What Ails Liverpool

So Liverpool FC has had a mixed season so far. They’re second in the Premier League with 36 points from 14 games (only points dropped being draws against ManCity, Chelsea and Arsenal), but are on the verge of going out of the Champions League, having lost all three away games.

Yesterday’s win over Everton was damn lucky, down to a 96th minute freak goal scored by Divock Origi (I’d forgotten he’s still at the club). Last weekend’s 3-0 against Watford wasn’t as comfortable as the scoreline suggested, the scoreline having been opened only midway through the second half. The 2-0 against Fulham before that was similarly a close-fought game.

Of concern to most Liverpool fans has been the form of the starting front three – Mo Salah, Roberto Firmino and Sadio Mane. The trio has missed a host of chances this season, and the team has looked incredibly ineffective in the away losses in the Champions League (the only shot on target in the 2-1 loss against PSG being the penalty that was scored by Milner).

There are positives, of course. The defence has been tightened considerably compared to last season. Liverpool aren’t leaking goals the way they did last season. There have been quite a few clean sheets so far this season. So far there has been no repeat of last season’s situation where they went 4-1 up against ManCity, only to quickly let in two goals and then set up a tense finish.

So my theory is this – each of the front three of Liverpool has an incredibly low strike rate. I don’t know if the xG stat captures this, but the number of chances required by each of Mane, Salah and Firmino before they can convert is rather low. If the average striker converts one in two chances, all of these guys convert one in four (these numbers are pulled out of thin air. I haven’t looked at the statistics).

And even during the “glory days” of last season when Liverpool was scoring like crazy, this low strike rate remained. Instead, what helped then was a massive increase in the number of chances created. The one game I watched live (against Spurs at Wembley), what struck me was the number of chances Salah kept missing. But as the chances kept getting created, he ultimately scored one (Liverpool lost 4-1).

What I suspect is that as Klopp decided to tighten things up at the back this season, the number of chances being created has dropped. And with the low strike rate of each of the front three, this lower number of chances translates into much lower number of goals being scored. If we want last season’s scoring rate, we might also have to accept last season’s concession rate (though this season’s goalie is much much better).

There ain’t no such thing as a free lunch.

Bankers predicting football

So the Football World Cup season is upon us, and this means that investment banking analysts are again engaging in the pointless exercise of trying to predict who will win the World Cup. And the funny thing this time is that thanks to MiFiD 2 regulations, which prevent banking analysts from giving out reports for free, these reports aren’t in the public domain.

That means we’ve to rely on media reports of these reports, or on people tweeting insights from them. For example, the New York Times has summarised the banks’ predictions on the winner. And this scatter plot from Goldman Sachs will go straight into my next presentation on spurious correlations:

Different banks have taken different approaches to predict who will win the tournament. UBS has still gone for a classic Monte Carlo simulation  approach, but Goldman Sachs has gone one ahead and used “four different methods in artificial intelligence” to predict (for the third consecutive time) that Brazil will win the tournament.

In fact, Goldman also uses a Monte Carlo simulation, as Business Insider reports.

The firm used machine learning to run 200,000 models, mining data on team and individual player attributes, to help forecast specific match scores. Goldman then simulated 1 million possible variations of the tournament in order to calculate the probability of advancement for each squad.

But an insider in Goldman with access to the report tells me that they don’t use the phrase itself in the report. Maybe it’s a suggestion that “data scientists” have taken over the investment research division at the expense of quants.

I’m also surprised with the reporting on Goldman’s predictions. Everyone simply reports that “Goldman predicts that Brazil will win”, but surely (based on the model they’ve used), that prediction has been made with a certain probability? A better way of reporting would’ve been to say “Goldman predicts Brazil most likely to win, with X% probability” (and the bank’s bets desk in the UK could have placed some money on it).

