.0 – 7.0     →  no exchange
Index > 7.0   →  club pays (Index − 7.0) × $1.5M

A season-ending April injury (index 0.5) pays the club $3.75M. A vintage MVP year (index 9.0) costs $3.0M — happily paid, since the on-field surplus dwarfs it. This is the symmetric, true-hedging profile institutions require, versus the all-or-nothing retail binary.

Full exposure transfer: fixed-for-floating

For counterparties that want the whole distribution rather than the tails, the classic swap: pay a fixed leg set off projection, receive the floating realized index at the notional rate — Net = (Actual − 5.0) × $1M. Pay-fixed monetizes surplus production; receive-fixed insures a sunk salary. Same paper, reversed roles.

Who hedges

• Clubs — floor the back half of long guaranteed contracts, where actuarial decline risk concentrates.
• Agents & players — lock in today's projection ahead of free agency (long-own-performance direction only; integrity guardrails below).
• Insurers — write index-triggered floors that map to existing career-ending-injury underwriting, without medical adjudication.
• Funds — floating-side exposure to elite athletic performance, near-zero beta to financial markets.

Margin, collateral, integrity

• Bilateral CSA, zero threshold, daily mark-to-market; initial margin calibrated to historical index volatility.
• Retirement close-out: legs after a voluntary exit terminate at zero; injury legs run to settlement — that's the insured risk.
• No participant with game influence may hold a short position on any player they can affect; league-office attestation at onboarding and position reporting mirroring existing sports-wagering information-sharing.

Settlement is identical to the retail stack — same index, same no-discretion rules: methodology.