The Super Bowl Stock Market “Predictor”

Super Sunday is here.  In the interests of public service, we here at the IJSF blog want to warn you about the dangers of the Super Bowl Stock Market “Predictor.”  George Kester, a finance professor at Washington and Lee University has recently updated the results of this “predictor” for the first time since the Journal of Finance inexplicably decided to squander 6 valuable pages of journal space on this drivel in 1990. In his defense, Professor Kester points out the spurious nature of this statistical artifact.

Here’s how it works: the conference affiliation of the Super Bowl winner is alleged to predict stock market performance for the upcoming year.  If the winning team was affiliated with the original National Football League, the market will go up over the next year; if the winning team was affiliated with the old American Football Conference, the market will go down.    Here’s the test and results:

Kester constructed a back-test with a beginning portfolio of $1,000 that he invested in S&P 500 stocks or Treasury bills, depending upon which team won the Super Bowl.

“Interestingly, over the entire history of the Super Bowl, my wealth would have been more than twice as great had I used this strategy rather than a passive buy-and-hold strategy with the S&P 500,” he said. “I took brokerage costs into account whenever I sold T-bills and invested in stocks and vice versa, and I also included dividends on the S&P stocks. The dollar values of the portfolios at the end of 2008 would have been $43,000 for a buy-and-hold strategy and $105,000 for the Super Bowl market-timing strategy.”

Of course the original predictor can’t be applied to today’s game because the Saints are not an original AFL franchise, but why let facts get in the way of a good story?  I posit that one could select any event with a binary outcome observed annually and claim this “predicted” market outcomes in some way (my choice would be Punxsutawney Phil).  An ex post analysis like this would have a good chance of finding some positive correlation.

I’m not adjusting my portfolio in the morning. I’ve already shorted the S&P 500.  Phil told me to last week.

Beijing Olympic Venue Update…

So there have been any number of articles in the news about the Bird’s Nest stadium which hosted the opening and closing ceremonies of the 2008 summer Olympics in Beijing.  Unable to get a local football club to sign a deal, the stadium has gone virtually unused and empty since the end of the 2008 games.  Currently the stadium is hosting a winter snow amusement park for the winter season, and charging tourists $7 to enter the stadium and go into the souvenir shop.  The China Daily has reported recently, that there are talks being held about building a luxury hotel INSIDE of the Bird’s Nest.  That’s right, the seats from the North Side of the stadium will possibly be removed if the deal goes through, and replaced with around 80 hotel suites.  The stadium is also pushing forward to try and bring in other commercial shops and top class restaurants to try and bring more business to the stadium.

The Bird’s Nest, however, will still continue to remain a stadium, with two high profile games set for later this year.  On the anniversary of the Olympics, Real Madrid is set to take on a local Chinese soccer club.  In September, Argentina and Portugal are slated to play in a friendly.  It’ll be curious to see if they can start bringing more business to the stadium.

Another “great” Olympic venue from Beijing 2008 was the Water Cube, the Olympic Swimming Center where Michael Phelps raced his way into the record books.  Like the Bird’s Nest, the Water Cube was having trouble finding events to host.  I believe the Water Cube has held an indoor light show with concert, and a Russian performance of Swan Lake.  It was recently announced that the Water Cube will be remodeled into a water amusement park.  The Chinese government spent about $170 million (U.S.) to build the Water Cube, and now they will spend another $33 million or so, just to revamp it into something the public can actually use.  This actually doesn’t seem to be too bad of an idea to me, if people actually come to the Water Cube and pay to play in the park.

Strikes, Lockouts, and how players prepare for not having work.

Major League Soccer (MLS) is in the middle of a big negotiation between players and owners about the current collective bargaining agreement (CBA).  The players were set to strike earlier this week, but have instead tried to move forward with talks with owners setting a new deadline of February 12th.  At the end of January many news outlets were reporting positive progress in the talks.  In the last week or so, there has been no news from either the players or the owners, and some are wondering if this means there may be no MLS season this year.  However, the most interesting tidbit in this saga is Swedish superstar (and former Arsenal star) Freddie Ljundberg announced he would be returning to the MLS this season on his blog, claiming he was told there would be no strike by the players.  Now that is very interesting, cause either it means a deal has been struck and the players and owners are just working out small details, or it would mean someone has given poor Freddie some bad advice.  Stay tuned, we have a few days until players are required to report to training camp, and only a few days after that till the extended negotiation deadline comes to an end.

