To have "skin in the game" is to have incurred

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environme ...

(

monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

or otherwise) by being involved in achieving a goal. In the phrase, "skin" refers to an investment (literal or figurative), and "game" is the

metaphor A metaphor is a figure of speech that, for rhetorical effect, directly refers to one thing by mentioning another. It may provide (or obscure) clarity or identify hidden similarities between two different ideas. Metaphors are often compared wit ...

for actions on the field of play under discussion. The

aphorism An aphorism (from Greek ἀφορισμός: ''aphorismos'', denoting 'delimitation', 'distinction', and 'definition') is a concise, terse, laconic, or memorable expression of a general truth or principle. Aphorisms are often handed down by tra ...

is particularly common in business, finance, and gambling, and is also used in politics.

Etymology

The origin of the phrase is uncertain but may have originated from golf skins games played at IBM in the 1980s. It has commonly been attributed to

Warren Buffett Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net w ...

, referring to his own investment in his initial fund. However,

William Safire William Lewis Safire (; Safir; December 17, 1929 – September 27, 2009Safire, William (1986). ''Take My Word for It: More on Language.'' Times Books. . p. 185.) was an American author, columnist, journalist, and presidential speechwriter. He w ...

disputes that Buffett is the source of the phrase, pointing to earlier instances.

In business and finance

The term is used to ask or convey an owner(s) or principals undefined but significant equity stake in an investment vehicle where outside investors are solicited to invest. The theory is that principal's equity contribution is directly related to the stability of the investment and confidence that management has in the venture and is also (falsely) strongly correlated to the expected yield of the investment. According to the economist

Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...

, there tends to be a negative correlation between excess "skin" and negative returns. The main issues surrounding "skin" or excess "skin" is the

principal–agent problem The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the " principal"). The problem worsens when there is a gre ...

whereby transparency and fiduciary obligations are disregarded by principals who have capital or excess capital (skin) tied into an entity. Many banks and other financial institutions bar employees from having any "skin" where client capital is managed, principally to address the issue of

front running Front running, also known as tailgating, is the prohibited practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large ("block") pendin ...

and commingled funds (

MF Global MF Global, formerly known as Man Financial, was a major global financial derivatives broker, or commodities brokerage firm that went bankrupt in 2011. MF Global provided exchange-traded derivatives, such as futures and options as well as over-t ...

). Investment structures such as

hedge funds A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as shor ...

private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a ty ...

Trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

and

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

s are legally limited to a minority investment positions or are done to create a tax efficient structure. Typically equity inputs by these fiduciaries are around 0.5–2%.

References

External links

*{{Wiktionary-inline, skin in the game Economics catchphrases Business terms Gambling terminology Political metaphors

Etymology

In business and finance

See also

References

Further reading

External links