Economic Theory explained by Football – Sabermetrics


MoneyballFor those who have seen the film Money Ball or read Michael Lewis’s book of the same name, you will be familiar with the name Bill James. For those who don’t know about the remarkable story of the Oakland Athletic baseball team then I thoroughly recommend seeing the film or picking up the book.  Without spoiling too much of the plot, James is a much-maligned chap who came up with a statistical system that was able to be used to rank each attribute of a player and thus whether they could do a job for a particular team.  He coined the phrase Sabermetrics and defined it as “the search for objective knowledge about baseball.”
Sabermetrics attempts to answer objective questions about baseball, such as “which player on the New York Yankees contributed the most to the team’s offense?” or “How many home runs will a particular players hit next year?” It cannot deal with the subjective judgments which are also important to the game, such as “Who is your favourite player?” or “That was a great match”

The General Manager of the Oakland A’s, Billy Beane, adopted the concept and took his team on an amazing run which then resulted in an approach from Boston Red Sox owner John Henry. Yep, the same John Henry who today owns Liverpool FC.

Why is this relevant to the beautiful game? In recent weeks a remarkable story has broken about Brentford’s manager Mark Warburton announcing he will step down at the end of the season. Brentford are currently playing at the highest level in their history, they have a real shot at promotion to the Premier League and a long overdue move to a new stadium is finally on the cards. So why is Mark Warburton stepping down?

The reason is the direction self-made millionaire and club owner Matthew Benham wants to take the club.  Benham made his cash pile in betting, managing a hedge fund to be more precise before turning his hand to the world of sports spread betting. He employed a team of people to analyse every statistic about clubs and players, and used the results to predict results. Based on his wealth who is to question the success of this approach? The next logical step is to apply the model to his own clubs. Clubs plural as he purchased FC Midtyjlland in Denmark last year. The club, who had have never won a major honour are currently top the Danish SuperLiga using his model.

Will this model work for Brentford? FC Midtyjlland’s chairman, appointed by Benham, 31 year old entrepreneur Rasmus Ankersen thinks there is a 42.3% chance of Brentford gaining promotion to the Premier League based on the data they have collected rather than looking at current form and making a reasoned guess of yes or no. And that, ladies and gentlemen is the theory of Sabermetrics – using past performance and data trend analysis to make decisions about the future.

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Economic Theory explained by Football – Complexity and Chaos Theory


Most economic theory is modelled on the laws of motion developed in the 17th century under the ideology that for every action there is an outcome.  The recent TV deal agreed by the Premier League is a great example of this.  The action? Sky and BT paying an eye-watering £5.14 billion for the rights to show live football.  The outcome? An increase in subscription costs to fund this investment, resulting in more fans turning to illegal, free web streams.  The action? Putting out a weakened team in the FA Cup? The outcome? A humiliating thrashing. The action? A player is sent off. The outcome? Team now plays against one less man, giving them a numerical advantage.

If the footballing world does indeed always behave like this then why do we find it so hard to correctly predict what will happen in games when certain actions occur? Austrian economist and avid SC Weiner Neustadt fan Friedrich Hayek believed that economics and football were far too complex to model in this way, building on the work of his nemesis, the big Zulte Waragem fan Ilya Prigogine who had declared at half-time in the derby versus FC Kortrijk in 2001 that predictable, regular actions by players does not necessarily lead to a predictable result for the team.  Whilst you can shoot every time you get the ball, there is no guarantee that you will win, or even score he mused over his half time pie.

