Large-scale sports events, sports gambling market and promotion risk management: Theoretical model and case analysis based on option hedging theory

Abstract

Large-scale sports events have become a good opportunity for major enterprises to promote due to their high social attention; however, they also force enterprises to confront the risks of uncertainty and extreme loss. During the 2018 Russia World Cup, Vatti Co., Ltd.’s promotion activity “If France Wins, Get a Full Refund” suffered double losses economically and reputationally due to France’s victory and the company’s failure to fulfill its promise. This paper uses option hedging theory, and the risk management tools to construct a risk management model. Case analysis and program improvement were carried out. The research results show that using the winning odds can effectively control the risks. Companies should determine their promotion plan based on sale returns and the maximum implicit income generated by promotional activities. The research paper opens a new field using derivative financial instruments to control corporate promotion risks.