Football as financial economics

Watching the Chelsea-Arsenal game on Saturday - or at least the first 30 minutes - made me think about the parallels between football and financial economics.

In Arsenal's case, we have an odd example in sport of tail risk. Ordinarily, teams play a bit better than normal or a bit worse but performances and results are usually roughly normally distributed. Not so for Arsenal. 10% of games this season acount for 50% of goals conceded. And the 6.7% of playing time before 1.30pm accounts for 32.4% of goals shipped: as the BFG says, Arsenal don't fancy mornings.

In finance this sort of extreme negative performance is sometimes due to hitherto uncorrelated assets or strategies failing at the same time; this is how LTCM collapsed in 1998 and AIG in 2008. A similar thing happened with Arsenal. Normally, one or two players in any game will put in sub-par performances but they will be offset by others doing well. On Saturday all eleven had stinkers.

It's in this context that there's one characteristic of players that is highly prized but rarely fully acknowledged - what we might call negative betaness.

Investors value negative or zero beta assets - things that pay out well in bad times. it's the desire for these that explains: the existence of the insurance industry; the fact that deep out-of-the money put options have a positive price; and the fact that cash holdings are high even at near-zero interest rates.

Similarly in sport, a great player is someone who does well in bad times. It's unimaginable that Arsenal would have lost 6-0 with Tony Adams, because he'd have kicked them into shape.

Most of the best sides of recent years have had negative beta players - ones who didn't just play well, but played well when they needed to and got the vital goal or put in a great defensive performance when under pressure.

One thing that (for now) elevates Robin van Persie over Luis Suarez is his negative betaness. Suarez tends to do well against modest opposition but less so against big teams. But - as we saw against Olymiacos - van Persie gets goals when his team needs them. One's a high beta player, one's a low/negative beta one.

For me, one feature of a truly great player - Keane against Juventus in 1999 or Gerrard in the 2005 European Cup final - is their negative betaness, an ability to produce something when their team is desperate.

The same is true in cricket. Graeme Hick was, notoriously, a flat-track bully - a high beta player. Mike Atherton on the other hand was a negative beta player, scoring runs when they were needed.  

Coaches are forever demanding consistency - in the sense of low variance of performance. What they should also look for is negative beta. Arsenal lacked such players on Saturday.

The parallels between football and financial don't end there. One feature of stock markets, famously noted (pdf) by Robert Shiller, is their tendency to excess volatility as investors over-react to good or bad times. The same, of course, is true in football. One or two good results has that great moronfest 6-0-6 full of callers telling us their team will win the league and one or two bad ones means the manager is an idiot. In the few weeks he's been in charge of S***s, Tim Sherwood has gone from being a promisingly good manager to a lousy one, and back again.

There is, I think, a point to all this. It's easy to think of financial economics as something abstruse and technical. But it's not. As I've said before, the main ideas of financial economics are applicable to other walks of life. 

Comments

[Dave Timoney]

It seems improbable that every Arsenal player should have a mare simultaneously on three separate occasions this season, despite a dearth of negative beta players.

The common feature, pace the BFG, is not a 12:45 KO but playing top-4 teams away. Our record in these games has been consistently poor since the Invincibles, despite the presence of game-changers like Fabregas and RvP on many occasions.

The underlying issue is surely that we have the 3rd or 4th best squad, which is why we usually finish 3rd or 4th in the league. The outlier scores are, I suggest, a reflection of Wenger's philosophy - i.e. not settling for a 0-2 defeat but chasing the game.

The main idea of economics applicable to football would appear to be exemplified by Chelski's position and the look of smug satisfaction on Abramovich's face.

[Metatone]

FATE - I don't have the figures to hand, but apart from Man Utd (SAF seemed to have it over AW) weren't the Fabergas/RvP years actually more about Arsenal doing well against good-to-mid table teams and then typically throwing the league away through:

- inability to beat Stoke
- moments of madness against $low-end-team

?

[Socialism In One Bedroom]

"One thing that (for now) elevates Robin van Persie over Luis Suarez is his negative betaness. Suarez tends to do well against modest opposition but less so against big teams."

I think you are confusing the ability to do well against modest opposition with the phenomenon of getting a result while playing badly. Which Arsenal seem to lack in spades.

The ability to beat inferior opposition is very important in a league I would argue. You pick up a lot more wins and a lot less draws. Obviously if everyone picks up the same points against the weaker teams then head to head becomes important.

I always like players who can put inferior opposition to the sword.

And I think the league is a better barometer of a good team than cup competitions.

There is more to Arsenal's woes than betaness deficiency. Replacing Van Persie with Giroud and Fabregas with Arteta may make the books balance but it isn't a recipe for success!

[Luke]

I agree with the above - a team that was a really good flat track bully would do well in a league.

