Tag: brazil

Why Brazil is undervalued by punters

When India exited the 2007 Cricket World Cup, broadcasters, advertisers and sponsors faced huge losses. They had made the calculations for the tournament based on the assumption that India would qualify for the second group stage, at least, and when India failed to do so, it possibly led to massive losses for these parties.

Back then I had written this blog post where I had explained that one way they could have hedged their exposure to the World Cup would have been by betting against India’s performance. Placing a bet that India would not get out of their World Cup group would have, I had argued, helped mitigate the potential losses coming out of India’s early exist. It is not known if any of them actually hedged their World Cup bets in the betting market.

Looking at the odds in the ongoing Football World Cup, though, it seems like bets are being hedged. The equivalent in the World Cup is Brazil, the home team. While the world football market is reasonably diversified with a large number of teams having a reasonable fan following, the overall financial success of the World Cup depends on Brazil’s performance. An early exit by Brazil (as almost happened on Saturday) can lead to significant financial losses for investors in the tournament, and thus they would like to hedge these bets.

The World Cup simulator is a very interesting website which simulates the remaining games of the World Cup based on a chosen set of parameters (you can choose a linear combination of Elo rating, FIFA ranking, ESPN Soccer Power Index, Home advantage, Players’ Age, Transfer values, etc.). This is achieved by means of a Monte Carlo simulation.

I was looking at this system’s predictions for the Brazil-Colombia quarter final, and comparing that with odds on Betfair (perhaps the most liquid betting site). Based purely on Elo rating, Brazil has a 77% chance of progress. Adding home advantage increases the probability to 80%. The ESPN SPI is not so charitable to Brazil, though – it gives Brazil a 65% chance of progress, which increases to 71% when home advantage is factored in.

Assuming that home advantage is something that cannot be ignored (though the extent of it is questionable for games played at non-traditional venues such as Fortaleza or Manaus), we will take the with home advantage numbers – that gives a 70-80% chance of Brazil getting past Colombia.

So what does Betfair say? As things stand now, a Brazil win is trading at 1.85, which translates to a 54% chance of a Brazil victory.  A draw is trading at 3.8, which translates to a 26% chance. Assuming that teams are equally matched in case of a penalty shootout, this gives Brazil a 67% chance of qualification – which is below the range that is expected based on the SPI and Elo ratings. This discount, I hypothesize, is due to the commercial interest in Brazil’s World Cup performance.

Given that a large number of entities stand to gain from Brazil’s continued progress in the World Cup, they would want to protect their interest by hedging their bets – or by betting against Brazil. While there might be some commercial interest in betting against Colombia (by the Colombian World Cup broadcaster, perhaps?) this interest would be lower than that of the Brazil interest. As a result, the volume of “hedges” by entities with an exposure to Brazil is likely to pull down the “price” of a Brazil win – in other words, it will lead to undervaluation (in the betting market) of the probability that Brazil will win.

So how can you bet on it? There is no easy answer – since the force is acting only one way, there is no real arbitrage opportunity (all betting exchanges are likely to have same prices). The only “trade” here is to go long Brazil – since the “real probability” or progress is probably higher than what is implied by the betting markets. But then you need to know that this is a directional bet contingent upon Brazil’s victory, and need to be careful!

Copa Format

The ongoing copa america is probably the worst designed sporting event I’ve ever seen, in terms of tournament format. Yes, there have been tournaments that have come close in the past, like the Asia Cup 08, which had a funny format so as to ensure at least two India-Pakistan matches (but that ensured that the chances of an India-Pakistan FINAL were really low). Then there was Euro 2008, where teams qualifying for the knockout from the same group ended up in the same half of the draw. And then, in hindsight, there was the Cricket World Cup 2007, when two upsets threw out two of the favourites before the “real tournament” had begun.

But in the face of the current Copa America, all of those can be described as being extremely well-designed tournaments. The Copa format is so bad that I seriously doubt that this post is going to be exhaustive in listing out all its flaws. Since there are so many of them, and I don’t want to keep saying “moreover”, “next” or “furthermore”, I’ll do it in bullet points. The points are in random order

  • You have 12 countries in the first round which you want to reduce to 8 for the second round. What do you do? Four groups of three with top two from each qualifying right? Instead, they have 3 groups of 4, with the two best third placed teams also qualifying. So you spend 18 matches (2/3rd of the tournament) throwing out one-third of the teams! Ok but I understand (as Atul Mathew points out on twitter) this is the standard format of Copa so I guess I’ll let it be
  • The organizers seem to have clearly drawn from the experience of 2007 CWC, when India and Pakistan went out in the first round. And given how the first two rounds of matches played out, it wouldn’t have been hard to imagine one or both of Argentina and Brazil going out, which would have killed the competition. I guess that’s the reason the Copa adopts this tamasha of third placed teams and stuff.
  • The last matches in each group are not simultaneously played, and the “seeded teams” in each group (Argentina, Uruguay, Brazil) got to play the last games, and thus figure out what exactly they needed to do (fix it even, maybe?) so that they got a favourable draw in the quarters. Actually, as I’ll explain in a subsequent tweet, it was more like “favourable opponent” rather than “favourable draw”. Check out Jonathan Wilson’s piece on watching Brazil-Ecuador with a bunch of Chile fans
  • Now you have in the second round Brazil taking on Paraguay, whom they’ve faced once before in the group stages. Again, daft format that allows a team to play the third placed team in its own group in the second round itself. I remember FIFA 1994 handling third placed teams well, to make sure they didn’t meet teams they’d played before in the second round
  • Take a look at the quarter-finals fixtures, and do  a sensitivity analysis of what would have happened if either Brazil had done slightly worse or Argentina had done better. You will notice that as long as Argentina and Brazil finished their respective groups as either number 1 or number 2, they would end up in different halves of the tournament! Oh, the lengths the organizers have gone to ensure they maximize the chances of getting a Brazil-Argentina final. Another off-shoot is again teams from the same group having to meet in the semis. For example, if Venezuela beat Chile this weekend, then either Brazil or Paraguay could get to the final of the tournament by not ever facing a team that started anywhere outside of group B!!
As I mentioned this list is unlikely to be exhaustive. And I hope for the sake of giving the organizers a kick in the butt, Paraguay and Uruguay will do the needful and throw out Brazil and Argentina respectively. They’re fully capable of doing that, based on tournament form.