I luuuve financial engineering (...except when Saylor does it on bitcoin, obviously; fucking twat). #1544738

LeBron James is a guy. He has large and reasonably predictable future cash flows. You can put those cash flows into a box and issue bonds with a senior claim on them. James turns his future cash flows into $300 million upfront, and the bondholders get their $300 million back, with interest, over 30 years. Absolutely standard financial stuff, though applied to the cash flows of a guy rather than a corporation or shopping mall or data center.

ANSWER to that question?
="Life insurance customers should be financing strange illiquid assets, because they are best suited to hold that risk."

Front-page story on Bloomberg today is that Lebron borrowed 300m from the Lakers+Dodgers owner, who is apparently in legal troubles for some reason I missed (the schtackers and the ~Stacker_Sports nerds here will fill me in) -- capital ratios in his related-party insurance companies:

• it's a long-term bond
• very illiquid
• with issuance/principal-agent weird financial situation: "his financials are not publicly disclosed, and there is unlikely to be a deep liquid secondary trading market in LeBron bonds."

nor is “loans to athletes backed by Nike sponsorships” a huge asset class, though Bloomberg notes that “athletes and artists are increasingly using future earnings like royalties and licensing deals to structure deals that help them unlock immediate capital.”

"so if James went to a bank and asked to borrow $300 million for 30 years, the bank might get nervous."

Banks are funded by deposits, and making 30-year commitments to illiquid investments is not really the safest use of their money. Similarly, a bond mutual fund might have a hard time buying these bonds: Mutual fund customers can put money in or take it out at any time, so the funds might need to buy or sell their holdings, and small weird illiquid bespoke bonds are not ideal for that.

You need long-term money, safely locked up without much ability for early withdrawal.

Classically those buyers are endowments and pension funds, pools of money with predictable long-term liabilities. If you know you have to pay out pensions over 30 years, you can easily lock up some of your money in 30-year LeBron bonds.

You can expect to be compensated with a neat illiquidity premium here.

Aaaah, yes, the missing market when defined-benefit pensions disappeared and equity/time-of-withdrawal risk spread all over:

A pension fund traditionally provides a steady predictable long-term stream of income to retirees, but the US has largely moved away from traditional defined-benefit pensions. But pension funds are great investors, with long time horizons and a willingness to buy weird illiquid stuff to achieve long-term returns, and so the modern financial industry misses them and wants to recreate them. Annuity companies basically sell private pensions — you give them money, they promise you a steady predictable long-term stream of income in retirement — and hand the money over to alternative asset managers, who invest it in weird illiquid stuff to achieve long-term returns.

"with the right structure, a LeBron bond could be an investment-grade credit instrument, even if it’s a weird and illiquid one."

If the LeBron bonds were priced with a discount reflecting James’s coolness, pensions and quasi-pensions wouldn’t rationally buy them: The pension fund doesn’t derive any benefit from that coolness.

Reminds me that I shall investigate the economics of FIA/F1. The dynamics and money flows (apparently, also a publicly traded stock...) are weird af.

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