14898233309_615b6cc306_zThe reason for all this hot air is described in the famous Butterfly Effect, coined by Tampa Bay Rowdies season ticket holder Edward Lorenz back in 1960.  He suggested that a butterfly flapping its wings in Brazil could lead to a cyclone in Texas.  His theory into chaos often comes from the chain reaction of tiny effects weren’t observed as people think from his study of meteorology, but from watching his side in the NASL and how a bad back pass had resulted in a goal against the run of play and ultimately costing the Rowdies a win and the league title.  That in turn led to the sacking of their manager, who went on to manage local rivals, Fort Lauderdale, to the NASL title – all of which can be traced back to one back pass. Thirty years later we saw the theory in action again in Rotterdam when Ronald Koeman pulled down David Platt in a game between Netherlands and England. Koeman should have been sent off. He wasn’t and he then went and scored a decisive goal at the other end that ended England’s hopes of qualifying for the 1994 World Cup and thus Graham Taylor lost his job. Oh, and the phrase “Do I not like that”.

Football is unpredictable.  The same team, playing in the same formation against the same opposition two games in a row will perform differently due to external factors such as the pitch, the weather and the referee.  That’s what makes the game so beautifully unpredictable and complex.  And that, ladies and gentlemen is the basis of the theory of Complexity and Chaos.

Economic Theory explained by Football – Return on Investment


The news that the new £5.14 billion Premier League television deal hasn’t exactly gone down well in many quarters.  The winning bids represent huge investments made by the media giants, with the Premier League now undoubtably the richest league in the world.  Arsenal manager, Arsene Wenger commented that the TV deal, and the huge influx of cash that will flow to the twenty clubs will allow them to attract the best players in the world.  Everyone’s a winner right?

14327363682_aef7b6c31b_kBut both Sky and BT will need to recoup their investments, and that is likely to spell bad news for subscribers. Rival TV boss, Tom Mockridge of Virgin Media, told ITV News this week that fans who already pay the highest prices in Europe to watch live football as from 2016 prices will see further price rises.  Faced with increasing subscription costs, some fans will abandon their contracts and look at alternative ways to watch their football.

So whilst pubs and clubs may now see more fans coming through their doors to watch games thus increasing their profits, there is a real danger that the number of websites that provide links to illegal streams will increase significantly. The more people that choose to use these streams, the more the broadcasters will be forced to increase subscription costs to recoup their investments. On the other hand, any proactive measures they take to try to identify and remove these illegal streams incur costs too – it is a real catch 22 situation.

So whilst many football fans may bemoan any potential price rises, it is important to understand the impact these illegal streams have on the the genuine product.  Just like any in-demand or aspirational product, counterfeiters and IP infringers will look to satisfy low (or no) cost demand.  The end product in the case of watching streaming sites is often poor quality, whilst downloading any software associated with these sites brings its own set of dangers. The very fans who abandon their subscriptions because of the cost in favour of illegal streams are actually part of the problem rather than the solution. That is the theory of return on investment.

Economic Theory explained by Football – Part 10 – The Theory of Just Pricing


Back in 1261 whilst waiting for the medieval equivalent of Super Sunday to start Thomas Aquinas picked up his quill and started to draft the first ever transfer policy for his as-yet unnamed football team. He had studied the way that his local market worked and mused that “no man should sell a thing to another man for more than it’s worth”. In that one statement he tried to explain the collective transfer value of Andy Carroll.

4766163428_f4f73b243f_bAccording to prevailing economic theory, there is no such thing as a rip-off or something being over-priced. The price of anything is simply the market – if someone is prepared to pay then it is a fair, market price AS LONG AS there are alternatives (monopolies such as train companies do not adhere to such a model of course). So if someone wants to pay £25million for a route-one target man with a dodgy knee and an even dodgier ponytail then it is a fair price. Nobody forces a football club to buy any player – they have three choices. Try to negotiate a lower price perhaps throwing in a few players who aren’t good enough for them, spend the cash on something else such as a new fleet of Bentleys for the existing player or go and buy an alternatively crocked player with a bad haircut elsewhere.

The transfer market should establish a fair price for every player as no one has an intrinsic value. So they may have played for their country a hundred times, scored the winner in a World Cup Final, kick with both feet and can head the ball fifty yards – all great characteristics but irrelevant if you are looking for a goalkeeper. Clubs who slap a price tag on a player are trying to create a false economy that will never prevail.