Moving to what us American’s call “football”, the National Football League’s (NFL) grand finale is only a day away, and yet much of the talk this week has been the discussion of the end of the current CBA for the NFL.  If all things go as current the NFL will see an uncapped season in 2010 as was discussed by Dr. Humphreys here, and will see changes in free agency status of over 200 players as I discussed in an earlier post.  Earlier in the week, the player’s association won a big battle, which prevented owners from getting rid of one of the revenue sharing pools, which is said to be worth around an estimated $220 million for 2010, and would be distributed among the 8 to 12 weakest teams in the league.  This revenue will most likely be very important for the smaller revenue franchises’ in the league, especially considering that with the potential of an uncapped year coming up, teams may need to pay higher salaries to players than at any point in the history of the league.

And it is precisely because of this, that thing seem headed towards the potential of having a lockout in 2011.  While Roger Goodell was quick to try and stop any talk and rumors about a lockout growing out of control, it has been discussed as a possibility by both players and owners.  ESPN was earlier reporting the player’s association members were going around to all the players in the league and telling them to start preparing for not having a job in 2011.  They basically told players that they should save around 25% of their 2010 salary, and to not make any large purchases, as they are expecting to be locked out in 2011.  While this seems to just be an early precaution, it sure does point towards the players digging in and preparing for a tough negotiation with owners over a new CBA.  The negotiations already seem to be getting messy, with the classic “he said, she said” arguing occurring.  Players claimed that owners wanted to lower salaries on average of about $340,000 per player, owners claim they never said such a thing, and that the players are making this up.

I’m sure this will become the focal topic of the NFL after the Super Bowl ends.  Both the owners and players have a lot to lose in terms of revenue, but I think the players are the one’s who are potentially the biggest losers.  Under the current agreement, the NFL owners would still collect $5 billion in television money, even if the league didn’t play a single game.  I’m sure the owners can make a strong case for their side of the argument if they can collect an average of $156 million in revenue without having to pay players.

On one final note, ESPN’s College Gameday came here to the University of Illinois this morning.  I woke up earlier and went to see 4,500 orange clad fans (who braved 5 inches of snow) scream in front of a camera for an hour.  It was an interesting experience, the highlight of which was watching Michigan State’s coach Tom Izzo defeat Illinois Coach Bruce Weber in a free throw shooting contest for charity (final score of 9-7).  This was the first time College Gameday has visited Illinois, and some say this is a big potential recruiting tool, however I don’t know if a single hour of television played early on a Saturday morning is enough to convince a better level of recruit to come play basketball at Illinois.

Cantor Fitzgerald Enters the Sports Betting Market

Wall Street bond trading house Cantor Fitzgerald has a new line of business: sports betting.  The company took over the operation of the sports book at the M resort in Las Vegas last March.  The first change was cosmetic; they redesigned the room to look like a Wall Street trading floor, instead of the typical Vegas sports book look.

Cantor Fitzgerald also introduced more substantive changes to their sports book.  According to an article in the Wall Street Journal, The M Resort sports book uses sophisticated software adapted from financial markets transactions to allow in-game betting on various proposition bets like whether or not a team makes an upcoming field goal attempt.  In-match betting on football is common in Europe, but this is the first such betting opportunity in North America.  In addition, the software allows the sports book to minimize risk on individual bets by making sure that any of the in-game prop bets are matched by a bet on the other side.

The similarities between sports bets and financial assets like stocks, bonds, and futures contracts are clear.  Economists have been using sports betting as a laboratory to study market efficiency for decades.  Because of these similarities, it is interesting that this appears to be the first foray by a Wall Street trading firm into sports betting.

I have one bone to pick with the WSJ article, which is worth a read.  It contains a number of references to the “balanced book” model of sports book operation. For example:

Cantor makes money by charging a small commission on bets. It tries not to take on any risk itself. That means that a bet that Miami is about to score has to be matched with the opposite wager. But frequently, there isn’t the same amount of money on the other side of the bet, leaving Cantor exposed.

Employees scan a risk-management chart—imported from trading platforms—which shows bets that Cantor still hasn’t been able to match.

