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A popular Wendy's commercial in the 80s made famous the question: "Where's the beef?" Good one. And here's an even better one: "Where's the alpha?" You might want to whip this one out the next time you meet with your portfolio manager.
Alpha is the over-and-above-the-expected return. It is the "value added." Therefore, it makes sense that a positive alpha means an investment has outperformed its market-predicted return, while a negative alpha would mean just the opposite. The expected return is calculated by a formula that takes into account the investment's level of unavoidable risk (aka beta).
Ever stepped into an elevator and after the doors close you become aware of an almost-suffocating scent coming from the woman next to you who must have bathed in perfume? Well, as you know, once the doors close you can't escape the smell until the ride is over. This is similar to beta, which is risk that can't be reduced or diversified away. A measure of "systematic" or market related risk, beta is used as a measure relative to a certain index -- such as the S&P 500.
So, for example, let¿s say your portfolio is managed to compete against the S&P 500. If you generate a better return than the index while not taking on added risk (standard deviation of returns) then you get alpha. Low beta means the market-related risk is low and vice versa for high beta.
Another example, let's say a mutual fund or stock has a beta of 1.5 relative to the S&
P500 ¿ that means it is 1.5 times as risky. So, over time, if the S&P 500 goes up 1%, your portfolio should be up 1.5%
plus (one can hope) some percentage of alpha. If the S&P 500 is down 1%, your portfolio should be down 1.5%.
Alpha
and beta are based off of linear regression of a set of data. Warning: this may cause a high school fifth-period flashback,
but it will be over before you know it:
The equation for a line is Y = a + bX.
a = alpha (the Y intercept - the added
value)
b = Beta (the coefficient you multiply X by)
X = S&P 500 (in this case)
Y = your portfolio
Home / Personal Finance / On Topic / Sports
Wednesday, January 30, 2008
Sports Teams Go Green: Real Thing or Just a Fling?
Lauren Covello
FOXBusiness
NEW YORK--Is today’s green-sports love affair the real thing or just a fling?
When the Philadelphia Eagles launched its “Go
Green” campaign in 2003, it was the first and only professional athletic team to take a stand on a major environmental initiative.
Over the next five years, the sports sphere would develop into a springboard for green endeavors, with the New England Patriots
and New Jersey Nets some of the latest teams to join the eco-friendly bandwagon. Even the Super Bowl has been bitten by the
green bug. And some argue that the young trend is here to stay, predicting large-scale environmental programs will play an
important role in the future of athletics.
"This
is not a fad. The ones who are pursuing sustainable practices are in the minority right now, but they will be the norm in
five years,” said Mark Andrew, founder and president of GreenMark, a Minneapolis-based environmental consulting and sponsorship
marketing company. “It’s smart business; the Eagles figured this out years ago.”
The Philadelphia Eagles’ green campaign
is no small enterprise. The team has made tremendous investments in clean and renewable energy purchases, tree planting programs,
and recycling efforts – even looking to reuse the cooking fat from its concession areas to convert into bio-diesel fuel. The
team estimates that, since 2003, its efforts have succeeded in eliminating the greenhouse gas emissions of almost 1,800 automobiles,
combating the trash stream of over 550 Americans, and saving 2,300 trees.
“We started out in a very quiet way,” said
Shawn Casey, the team’s media relations spokeswoman. “We never intended to be the leader, just wanted to do our part.”
But
other teams have noticed. And, because a sports team’s day-to-day activities (powering a venue, traveling, maintaining field
grounds) often require heavy amounts of energy consumption, green practices make a visible impact.
“Any organization
that is operating in the real world is going to leave a carbon footprint – especially a professional sports team,” said Pamela
Lippe, president of green building advisement company e4 inc.
Lippe’s firm is currently partnering with the Nets on
a green campaign, a plan which she said would hopefully aid the Nets in becoming the first NBA team to achieve “carbon neutral”
status by offsetting energy consumption with renewable energy certificate [REC] purchases.
The Nets’ environmental
strategy was announced back in November, around the same time that the Patriots signed a four-year deal to purchase RECs to
offset the electric expenditure of their home games. A game at Gillette Stadium requires enough electricity to power 2,269
homes for a day, but REC investments – money that goes toward development of eco-friendly power sources – are said to make
up for that release in clean energy bids.
“Every kilowatt you can put into the grid and avoid taking from coal sources
is a genuine savings in carbon saving and impact,” said Brendan Sexton of the Sexton Company, an environmental consulting
firm that has worked with the Eagles on their green program since its inception. “The Eagles have done some really exciting
things in this area.”
The Eagles made history back in April when the team announced that any employee who signs up
for wind energy will be reimbursed for the cost difference over conventional energy. The team is also working to build the
Eagles Forest, which is expected to hold an estimated 3,900 trees and remove 25 tons of greenhouse gas over the next 20 years.
In
addition to their position as big energy consumers with big opportunities for change, sports teams have another advantage:
committed fans.
“One of things working to our advantage is our ability to reach an audience,” said Rich Jureller, manager
of community development for the Buffalo Sabres, a team that is in the early stages of developing a green campaign. “Our fans
pay a lot of attention to our awareness efforts. By us getting involved, it may encourage them to get involved, too.”
The
Nets have arranged a series of “Green Nights,” at which green organizations set up booths in the concourse and environmental
awareness announcements are read over the loudspeaker. At a recent game, visitors walked away with 5,000 free compact fluorescent
light bulbs.
“I believe [the Nets] are the first team that has made a real effort to educate the fan,” said Lippe of
e4, inc.
This year’s Super Bowl will be indirectly offset by renewable energy certificates for the second year in a
row. More interesting is that Leigh Steinberg Sports & Entertainment – a sports representation firm that has thrown a
high-profile Super Bowl party for the past 21 years – has partnered with GreenMark to produce a 100% environmentally sustainable
event this year. The green celebration will be a “zero net waste event,” meaning that everything from the cups to the tablecloths
– even human waste – will be processed and reused in some way.
“If we do it right, this event should not cost any more
money than it normally would,” GreenMark’s founder & president Mark Andrew said. “We can leverage commercial investments
into green events the same way we’re doing elsewhere in sports because there’s a payback in the companies that want to align
with us,” he said, referring to the companies that help sponsor these events.
But green projects are still major investments,
whether sponsors pitch in or not.
“There’s no question that on the balance sheet, the team is spending money,” said
Sexton, citing the capital and operational expenses associated with the Eagles’ green project. “The Eagles see this as just
another part of their investment in the community.”
Green energy still has an overall cost disadvantage, but as market
demand increases, the cost of producing green products will drop, Andrew said.
“Green building materials will become
less expensive to produce and last longer,” he said.
So while many believe the green trend will continue to bloom for
sports teams across the nation, Sexton sees only one major setback: getting the players out of their SUVs.
“Maybe we’ll
get them into some hybrid SUVs. That would be a step in the right direction,” he said.
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