[This article was originally published on the OddsInvest Trading website, on 16th February 2016. OddsInvest is a football betting syndicate business.]
“Football is a results business”.
How often have you heard that? It’s a classic footballing cliché as old as the game itself. It gets aired even more often these days, now that big football clubs are also multi-billion sport franchises.
But the cliché is wrong. Football is not all about results. Results are irrelevant.
Football is really about process.
The real value of things – teams, players, managers – is hidden beneath the superficial surface of the results that you see at first glance.
Let us explain what we mean…..
Teaching a little girl to cross the road.
Imagine for a moment that we are a terrible parent. We have a 6 year old daughter who needs to learn how to cross the road safely. But we’re lazy, so we offer you €100 to teach her for us, sub-contracting our parental responsibility. You take our little angel by the hand to the side of a busy highway. You tell her that when you give her the signal that she is to start walking straight ahead – and to stop only when she feels her feet hit the kerb on the other side. You tie a blindfold round her head, and put some earplugs in her ears so she can’t see or hear a thing. You give her a pat on the back, and off she goes.
She walks out into the road and starts making her way across. Cars, vans, lorries and bikes swerve and screech all around. They barely miss her, but slam into each other in a cacophony of horns, brakes, mangled steel and broken glass. Miraculously, she gets to the other side, oblivious to the scene of devastation in the road behind her. She removes her blindfold and earplugs, and joyfully cries “I did it!”. You come up to us, hand outstretched and ask for your €100.
After we have stopped beating you to a pulp with our bare hands, we politely decline to pay up. You protest most vigorously, pointing out that she got to the other side of the road safely, which was the result that we wanted. And results are all that matter.
The reason we, and you, in fact everybody realises that this line of argument is insane is that we are all capable of seeing the underlying value in things – of looking beyond the obvious of a bare result. But the issue is that often we choose not to do it, and focus far too much on results alone.
The underlying performance – the process – that a road-crosser goes through really matters. One single successful crossing is not evidence of anything significant at all. The positive result could be nothing more than an example of outrageous luck, as with our daughter’s crossing.
In an alternative universe, it is possible that for our €100 you actually did a great job of teaching our little girl how to cross the road. You got her stopping, looking, listening, walking across briskly – everything totally textbook. But the very next day some drunk driver runs a stop sign and mows her down. In such an instance it would obviously be indecent to spend any time reflecting on how she actually got the process right, to talk about how she did nothing wrong and was just on the wrong end of a stroke of really bad luck. That’s not going to be any consolation – the only thing that mattered here is the result, and the process becomes irrelevant.
But very few things are as black and white as crossing the road, where the price of ‘losing’ once is so enormously high. Being an airline pilot is another example, but in most endeavours, and certainly in all sports and in betting and investing, the eventual winners are generally those who simply manage to move the ratio of wins:losses a little bit in their favour.
Decisions, not results. Titles not points.
The legendary poker player Amarillo Slim had a simple mantra; “Decisions, not results”. If you’re looking for something simple to use as a screen saver, you could do worse than that. “Do the right thing enough times and the results will take care of themselves”, he concluded. That’s dead right. At least, that’s the way we see the world.
In 2015 Novak Djokovic had one of the most dominant seasons in the history of tennis. He won 82 and lost only 6 matches all year, winning 11 titles including three grand slams (he lost in the final of the fourth). And yet….. he only won 56% of all the points he played in 2015. Think about that – a year of almost total dominance, and it came despite losing 44% of all the points he played.
Those sorts of %s are familiar to us. A 56% win rate is the sort of thing that a quality professional Asian Handicap trader will hit. A 44% failure rate is no good for an airline pilot, or for a little girl crossing the road. But in many sports, and in plenty of other fields such as betting, it is a hallmark of brilliance.
The knack is to recognise the innate/underlying/intrinsic value of performances or investments. When Djokovic plays any single point, it is (almost always) basically irrelevant what the outcome is of that point. What matters is the underlying ‘value’ of his play, which means on average, he will win 56% of points in the long run. Thanks to the scoring structure of the sport, this % then gets translated into a huge ratio of match wins over losses, and eventually to Grand Slam titles. Same with betting and long-term profitability. The key to being able to see the world in this way is to be able to differentiate between short-term and a long-term. What matters is short-term process, and long-term results.