When the charts show too much imbalance, Cantor gaming operator Andrew Patterson adjusts the odds to try to persuade gamblers to bet for the other team.

Quite a bit of emerging research suggests that sports books don’t operate that way.  Rather than balance betting equally on either side of a game or proposition, sports books appear to take “positions” on games, effectively participating in the betting market rather than passively accepting bets and making a profit on the commission in order to increase profits.

It will be interesting to see if other Wall Street trading houses enter this market.  Cantor Fitzgerald plans to market its software to other Las Vegas sports books.

Portsmouth taken over… again!

Late last year I discussed the implications of the financial difficulties which Portsmouth was facing.

On Thursday, Hong Kong based businessman Balram Chainrai took over the ailing Premiership side as he exercised a clause in the loan agreement he had made with the previous club head.  Turns out Chainrai let Portsmouth borrow 17 million pounds, and when the money wasn’t repaid he simply became the majority shareholder in an instant by taking control of 90% of the clubs shares.  While this money helped Portsmouth avoid going into administration late in 2009, it did mean that Chainrai became the clubs FOURTH owner this season.  Mr. Chainrai said the move was necessary as player wages had been delayed four times during the season, and that new leadership was needed in the club.

However, the Portsmouth hot potato game doesn’t seem to be ending anytime soon, as Chainrai told the media this morning that he has no interest in keeping the club.  That’s right, he’s already looking for new owners to take over the club from him.  Things aren’t quite that simple though, the club is still in bad financial shape, and there seems to be a mounting legal challenge to his takeover.  All of that said, Chainrai may indeed be the man to save the club.  He is pushing towards clearing up the clubs bad debt and standing, and making it financially stable again so that it will be more attractive to new investors.  Mr. Chainrai himself says that he knows nothing about running a Premier League club, but so far it looks like he is doing a better job than the previous three owners did this year.

What’s in a name anyway?

In September, I blogged about Dolphin Stadium being renamed Landshark stadium in a new sponsorship deal with Jimmy Buffet’s Margaritaville and Anheuser-Busch InBev. The terms of the deal had the stadium naming right agreement ending right before the Superbowl with the name returning to Dolphin Stadium.

Well with the Superbowl on Sunday, I decided to revisit the situation to see if the name reverted back to Dolphin Stadium. I come to find that Dolphin Stadium is now called Sun Life Stadium. Sun Life is a financial company who on January 20th announced the sponsorship deal with the owners of the stadium. The naming rights is part of a larger philanthropic effort with the Dolphins. I could not find any information regarding the cost of the sponsorship deal or the length of time before Sun Life Stadium will become “Insert Corporation Here Stadium”.

I find the strategy of short term lease agreements interesting. For In Bev and Jimmy Buffet, they received what they needed to from the naming right agreement. The stadium ownership also was able to capitalize on the Pro Bowl and the Superbowl being held in the stadium to attract a lucrative (more than likely) deal with Sun Life. I am interested to see if other stadiums will begin using this strategy.

Sports Conference within spitting distance of Manchester United

Slightly shameless plug there. The 2011 Mathematics in Sport conference will be held in Salford, Greater Manchester. The venue, the Lowry Centre (think: the artist of Northern English stick people) has excellent views of Old Trafford, home to Manchester United, hence is an excellent venue for a sports conference.

The dates are 23-24 June 2011 for the conference, which is now into its third year, having been held in Groningen, Netherlands in 2009.

Deadline for abstracts will be January 2011, so plenty of time for tentative ideas to be formed ahead of the conference, and this could be an excuse to encourage a Masters student to delve into some investigation of sports-related economics of finance research. A journal special issue is envisaged out of the conference proceedings, so a publication is a realistic possibility.

More details as and when they become available.

No Fun League: Who Dat Edition

The NFL (No Fun League) has a hard earned reputation for ruthlessly pursuing profits.   The most recent example involves the long time catchphrase of New Orleans Saints fans, “Who Dat?”  The Saints (all time record 275-378-5, all time playoff record 4-6) stumbled along for years.  The team joined the NFL in 1967 and did not have a winning season for 20 years.  In 1983, when the team got off to a fast start, Aaron Neville recorded a novelty song about the team containing the phrase “Who dat say they going to beat them Saints? Who dat, who dat?”  The Saints promptly fell apart and finished 8-8, but “Who Dat?” caught on with Saints fans.