ING went rather simple with their forecasts – simply took players’ transfer values, and summed them up by teams, and concluded that Spain is most likely to win because their squad is the “most valued”. Now, I have two major questions about this approach – firstly, it ignores the “correlation term” (remember the famous England conundrum of the noughties of fitting  Gerrard and Lampard into the same eleven?), and assumes a set of strong players is a strong team. Secondly, have they accounted for inflation? And if so, how have they accounted for inflation? Player valuation (about which I have a chapter in my book) has simply gone through the roof in the last year, with Mo Salah at £35 million being considered a “bargain buy”.

Nomura also seems to have taken a similar approach, though they have in some ways accounted for the correlation term by including “team momentum” as a factor!

Anyway, I look forward to the football! That it is live on BBC and ITV means I get to watch the tournament from the comfort of my home (a luxury in England!). Also being in England means all matches are at a sane time, so I can watch more of this World Cup than the last one.

 

The science of shirt numbers

Yesterday, Michael Cox, author of the Zonal Marking blog and The Mixer, tweeted:

Now, there is some science to how football shirts are numbered. I had touched upon it in a very similar post I had written four years ago. You can also read this account on how players are numbered. And if you’re more curious about formations and their history, I recommend you read Jonathan Wilson’s Inverting the Pyramid.

To put it simply, number 1 is reserved for goalkeepers. Numbers 2 to 6 are for defenders, though some countries use either 4, 5 or 6 for midfielders. 7-11 are usually reserved for attacking midfielders and forwards, with 9 being the “centre forward” and 10 being the “second forward”.

Some of these numbers are so institutionalised that the number is sometimes enough to describe a player’s position and style. This has even led to jargon such as a “False Nine” (a midfielder playing furthest forward) or a “False Ten” (a striker playing in a withdrawn role).

There is less science to the allocation of shirt numbers 12 to 23, since these are not starting positions. One rule of thumb is to allocate these numbers for the backups for the corresponding positions. So 12 is the reserve goalie, 13 is the reserve right back and so on(with 23 for the squad’s third goalkeeper).

So how have teams chosen to number their squads in the FIFA World Cup that starts next week? This picture summarises the distribution of position by number: 

 

There is no surprise in Number 1, which all teams have allocated to their goalkeeper, and numbers 2 and 3 are mostly allocated to defenders as well (there are some exceptions there, with Iran’s Mehdi Torabi and Denmark’s Michael Krohn Dehli wearing Number 2 even though they are midfielders, and Iceland midfielder Samuel Friojonsson wearing 3).

That different countries use 4, 5 or 6 for midfielders is illustrated in the data, though two forwards (Australian legend Tim Cahill and Croatia’s Ivan Perisic) puzzlingly wear 4 (it’s less puzzling in Cahill’s case since he started as a central midfielder and slowly moved forward).

7 is the right winger’s number, and depending upon that position’s interpretation can either be a midfielder or a forward. 8 is primarily a midfielder, while 9 is (obviously) a striker’s number. Interestingly, five midfielders will wear the Number 9 shirt (the most prominent being Russia’s Alan Dzagoev). 10 and 11 are evenly split between midfielders and forwards, though two defenders (Serbia’s Aleksandr Kolarov and Tunisia’s Dylan Bronn) also wear 11.

Beyond 11, there isn’t that much of a science, but one thing that is clear is that Cox got it wrong – for it isn’t so “textbook” to give 12 to the reserve right back. As we can see from the data, 20 teams have used that number for their reserve goalies!

It’s like England has put their squad numbers into a little bit of a Mixer!

English Premier League: Goal Difference to points correlation

So I was just looking down the English Premier League Table for the season, and I found that as I went down the list, the goal difference went lower. There’s nothing counterintuitive in this, but the degree of correlation seemed eerie.

So I downloaded the data and plotted a scatter-plot. And what do you have? A near-perfect regression. I even ran the regression and found a 96% R Square.

In other words, this EPL season has simply been all about scoring lots of goals and not letting in too many goals. It’s almost like the distribution of the goals itself doesn’t matter – apart from the relegation battle, that is!