It can be a tricky concept to get your head around. Novak Djokovic focuses and tries incredibly hard on each individual point, but in the grand scheme of things the result of each one of those points isn’t all that important to him. We put lots of effort and care into all of our investments, but the outcome of any one of them doesn’t really matter to our overall success. The result of any single point/bet doesn’t define us as good, great or terrible. It’s only in the way that the accumulation of all those short-term single points/bets plays out into long-term results that matters.
So we need to qualify what we said at the top. It’s the short-term results that are irrelevant. And it’s the long-term results that are the only things that matter. But the process that goes into maximising the short-term results is the thing that underpins what those long-term results will be. So you need to focus and try as hard as possible to win every short-term bet/point, but then not worry too much if you win or you lose it. That’s a tricky mental discipline to master.
How a casino makes money.
A casino does the same thing when it spins a ball in a roulette wheel. It never knows which numbered slot the ball will fall in (don’t believe any conspiracy theories you’ve heard about secret levers under the table, or dodgy magnets that let the croupier cheat). All the casino knows is that the probability of the ball falling in any numbered slot is 36/1, and that the odds they offer is 35/1. The difference between the two odds is what gives the casino its profit – it is the equivalent of Djokovic being able to win 56% rather than 50% of his points.
The casino has no idea what will happen each time it spins the wheel. But it doesn’t need to know, because it has two things in its favour. It has statistical probability (i.e. the odds) on its side – every bet it takes is ‘value’. And secondly, it takes a long-term view. It is irrelevant to the long-term profitability of a casino how much it wins or loses on any single spin of a wheel. What matters is the accumulation of the small edges it has in its favour on every spin.
Casinos make a lot of money and so does Warren Buffett. The American investor is currently worth roughly $70b. He has accumulated that fortune in essentially the same way that Djokovic has won tennis titles, and a casino wins money on roulette. He gets the odds in his favour each time he invests, and waits for this advantage to play out over time. This is Value Investing, and it’s really very simple – although of course definitely not easy. Buffett estimates what he refers to as the ‘intrinsic value’ of company stocks, and buys them if he can get them for cheaper than his estimate, and sells them if he can sell them for less.
What Buffett, Djokovic and a roulette wheel have in common is that if you look only at any one single investment/point/spin then that gives you no indication whatsoever of what their long-term success is likely to be. And the same is true in football. The result of any one match is irrelevant. It doesn’t tell you anything. Football is such a low scoring sport that even the results of a group of matches tells you very little, if you are being rational and analytical about it.
Greatness can be (six) years in the making.
The fundamental stupidity of judging football teams over a short term is highlighted by the history of Sir Alex Ferguson’s time at Manchester United. He was appointed in November 1986, but didn’t lift the English league title with England’s richest club for the first time until May 1993. In the first few seasons of Ferguson’s time there, the bare results suggested he was making Man Utd worse.
But luckily for him there were some senior people at Utd who understood the concept of prizing underlying value, and in judging results over a long-term. They could see the foundations of a winning culture being built by Ferguson, and the dividend on an investment in the youth system starting to mature. The unprecedented long-term success that followed was not such a surprise to him and them as it was to the many pundits who were calling for him to be sacked in the late 80’s.
That is certainly not to say that football clubs should always give managers more time. In fact, very often clubs give managers way too much time. The point is that what matters is the underlying value of what is going on beneath the surface, something which is obscured from the view of most people by the sound and fury of games and news cycles.
Ferguson is a rare case of a strategically minded football manager who understood the potential of establishing long-term value. Most managers tend to think more short-term (including that arch short-termist Jose Mourinho, who would be a dreadfully unworthy successor to the legacy that Ferguson established at Man Utd) but this is as much a function of short-term thinking by clubs as by the managers themselves. The lessons of history, as well as the lessons of hugely successful individuals like Ferguson, Buffet and Amarillo Slim should teach us that looking at underlying value and judging results long-term is almost always best. But so few of us can make ourselves do it.
