🎲 Skin in the game

Demystifying what exactly skin in the game is, how it is implemented and a few instances of skin in the game.

🤔 What is this phrase?

When I first encountered this phrase, my gaming instincts kicked in, and I couldn't help but associate it with in-game skins (cue the excitement from my PUBG days).

Okay, so what does 'Skin in the Game' actually mean?

It refers to founders or owners of an organisation or the executives having a considerable amount of stake in their own respective companies. Figuratively, 'skin' in the expression 'skin in the game' means investment and 'game' metaphorically means actions on the field of play.

So from where does the 'Skin in the game' expression originate?

The phrase "having skin in the game" is believed to have its roots in the world of horse racing. It refers to a scenario in which the horse's owner, deeply invested in the race's outcome, is figuratively said to have a significant stake in the event's results.

👀 The Two perspectives

Basically, skin in the game can be seen from two perspectives.

• If you are a retail investor who wants to hold a stake in a company and you see that the owners already have their stake invested in the company; it gives you the confidence to invest and the company gains credibility.

• On the other end of the spectrum, the company executives are kind of motivated to have skin in the game in their own company so that they work harder to make the company profitable; cause if the company fails, it also affects the company executives in some way or the other.

🎳 How to Skin in the Game?

How is skin in the game achieved?

It's very simple and easy. A private company which aspires to be public in the future gives ESOPs (Employee stock ownership plans) as a part of each employee's compensation package, where shares will vest over some time. By this, now the employees are tied to the company's growth and they are now in kind of skin in the game.

A few examples...

• Wint Wealth invests ~2% (not sure about the exact %) in the total bond value that is open on its platform by playing the skin in the game.

• Another recent trend in Marketing is to involve the influencers as Brand ambassadors. Rather than focusing on celebrity endorsements, brands are now concentrating on micro & nano influencers. And make the influencers not just talk about the product but also make him part of the stakeholder and feature him/her on the brand or product's landing page. This is because celebrity endorsements are getting costlier and brands aren't getting proper ROI.

• Reddit offered the volunteers on the platform (aka moderators or mods) to buy the shares of Reddit at the IPO price when it was publicly listed in March 2024. Reddit knew that the platform would sink without these mods and by giving this offer of skin in the game, they'll feel more like the owners of the company.

Feel free to leave a comment about what you think of Skin in the Game :)