PS: Look at the extent of Manchester City’s lead at the top. And what a scrap the relegation is!

Biases, statistics and luck

Tomorrow Liverpool plays Manchester City in the Premier League. As things stand now I don’t plan to watch this game. This entire season so far, I’ve only watched two games. First, I’d gone to a local pub to watch Liverpool’s visit to Manchester City, back in September. Liverpool got thrashed 5-0.

Then in October, I went to Wembley to watch Tottenham Hotspur play Liverpool. The Spurs won 4-1. These two remain Liverpool’s only defeats of the season.

I might consider myself to be a mostly rational person but I sometimes do fall for the correlation-implies-causation bias, and think that my watching those games had something to do with Liverpool’s losses in them. Never mind that these were away games played against other top sides which attack aggressively. And so I have this irrational “fear” that if I watch tomorrow’s game (even if it’s from a pub), it might lead to a heavy Liverpool defeat.

And so I told Baada, a Manchester City fan, that I’m not planning to watch tomorrow’s game. And he got back to me with some statistics, which he’d heard from a podcast. Apparently it’s been 80 years since Manchester City did the league “double” (winning both home and away games) over Liverpool. And that it’s been 15 years since they’ve won at Anfield. So, he suggested, there’s a good chance that tomorrow’s game won’t result in a mauling for Liverpool, even if I were to watch it.

With the easy availability of statistics, it has become a thing among football commentators to supply them during the commentary. And from first hearing, things like “never done this in 80 years” or “never done that for last 15 years” sounds compelling, and you’re inclined to believe that there is something to these numbers.

I don’t remember if it was Navjot Sidhu who said that statistics are like a bikini (“what they reveal is significant but what they hide is crucial” or something). That Manchester City hasn’t done a double over Liverpool in 80 years doesn’t mean a thing, nor does it say anything that they haven’t won at Anfield in 15 years.

Basically, until the mid 2000s, City were a middling team. I remember telling Baada after the 2007 season (when Stuart Pearce got fired as City manager) that they’d be surely relegated next season. And then came the investment from Thaksin Shinawatra. And the appointment of Sven-Goran Eriksson as manager. And then the youtube signings. And later the investment from the Abu Dhabi investment group. And in 2016 the appointment of Pep Guardiola as manager. And the significant investment in players after that.

In other words, Manchester City of today is a completely different team from what they were even 2-3 years back. And they’re surely a vastly improved team compared to a decade ago. I know Baada has been following them for over 15 years now, but they’re unrecognisable from the time he started following them!

Yes, even with City being a much improved team, Liverpool have never lost to them at home in the last few years – but then Liverpool have generally been a strong team playing at home in these years! On the other hand, City’s 18-game winning streak (which included wins at Chelsea and Manchester United) only came to an end (with a draw against Crystal Palace) rather recently.

So anyways, here are the takeaways:

  1. Whether I watch the game or not has no bearing on how well Liverpool will play. The instances from this season so far are based on 1. small samples and 2. biased samples (since I’ve chosen to watch Liverpool’s two toughest games of the season)
  2. 80-year history of a fixture has no bearing since teams have evolved significantly in these 80 years. So saying a record stands so long has no meaning or predictive power for tomorrow’s game.
  3. City have been in tremendous form this season, and Liverpool have just lost their key player (by selling Philippe Coutinho to Barcelona), so City can fancy their chances. That said, Anfield has been a fortress this season, so Liverpool might just hold (or even win it).

All of this points to a good game tomorrow! Maybe I should just watch it!

 

 

Auctions of distressed assets

Bloomberg Quint reports that several prominent steel makers are in the fray for the troubled Essar Steel’s assets. Interestingly, the list of interested parties includes the promoters of Essar Steel themselves. 