“Only when the tide goes out do you discover who’s been swimming naked.”
A betting syndicate like ours is geared up to care about underlying value and to judge results only over a long-term. That doesn’t mean it isn’t annoying when a bet loses. But just like Djokovic losing a point, or Alex Ferguson losing a single game back in 1992 with his team of ‘fledglings’, or one of Buffett’s investments losing some money – it doesn’t really matter. Not in the grand scheme of things.
An excess of focus on short-term results can lead to lots of stupid and bad things happening. For example, financial market investors got fixated on the enormous profits they were making a few years ago by buying securities made up of US sub-prime mortgages. They got blinded to the underlying value of those derivatives (i.e there wasn’t any) which led to a huge bubble which eventually burst spectacularly, wiping out all the profits and much more.
In sport it happens all the time. When Newcastle United finished 5th in the Premier League under Alan Pardew in 2012 they rewarded him with an 8 year contract. They ignored the underlying numbers that suggested they had been very fortunate to finish so high that season. Footballers get signed for inflated fees after a couple of eye-catching performances at the World Cup. Managers get lauded for one good season, or for getting success with teams who enjoyed an in-built advantage in salary budget.
As a value-investing business we constantly guard against getting sucked into short-term thinking. We always look for the underlying value in teams and players, rather then the obvious interpretation that most people ascribe based only on most recent results.
Looking at the underlying performance of football teams.
One way we do this is to use ratings graphs to represent a football team’s performances. It can show us who has been lucky, and who has been unlucky with their actual results. It can help us get ahead of our competitors in the markets we trade by identifying teams who are improving or declining before this becomes apparent through results. It can also be really useful for giving some insight into footballing narratives that others find baffling.
Here are some examples of graphs we generate to track a football team’s supremacy performance (i.e. how good they are at scoring more goals than their opposition) in league games.
The teams’ most recent games are furthest left. The higher up the vertical axis the better the performance (0 = brilliant, 50 = very, very bad).
The red line tracks a team’s performance based solely on the goals it concedes and scores – it’s actual supremacy performance.
The blue dots represent the team’s performances but are based only on an Expected Goals model (i.e. it uses fancy stats). These are adjusted so that they represent a fair estimate of the worth of a performance, imagining they were playing against an average team in the league on neutral territory. The green line is a moving weighted average of these single blue dot game ratings.
A rating on the orange dotted line at 25 equates to a team who would, on average, finish a league season with a Goal Difference of 0
To give some context, first up is a graph of Crystal Palace’s last 38 EPL games. As you can see, Palace have become a team who hover around that 0 GD level, albeit with a bit of a dip in the last couple of months. Maintaining a ’25’ sort of level is normally good for roughly an 8/9th place finish in the league. ’35’ will almost always get you relegated.
Here is what a champion football team’s graph looks like…
Where the Red line is above the Green line, that is an indication that the team is getting better results than ‘it deserves’. In the case of Barca the separation is almost certainly due to a period of absence from the team for Lionel Messi. Suarez and Neymar covered for his absence magnificently to maintain their red line of bare results, but the dip in the green line suggests that they did it by converting an unnatural number of chances. That Green line level still has them as just about the best team in Europe anyway though.
Those graphs are based on each team’s last 38 games, but we’ve extended the graph to go back to the start of last season to provide some perspective on a couple of the big stories in the EPL this season.
Firstly Leicester. A rating around 35 is almost guaranteed to get you relegated, so you can see that through their first half dozen games or so last season they looked to be dead men walking. But the remarkable turn-around that has seen them become title contenders really started midway through last season. But for a while their actual results didn’t match the quality of their performances, with the Red line below the Green.
By the end of last season Leicester’s Green line showed them to be a well above average EPL side. The level of their performances has actually been really consistent since day 1 of this season. At the start of last season they looked a genuinely awful side, whose results were actually not nearly as bad as they deserved to be. Now though the opposite is true. Leicester this season is a great story, but they are by no means a great team. They have ridden their luck, as indicated by running now with a healthy gap between Red line above Green.