Fast forward to 2009.  The Saints make the Super Bowl and people begin to print and sell shirts bearing the phrase “Who Dat?”  A mere 27 years after Saints fans adopted “Who Dat?” as their unofficial motto, the No Fun League observes someone making a few bucks off the phrase during Super Bowl week, and decides that the NFL owns the rights to the phrase.  Pavlovian NFL lawyers salivate.  “Cease and desist” orders are issued to small businesses who are probably making hundreds of dollars off these shirts.  Hilarity ensues.

Today, the NFL ran up the white flag, and admitted that nobody owns the rights to “Who Dat?” which has been traced to call-and-response acts in minstrel shows in the late 1800s.  Entrepreneurs in New Orleans can go back to selling a few t-shirts, Saints fans can continue to yell “Who Dat?” without risk of infringing on the NFL’s seemingly limitless intellectual property rights, and the No Fun League is left with yet another black eye.  I imagine NFL commissioner Roger Goodell restlessly pacing the floor of NFL headquarters late at night, deeply disturbed by the idea that somewhere, someone is making a couple of bucks off the NFL that he cannot expropriate.

San Diego Chargers to “Bolt” from Qualcomm Stadium?

The San Diego Chargers have been in the news at Pro Football Talk and The San Diego Union-Tribune this week because of a meeting in San Diego between members of the board of the agency in charge of redeveloping downtown San Diego.  In these meetings, Mitchell Ziets, a stadium financing expert gave a presentation which discussed the general findings of his study on the public financing of stadiums for NFL franchises.  Findings indicated that of 11 select NFL stadium construction projects which have occurred in recent years, on average 54% of these stadiums costs were funded with public money.  Notably, this study did not include the New Meadowlands stadium, which is being built entirely through private investment (though it was found that about $300 – $450 million of public money were used to retire the debt on the old Meadowlands stadium as well as build infrastructure to the new facility).

The findings of Ziets presentation seemingly hint at San Diego having to cough up around $400 million for the new stadium the Chargers are planning to build, which is estimated to be in the $700 to $800 million range.  Sounds like a pretty good deal for the Chargers to me, especially considering they have been looking for a new stadium since 2002.  The Chargers have already said they will be back at Qualcomm for the next year, as leaving for the next season would have cost them around $50 million because of their current contract with the stadium.  The buyout in the following year for the Chargers would drop to $26 million, and this will probably be the time frame the team will push for having a new stadium completed so they can leave for newer confines.

Once the Chargers do leave, Qualcomm (formerly known as Jack Murphy Stadium, or just “The Murph”) will host only San Diego State football and two bowl games (The Poinsettia and Holiday bowls).  A final curious note is that stadium financing has in many situations been partially paid for by redevelopment agencies in California.  Petco Park, also built in San Diego, received similar assistance from a redevelopment agency.  As California seems to be a state of large debt and financial issues, it seems rather worrisome that stadiums in the state are being heavily funded by public money with the hopes of redeveloping certain locales.

The winner in all of this: Mr. Ziets, who has been retained by the development agency, and paid Mr. Ziets’ company $160,000 for his services.  A financing plan is in the works, and is said to be ready within a few months.

Hap Tip to Shawn in North Dakota for the article links.

More Bowl Updates

In this week’s Arizona Republic, there is an update on the allegations of the Fiesta Bowl making political contributions.

For people who were not aware, the Arizona Republic alleges in an investigation late last year that employees of the bowl were told to make contributions to certain political candidates and were then reimbursed by the bowl itself.  The bowl then hired a former Arizona Attorney General to examine these claims but he did not find anything  improper.  Now the state is not convinced of those findings after receiving a written letter from Playoff PAC (a political action committee wanting a football playoff). As a result, the state is now launching its own investigation into the matter.

An ESPN.com article this week states that non-BCS conferences received a record bowl payout amount from the recent bowl games.   This comes after Brad’s post on each bowl’s TV ratings. Proponents of the current system tout this as the system is working and is getting better.  However, critics point out that most of that non-BCS money went to the Mountain West and WAC due to TCU and Boise State playing in the Fiesta Bowl.  In addition, the figures still do not compare to the BCS conferences.