The trouble with selling troubled assets or bankrupt companies is that it is hard to put a value on them. Cash flows and liabilities are uncertain, as is the value of the residual assets that the company can keep at the end of the bankruptcy process. As a result of the uncertainty, both buyers and sellers are likely to slap on a big margin to their price expectations – so that even if they were to end up overpaying (or get underpaid), there is a reasonable margin of error.

Consequently, several auctions for assets of bankrupt companies fail (an auction is always a good mechanism to sell such assets since it brings together several buyers in a competitive process and the seller – usually a court-appointed bankruptcy manager – can extract the maximum possible value). Sellers slap on a big margin of error on their asking price and set a high reserve price. Buyers go conservative in their bids and possibly bid too low.

As we have seen with the attempted auctions of the properties of Vijay Mallya (promoter of the now bankrupt Kingfisher Airlines) and Subroto Roy Sahara (promoter of the eponymous Sahara Group), such auctions regularly fail. It is the uncertainty of the value of assets that dooms the auctions to failure.

What sets apart the Essar Steel bankruptcy process is that while the company might be bankrupt, the promoters (the Ruia brothers) are not. And having run the company (albeit to the ground), they possess valuable information on the value of assets that remain with the company. And in the bankruptcy process, where neither other buyers nor sellers have adequate information, this information can prove invaluable.

When I first saw the report on Essar’s asset sale, I was reminded of the market for footballers that I talk about in my book Between the buyer and the seller. That market, too, suffers from wide bid-ask spreads on account of difficulty in valuation.

Like distressed companies, the market for footballers also sees few buyers and sellers. And what we see there is that deals usually happen at either end of the bid-ask spectrum – if the selling club is more desperate to sell, the deal happens at an absurdly low price, and if the buying club wants the deal more badly, they pay a high price for it.

I’ve recorded a podcast on football markets with Amit Varma, for the Seen and the unseen podcast.

Coming back to distressed companies, it is well known that the seller (usually a consortium of banks or their representatives) wants to sell, and is usually the more desperate party. Consequently, we can expect the deal to happen close to the bid price. A few auctions might fail in case the sellers set their expectations too high (all buyers bid low since value is uncertain), but that will only make the seller more desperate, which will bring down the price at which the deal happens.

So don’t be surprised if the Ruias do manage to buy Essar Steel, and if they manage to do that at a price that seems absurdly low! The price will be low because there are few buyers and sellers and the seller is the more desperate party. And the Ruias will win the auction, because their inside information of the company they used to run will enable them to make a much better bid.

 

Football transfer markets

So the 2017 “summer transfer window” is going to close in three days’ time. It’s been an unusual market, with oddly inflated valuations – such as Neymar going for ~ €200 million from Barcelona to PSG, and Manchester City paying in excess of £50 million each for a pair of full backs (Kyle Walker and Benjamin Mendy).

Meanwhile, transfers are on in the NBA as well. Given that American sporting leagues have a rather socialist structure, there is no money exchanged. Instead, you have complicated structures such as this one between the Cleveland Cavaliers and Boston Celtics:

 by trading Kyrie Irving (pictured, left), their star point guard, to the Boston Celtics. In exchange, Mr Altman received a package of three players headlined by Isaiah Thomas (right), plus a pick in the 2018 entry draft

A week back, renowned blogger Amit Varma interviewed me for his The Seen and the unseen podcast. The topic was football transfers, something that I talk about in the first chapter of my soon-to-be-published book. In that, he asked me what the football transfer market might look like in the absence of price. And I mentioned that PSG might have had to give up their entire team in order to buy Neymar in that situation.

Anyway, listen to the entire podcast episode here.

Oh, and I don’t know if I mentioned it here before, but my book is ready now and will be released on the 8th of September. It’s being published by the Takshashila Institution.

You can pre-order the book on Amazon. For some reason, the Kindle India store doesn’t have a facility to pre-order, so if you live in India and want to read the book on Kindle, you’ll have to wait until the 8th of September. Kindle stores elsewhere already allow you to pre-order. Follow the link above.