Moneyball Does Not Work In Soccer

When Michael Lewis’ Moneyball: The Art of Winning an Unfair Game hit shelves in 2003 booksellers could be forgiven for believing that a story about sports management and statistics might not exactly light up the mass-market audience.  Even though it was about America’s national sport it was about the Oakland Atheltics, not the Yankees.  Moneyball of course went on to be a national bestseller as Lewis’s tale of the underdog A’s and Billy Beane managed to capture the attention of baseball fans, academics and corporate executives alike.

Moneyball is about the success of a perpetually underfunded baseball franchise in the face of the financial might of historically larger baseball clubs.  Lewis’ explanation for Oakland’s success is two-fold: a rigorous application of statiscal sobriety to player selection and business acumen in player trading.  Billy Beane used these tools to outperform competitors year after year while also paying out a much smaller wage budget; it is a familiar American narrative that plays especially well in the recent times of extreme financial disparity.  But Lewis’ most important theme is emphasizing the rewards of innovation in an industry which had grown complacent and wasteful.

An environment in which major financial decisions, like player trading and wages, are divorced from reality is easily recognizable for soccer supporters because an equally ridiculous climate exists in the world of soccer.  Elite clubs owned by billionaires are able to splash mountains of cash on outsize transfer and wage budgets while the minnows who must operate within the considerations of balance sheets and income statements are resigned to the fate as perpetual middlers or relegation fodder.  The rise of Manchester City is only the most recent example of a club whose financial presence places one more brick in the wall between the tiers of clubs.  Moneyball has a following among soccer supporters because it gives hope that money is not the sole determinant of a club’s success and that disciplined management and scientific innovation can build an underdog into a giant.  It worked in baseball, can it work in soccer?  Is it possible to buy low, sell high and still win things in soccer? Continue reading “Moneyball Does Not Work In Soccer”

Moneyball Does Not Work In Soccer

Should Premier League Clubs Bet On Their Own Demise?

The Premier League: 20 clubs,  10 months, 380 matches.  There is no escaping the fact that by the end of May three of those clubs will be at the bottom of the table and say goodbye to the Premier League.  This Survival Sunday more clubs than usual find themselves at risk after an extremely tight season has made it conceivable that a team could go down with 41 points.  Relegation is much like Russian Roulette in that you are extremely excited for it not to happen to you, and rightly so because relegation is a cold bath for most clubs and nearly catastrophic for smaller clubs.  Dropping out of the top flight causes a minimum loss of  £37m pounds in revenue from broadcast-sharing revenue, for smaller clubs this constitutes a sizable percentage of their income and in some cases all their income.  While parachute payments cushion some of the impact (they are being increased) it is somewhat akin to believing that a helmet is going to blunt the garbage truck barreling towards you.

If you were frequently at risk of being run over by wayward trucks you might buy health insurance to compensate for your medical bills and lost income.  If you were running a business you would buy insurance to ensure that a random act of destruction would not threaten your main source of income.  Why not insure a football club then?  In fact institutions already exist which would provide exactly the risk coverage that a relegation candidate like Blackpool or Wigan might need: the bookies.  Sports betting is entertainment for the punters but for bottom table clubs it has the potential to be something game changing, at least financially.

Take as an example Wolverhampton, a team heavily against the odds to survive at the beginning of the season.  Wolves spent a net amount of €14.7m euros on seven new players for the 2010-2011 campaign, should they go down that would be €15m ill spent on Premier-level wage earners to play in the Championship.  If, instead, the club bought fewer players and spent half the transfer kitty, €7m, on insurance from Ladbrokes the club would still have some new players as well as an extra cash to spend on long term club development.  How much more though?  At the beginning of the season odds on Wolves’ relegation were offered at 9/4, meaning for every €1 wagered you would receive €3.25 back (€2.25 profit + €1 original bet).  At those odds* half the transfer money, €7m, would have returned a total amount of €22.75m, or €15.75m in profit.   A sum that easily covers the season’s player acquisitions and leaves the club with a net gain of €8m.  Undoubtedly a better outcome than a net loss of €15m.

There are plenty of issues that arise from clubs profiting on their poor performances, the most pressing one being whether such a policy would dampen the excitement of the league.  Additionally, there is the small question of whether it is legal or not as well as whether any sportsbook would be willing to take on that much risk.  Significant concerns, but given the rather poor state of club finances perhaps it is worth the risk?

Should Premier League Clubs Bet On Their Own Demise?

The Premier League Arms Race

Philip Cornwall has written a piece in this week’s Football365 Opinion about the increased spending taking place in this year’s January transfer window.   Spending levels are roughly double of last January’s, a trend which he attributes to the perennial waves of hope and fear running through the Premier League, the former a result of being within reach of a lucrative Champions League spot, and the latter from being too close for comfort to the deadly bottom three berths.  But the point spread between clubs is tighter than in previous years which has intensified the fight for places, and in the case of the bottom clubs the fight away from certain places.

The most important point, which in my opinion Cornwall under-emphasizes, is that despite the increased spending on incoming players, it is an absolute certainty that three clubs will go down to the Championship next year.  No matter how much the average playing skill level of clubs goes up, three will lose.  Continue reading “The Premier League Arms Race”

The Premier League Arms Race

What is a Parachute Payment?

UPDATED PAYMENTS SCHEDULE FOR 2011-12 HERE

When a club is relegated from the Barclay’s Premier League it loses out on the lucrative TV revenue the league portions out to member clubs each year.  That missing TV money represents a large percentage of even the largest club’s revenue, as we saw in the case of Manchester United and Liverpool.

Relegation is not a total loss, however, because clubs taking a trip down to the Championship are compensated through a mechanism known as parachute payments.

Who receives parachute payments?

The three clubs relegated at the end of the season are eligible to receive parachute payments from the Premier League.  A club must have been able to fulfill all its fixtures in order to receive the payments.

How much do they get?

Currently relegated clubs receive £22.4m paid over two seasons.  If a relegated club secures promotion back to the Premier League in the second season it does not receive the parachute payment for that year.

Why pay relegated clubs?

The rationale for sharing revenue with relegated teams is stability.  Clubs must significantly increase their expenditure (whether on player wages, transfers, or stadium) to compete in the top flight, parachute payments cushion the financial blow of being cut off from the (significant) TV monies available in the EPL.

Mo’ Money, Mo’ Problems

Recently the Premier League agreed in principle to extend the parachute payments to 48m over the course of four years (£16m, for the first two years and £8m for the last two), essentially doubling the cushion for relegated clubs.  While unanimously supported by the top flight members, clubs in the Football League are not all positive with some expressing fears that the increased payments will only widen the gap between the top flight and the rest of the leagues.

What is a Parachute Payment?