Is Soccer econometrics just a myth?
A month ago I made a few joking comments in front of my friends about the best way to predict the teams that advance the furthest in major soccer tournaments, such as the Euro Cup or the World Cup. The two most controversial and attention-grabbing truisms that I mentioned at the time were the state of the economy of each country and the brand on the football shirts of each team. Looking at the four teams who have reached the semi-finals stage at the Euro 2012 shows that these two truisms stand strong.
State of the Economy
A few years ago, I read one of the World Cup reports that the big investment banks put together before any of the big soccer tournaments. I don’t want to shine the spotlight on the actual bank that wrote that particular report because its prediction of Brazil winning did not come through. What is important, however, is that the bank’s analysts had claimed a strong inverted regression between the state of the economy in the country where the team comes from and that team’s performance at the tournament. The argument went to show that countries in economic turmoil (measured by high inflation, high unemployment, slow economic growth, or a combination of all these) typically outperform countries with strong fundamentals.
Let’s look at the winner of the last two major tournaments. Spain won the Euro 2008 as the financial markets had just started melting. Spain went on to destroy both Germany and Netherlands and win the World Cup in 2010 at a time that many economists and investors were starting to feel uneasy about that country’s economy. It’s also important to keep in mind that Germany and Netherlands, the other two very strong teams that did well at the World Cup 2010 but lost unequivocally to Spain, came from two countries with very strong economic fundamentals.
Now, let’s look at this year’s results. The four countries that have advanced to the semi-finals are Portugal, Italy, Germany and Spain. The four countries can collectively be described by the acronym PIGS… But wait a minute, wasn’t PIGS used to describe the four Southern European economies that were hardest hit by the sovereign debt crisis?! In fact, if Greece did not lose to Germany in the quarterfinals, the picture would have been even closer to the original PIGS — as in Portugal, Italy, Greece and Spain.
Greece “Sponsored” by Germany
All this does not bode well for Germany, which is the team that I am betting on winning this year’s edition of the European tournament. Germany’s economy is the powerhouse of Europe, so by dint of its strong economic performance, its team should lose at the semi-finals or the finals. This time around, however, there is a small but important caveat. Germany is not only the strongest economy in that group of four. It is also the de facto benefactor (or “sponsor” in sporting terms) of the other three countries. It will be hard for first Italy in the semi-final, and then potentially Portugal or Spain in the final to go against their benefactor. This keeps my hope alive that Germany will finally win a major tournament after 16 trophy-less years.
Team Shirts Brands
Another interesting fact that I’ve noticed in the past is that the team that typically wins a major tournament is sponsored by Adidas. Spain played with Adidas shirts in the World Cup 2010, while Netherlands wore Nike, and not surprisingly the Spaniards overcame the mighty Dutch in the final. At the Euro 2008, the Adidas hegemony was even more striking — both finalists, Spain and Germany, wore Adidas.
Let’s look at this year’s semi-finalists. Spain and Germany still wear Adidas. Italy prefers to play with Puma, while Portugal plays with Nike. This observation supports my pre-tournament prediction that Spain and Germany will be the two finalists this year.
Of course, these predictions are not based on big data. They are mere observations. I used “econometrics” in the title of this post as irony. Soccer is unpredictable, which makes it so dearly loved and fanatically followed by billions of people over the world. The investment bankers’ quant models have failed in most tournament predictions. My predictions have certainly failed in the past, as I am sure many of yours have as well. So let’s just sit back this week and enjoy the remaining three games of Euro 2012. And let the best team win!!!