By contrast Chelsea are a team who has gone the other way..
They started off last season with a smattering of performances worthy of Barcelona, but you can see the seeds of their abysmal start to this current season were sown from about halfway through last season. They ended the season with their Red line way above the Green – which is a big flashing danger sign for any team and manager.
For a team with the biggest salary budget in the league, the decline they suffered was really poor and reflects badly on their supposedly special manager. It wasn’t apparent from their bare results just how much Chelsea crawled over the line in the title race last season. But the truth of their underlying decline soon caught up with them this season.
A red line way above the green is a sure-fire managerial career killer. As the team’s results inevitably eventually revert back to the mean of what they ‘deserve’, the narrative that the team is ‘getting worse’ takes hold and is then often impossible to shift. Chelsea weren’t really any worse at the start of this season than they were at the end of last season. The difference is in perception, based on reading only superficial results.
The ‘Red over Green’ gap did for Jose Mourinho, and another example is to show what an impossible job David Moyes inherited at Manchester United. Here is the graph of Sir Alex Ferguson’s last season in charge…
This is about the longest sustained ‘Red over Green’ gap we have seen, and it allowed Ferguson to retire a league winner. It’s easy to fall for the notion that he was some sort of managerial genius who was always able to get much better results than his team’s performances deserved. But that’s nonsense. Over the course of his career Ferguson’s teams had performances and results that converged eventually, just like everybody else. The reality is that he got lucky in his last season, enjoying a charmed run of results with a declining team. And then the timing of his exit was impeccable.
Ferguson managed some genuinely outstanding champion teams. But the one he led to the 12/13 title was not nearly at that level. All that happened when Moyes took over was that the Red line dipped down to meet the Green line, as it always does eventually. And it has stayed there pretty much ever since with Moyes and Van Gaal. United were a team in decline well before Ferguson left.
So much for explaining stuff that has happened in the past, what about a glimpse into the future? One of the real benefits of visualing data like this is to get ahead of the curve in recognising a team who is really deteriorating, or really improving. Tottenham this season is such a case.
Spurs have been on their way to becoming the best team in England for the last couple of months. They are the real deal – with a solid body of consistent performances well in advance of their actual results (which have been pretty good themselves). Tottenham are now the best team in England and the likeliest winners of the EPL from this point, something the bookmakers still haven’t fully appreciated. We backed them a couple of weeks ago to win the league at 18/1, but the 11/4 best price now is value.
Seeing what lies beneath can have benefits in other spheres in addition to betting – like ‘career management’ for instance. Like every right-minded football fan we thought Gary Neville was a terrific TV pundit. If he had asked us if he should take the Valencia job when it was offered to him we would have said ‘no way!’. Taking over a team with a big gap between their Red line above the Green is managerial career suicide, and that’s what Neville did when he took the Valencia job.
That’s just about the biggest gap between performances and results you’re likely to see. Neville took over a team who were still in the Champions League, but who were playing like relegation contenders – and getting worse. Valencia have a set of fans who carry a sense of entitlement that they are a ‘big club’. For a smart guy that was a really dumb career move. Although it’s good news for those of us who liked watching him on TV – because he won’t be at Valencia for long.
The value that lies beneath
Not everybody likes looking at their favourite sport through numbers, and plenty fundamentally don’t ‘believe’ in fancy stats and analytics. That’s fine, each to their own. But visualing data in this way works for us. It is one of the ways that we see beyond the obvious, to get to a better understanding of what lies beneath the superficial veneer of the most recent results.
Almost everybody who bets on sport loses over the long-term. So it stands to reason that in order to win, you have to do something different, and be smarter than the average bettors. Looking beyond the obvious to the underlying worth of performances is one way to do that.
Professional sports teams would do well to adopt a similar worldview. The passion of fans, and the demands for instant success can be hellish difficult for decision makers to block out. But smart, strategically minded managers of organisations like football clubs should be thinking strategically about process, and long-term results. Because short-terms results don’t matter at all. It’s all about the process. There is real value in seeing what lies beneath.