Principal-Agent Relationship

You win the Mega Balls Lottery, worth $500 million. With your fortune, you buy a professional lacrosse team, the St. Croix Stickmen. You always wanted to be a big shot sports team owner, but sadly, $500 million wasn't enough for a team in one of the major sports. Except maybe hockey, but who'd want that?

You know nothing about lacrosse. So you hire a former lacrosse great Finneas Dartspank as your CEO and general manager. You put him in charge of every aspect of team operations. You just want to come to the game and play the big shot for the fans.

The relationship between you and Finneas defines the principal-agent relationship. You own the team, but he makes the decisions. He's acting on your behalf. He's your agent and you're the principal (as in: the owner of the team). He has all the knowledge of the industry and is likely to make more informed decisions than you would. However, the relationship can get sticky if his interests diverge from yours.

See: Principal-Agent Problem.