The point about Hick was not that he did not score runs when they were "needed" (you need some runs to beat anyone). It was that when there were easy runs to be made, he did actually make them. He struggled against the best - because that's difficult. Atherton only really roused himself in big Tests. Hick was not too proud to smash Glamorgan round the field in front of two men and a dog.

[Edward]

Mesut Ozil: watch him. If Arsenal are playing well, on the attack, he runs a lot box to box and seems like an extra player. If Arsenal are not playing well, on the defense, he stands around like it is not his job (he is not a very good defender/marker anyway). Of course their problems are down to more than one player, but Ozil sticks out quite badly.

[Dave Timoney]

@Metatone, over the last 5 seasons Arsenal have played 15 away games against the teams finishing (or likely to finish this season) in the top 4. The record is W 1, D 1, L 13, F 15, A 42. 17 of those goals against came in the 3 fixtures this season.

In contrast, their home record (14 games - yet to play Citeh) has been: W 6, D 3, L 5, F 19, A 16. That's not champions form, but it is tolerable given the tendency of such tight games to be decided by the odd goal. The problem has been our failure to grind out draws away from home.

Arsenal are no worse that any other top team against lowly opposition, despite the Stoke bogey. The tendency of the EPL to produce such "anomalies" across the board was shown by Chelski losing at Villa recently. We've actually been pretty consistent against the minnows, because we've had to be in order to guarantee a 3rd/4th finish.

Points dropped against title contenders are far more damaging that points dropped against relegation flirters, simply because the boost to the other team is more likely to have an impact on our league position.

Arsenal's inability to step up beyond 3rd/4th this season owes something to bad luck, i.e. injuries and individual loss of form, but that in turn highlights a lack of squad depth. There's no secret as to the economic basis of this. Over the 5 seasons, Arsenal's net spend has been -4m, compared to 479m for Citeh, 282m for Chelski, 138m for Manure, and 89m for Liverpool.

Arsenal will probably improve their league position over the next few seasons as they begin to spend more (Ozil is a start). 3 or 4 additional "top, top" players should make enough difference in the away games against the other contenders to convert a -9 tally to near 0. If we can also add an extra point or two to our average at home against the top teams, then we'll win the title.

[ejh]

"that great moronfest 6-0-6"

Although it was not always so, as those can testify who are old enough to recall the show when it began.

But then they sacked Danny Baker, and then they thought that people like Mellor and Littlejohn were adequate replacements. Really, there is little that the BBC has done in the past thirty years that was more stupid.

[Socialism In One Bedroom]

"Points dropped against title contenders are far more damaging that points dropped against relegation flirters"

I fundamentally disagree with this. There are far more inferior teams than good ones. So beating the inferior teams is worth far more points.

Liverpool are a prime example, their inability to beat 'inferior' opposition is one reason they have failed to make the top 4 in recent years. This year they are having no such problems. Of course they will lose the odd game but generally this holds true. Liverpool purchased players who didn't have the ability to put to the sword inferior teams, such as Downing, Penant, Bellamy. These players were consistently mediocre against whoever they played against. Ronaldo is the type of player who will crush inferior opposition and get you lots more points.

Chelsea have an unerring ability to grind out results, even when sub par.

[Luke]

I sort of agree with both A to E and SIOB.

If you beat every single one of the bottom 14 or 15 clubs both home and away, and lost home and away to all the top clubs, you might well win the league. BUT, if you were good enough to beat ALL the lower clubs home *and* away, you'd be such a good team that you'd be doing OK against the top clubs.

[Dave Timoney]

@SIOB, you've rather gutted the meaning of my point by omitting the qualifier about relative position. A defeat to a direct rival is, in the traditional parlance, a "six-pointer" for a reason, because it guarantees relative movement.

For example, after last night's blunder, Arsenal's most important game is no longer against Citeh (3 points clear with 2 games in hand) but against Everton (6 points behind with 1 game in hand), as we're now in a scrap for 4th.

It would be better to lose to Citeh and beat the Toffees, rather than the other way round. We'd still have the same +3 points, but Everton would have -3 relative to us.

[Socialism In One Bedroom]

Mr Elbow,

I just fundamentally disagree with what you say. You can't take one defeat against a team of similar ability and equate that to not picking up points against a bunch of inferior teams.

In 2008/9 Man Utd won the league and Liverpool were second. Liverpool beat Man Utd home and away that season.

Man Utd's ability to put to the sword weaker teams was a fundamental part of their success.

No one can seriously claim that any team can win the title without having the ability to more often than not beat inferior teams.

You cannot make a similar claim for beating rival teams. Some seaons it may be important but in others it may not.

IT IS virtually ALWAYS IMPERATIVE THAT YOU BEAT THE WEAKER TEAMS IF YOU WANT TO WIN THE TITLE.