Aquinas suggested the concept of a “just price” – the price the buyer is willing to pay with the right amount of knowledge of the product. So if a club knows Carroll has a dodgy knee/ankle/ponytail, the price they are willing to pay should be different to that without the information. He also saw those people who sold with recognised avarice as evil people – something that could certainly be levelled at the ticket pricing strategy of football today, or dare I say it, football agents.

So there we have a brief explanation as to how a 13th century Italian monk came up with the first, truly fair rules of the transfer market. That ladies and gentlemen, is the theory of just pricing.

Economic Theory explained by Football – Part 9 – The Theory of Collective Insanity


In 1841 the Scottish journalist and future Alloa Athletic fan Charles Mackay published his most famous work – an essay that today is the piece of work that every Premier League club religiously reads each summer when talk turns of ticket pricing. The Extraordinary Popular Delusions and the Madness of Crowds focused on the herd-mentality of people and how it influenced prices.

8829793588_0aced7c6b7_kMackay’s hypothesis was that crowds acting in a collective frenzy of speculation can cause the prices of commodities to rise far beyond any intrinsic value they should have. He looked at the examples of the South Sea Bubble of 1720 as a classic example of how this theory worked. If Charlie was alive today, he could well just pick a Premier a League football club as a modern example.

His 8 step model to document the steps to how crowds breed collective insanity is as follows. Whilst in this example we use ticket price, the transfer market is an equally valid case study:-

1. Extraordinary conditions occur in the footballing world such as a team getting promoted to the land of milk and honey, or in the case of some also ran sides (Swansea City, Stoke City, Hull City, Spurs) they win a trophy or get into European competition.

2. Success means ticket prices rise in tactical ways – match day walk up tickets for instance.

3. News of price rises is published to great dismay among supporters

4. Mass discussion on forums/social media normally leads to comments like “well you don’t have to go”.

5. Other clubs notice. They put their prices up too, thinking that despite not having any success, that it’s the trend in football, blaming agents fees or lack of TV money.

6. Crowds breed collective insanity – the tipping point is reached

7. Football eats itself, the club gets knocked out of Europe in 1st round because the manager fields a weakened team to concentrate on the Premier League. Results are poor, manager is sacked and club goes into free-fall.

8. Attendances fall, club realises they need to drop ticket prices.

Earlier in the season, the BBC published its study of the cost of watching football in this country.  Essentially, the research was a pile of rubbish.  Instead of going to do the research themselves (type in club website into browser, find page that says “tickets”, note down prices) then sent a survey to each club.  So when West Ham responded and said their cheapest ticket for a Premier League game was £20, people thought “wow, that’s good value”.  However, that priced ticket was only available for 1 game this season, the pre-Christmas match versus Leicester.  It wasn’t the averaged priced one, which is over DOUBLE that.  Ticket prices continue to outstrip inflation simply because of the theory above.

So there you go – the Theory of collective insanity in a nutshell. Next time your club puts its prices up blaming players wages you’ll know it’s really that pesky Alloa Athletic fan, Charles Mackay, to blame.

Economic Theory explained by Football – Part 8 – The Theory of Value


In the eighth of the Football-themed Economic articles, one of the world’s greatest mysteries is unravelled – The Theory of Value.

Former Morecambe, Stockport County and Grimsby Town striker Phil Jevons may not appear to be much of a deep thinker but the Jevons family are famous for defining one of the more interesting economic theories – that of utility and satisfaction.  His distance ancestor, William Jevons was a bit of a brain box, creating a piano that played itself based on logic and an early computer that could analyse the truthfulness of an argument.  Forward thinking indeed for the late 19th century.

Jevon’s theory was simple.  Too much football makes you bored.  Remember when live football on TV was restricted to the odd Home International and the FA Cup Final.  Match of the Day and The Big Match gave us a couple of highlights every weekend and that was it.  And we lapped it up.  Cup Final day was an eight hour footballing extravaganza that the whole family watched.

