The Charity Smile, it's bitter
I spent the better part of a decade working in the world of high-frequency and proprietary trading. I loved working in the world of complicated, very fuzzy data. When we decided to start CauseLine Labs and build ScoreSide, we knew that the combination of very human actions, scalable tech, and big data fits very well with both sports and charitable giving. Crazy things happen when you look at data.
In finance/trading, there’s something called the Volatility Smile. It shows up when you graph options by strike price and implied volatility. If you don’t care about or even understand any of the nouns in that sentence, no worries. If you do a care little, read more here. The idea is that a smile shape that is high on the extremes and lower in the middle shows up in the “implied volatility” of a set of related options.
Options Volatility Smile
It’s pretty useful and has garnered a lot of attention, adjustments, and variations (yup, “Volatility Smirk” is a thing) since it first exhibited itself after the stock market crash of 1987 (and which has been seen in options markets ever since).
The interesting piece is that one of the most powerful and widely used modeling tools (The Black-Scholes model) for pricing options doesn’t account for it at all. Black-Scholes is the tool used to figure out if options are at a good or bad price and it doesn’t account for one of the most prevalent characteristics of options pricing. “All models are wrong, but some are useful”, indeed.
It’s probably worth stating here that all of this has little to do with sports-driven charitable giving. But, there’s another smile that does. Although this one is a little bitter.
How much do people donate to charity
Individual charitable donations are the largest part of charitable giving. Over 72% of charitable giving comes from individuals compared to just 5% from corporations, 8% from bequests, and 15% from foundations. Over 55% of households in the US give money away each year and in total, individuals donate over $250B (yes, Billion) dollars a year.
There are many ways to break down charitable giving, but today we’re going with a look at charitable giving by income bracket.
When we look at percent of income donated on average for different income brackets we see that the highest percentages are at the ends and the graph goes down in the middle. The “smile” we were talking about.
| Annual Income | Percent(%) to Charity |
|---|---|
| Under $25K | 12.6% |
| $25K-$50K | 6.8% |
| $50K-$75K | 4.8% |
| $75K-$100K | 3.8% |
| $100K-$200K | 3.0% |
| $200K-$250K | 2.6% |
| $250K-$500K | 2.6% |
| $500K-$1MM | 2.8% |
| $1MM-$2MM | 3.2% |
| Over $2MM | 5.6% |
Here it is in graph form:
And with our fitted, (graph orthodontia?) form:
As income goes up from low to high, the percent of income donated to charity goes down from just over 12.5% down to a low of 2.60% (for those high income earners that make between $200K and $500K a year) and then for the very rich and ultra rich, it goes back up.
The income brackets are not evenly distributed either by population size, income totals, or even income levels, but splitting the data in this way does the best job at highlighting the up-down-up shape of the data.
The Opportunity Reservoir
We took a look at the smile and we saw a gap that could be removed--well, maybe “filled”, kinda like a dry lake bed. We may not fully fill it, but we thought we could give it the ol’ college try. What if we could use our experience in scalable tech and behavior science and nudge people into positive behaviors they already want to do and raise the floor of that valley a little. What if we could nudge every number below 5% up towards 5%?
We love metaphors, and we don’t mind mixing them. Let’s turn the “bitter smile” above into a cross section of an empty lake in a rocky desert landscape. Let’s fill that reservoir with the missed opportunity of charitable giving where every income bracket that currently donates less than 5% of their income hits the 5% mark.
Every american household would be giving at least 5% of their income to charity. That blue lake in the desert is equivalent to adding over $100B of charitable giving in the US.
That’s our goal: look to the middle- to upper-class sports fan and connect their fan passion to charitable giving. Give them a fun and engaging way to compete, to express, and to engage with the feeling of community and pride they have for their team and give it a direct impact to those around them—to the tune of $100 Billion in new giving.
Almost certainly that goal is unachievable, to be sure. But there’s something fantastical about the unwinnable, noble fight that makes it all the more valuable.