8710863386_841af277e1_bWhen England played Norway in a pointless early season friendly in September the official attendance was 40,181.  Official means that the FA included all those lucky people who bought Club Wembley seats some time ago…bought yes, attended the game? Maybe not, so the attendance was probably significantly lower than this.  Yes, but what about those watching on ITV I hear you say?  4.5 million people switched on at some point during the game – nearly half of that who enjoyed the delights of The Great British Bake Off on BBC at the same time.  Why?  Well, perhaps because of the theory that Jevons articulated.

Jevons said that the more that we consume of a product, the smaller the increase in satisfaction we receive from it.  With that statement he created the law of diminishing marginal utility.  Whilst we all want our team to be winning week after week, we would actually gain less and less enjoyment from each win.  Interestingly enough, according to Jevons, demand for the product should actually decrease and that will in turn reduce the price.  Think of going out after the game and having a few beers.  At some point they stop being enjoyable and actually start doing you harm as the hangover kicks in.

In footballing terms we can see both sides of the coin.  Teams who win week after week are actually more in demand.  Crowds go up, fan satisfaction increases and in the true economic sense, a club could actually charge more for the product and the fans would continue to a point where the price for “satisfaction” becomes unsustainable.  But if we start to lose, then we get less and less enjoyment out of each game and eventually even the most ardent fan gives up.  The moral here according to Jevons, spurned another famous saying – “You win some, you lose some” – that’s what keeps us football fans interested.

And that, ladies and gentlemen, is The Theory of Value in a nutshell.

Economic Theory explained by Football – Part 7 – The Veblen Effect


In the seventh of his deep-thinking articles, our in house Economist Stuart Fuller demonstrates why lowering ticket prices is a bad thing.

Hands up who wants a Rolls-Royce?  Ok, apart from Cynical Dave and Deaks who can’t drive.  We would all love to own one, right?  But it is just a dream for when we win the lottery, or England enjoys Sahara-like conditions and the solar panels on the roof of the Main Stand pay us a fortune.  But what if they reduced the price by 90%?  Would you still want one then if every Tom, Dick and Deaks could afford one?  Second thoughts eh?  That is the Veblen effect for you.

15791879632_0be24a2e8b_kThorstein Veblen* came up with this theory back in 1899.  Sheffield United had just won the FA Cup and paraded the trophy at Bramall Lane.  Veblen was unhappy that only a few thousand fans were in the ground, singing a version of Annie’s Song that was so cruelly credited to John Denver nearly eighty years later.  He hated the fact that it was an “Exclusive” club, with ticket prices kept high to keep out the riff-raff.  “Let them eat Eccles Cake” he famously said, referring them to becoming Sheffield Wednesday fans.

Veblen’s theory was relatively simple.  He noted that some types of luxury goods, such as high-end wines, designer handbags, luxury cars and tickets to see United were prestige items, or as he liked to call them, Veblen goods.  He noted that in decreasing their prices, people’s preference for buying them also diminished because they are no longer perceived as exclusive or high-status products. Similarly, a price increase may increase that high status and perception of exclusivity, thereby making the goods even more preferable.  So he argued that Sheffield United should actually increase their ticket prices to drive up attendances.

Even a Veblen good is subject to the dictum that demand moves conversely to price, although the response of demand to price is not consistent at all points on the demand curve meaning that it is not simply good enough for a football club to slash its prices as people will not see any value at all in what is now on offer (See our previous article on Pay What You Want Theory).

It seems someone in the Premier League found Veblen’s original work in a drawer when moving desks at Premier League HQ a few years ago and passed the idea across to the Premier league clubs who immediate put their ticket prices up thinking the fans will flock through the gates.  They were wrong, Veblen was wrong and yes, we all want a Rolls-Royce for the price of a Lada.

And that, ladies and gentlemen, is Veblen Theory in a nutshell.

*Whilst Veblen came up with the theory, it is unclear whether he really was a Sheffield United fan.