How to win the Premier League
As the new season is upon us all football fans up and down the country will no doubt have fresh hopes about what the season will bring. Transfers have been done and hopes raised. But what is it that makes a team successful? What is the most defining characteristic?
The defining characteristic
As is well known, a lot of club revenue gets spent on wages to attract top players. This is in the hope that buying talent buys performances. Quite a few years ago I set about trying to predict promotions and relegations and used all sorts of complicated maths to try and work it out before stumbling on the thought that maybe wages were actually correlated to performance. If it was, then the bigger the wage bill the higher the league position and vice versa.
After a lot of data gathering, I found that the correlation between wages and final league position is very high. Basically, this means that the league pretty much ended up with the lower spending teams near the bottom and the higher spending teams at the top. The big four, not only ended tend to up in the top four, but also had the top four wage bills. What happened to the three teams with the lowest wage bill, typically they were relegated. Going back on my data year after year, excluding exceptionals; the team with the lowest wage bill often finished bottom. This pattern of correlation up and down the league repeats with amazing regularity from season to season. (Apart from last 2015-16 it seems, which reverted the following year)
How teams won the premiership
If you zoom out and look at it from a broader level it’s easy to see how clubs have effectively bought success. I went back over five years and added up the wage bills for the top five clubs. Ranked by wage bills the clubs come out as follows: –
(1) Man City – £1bn
(2) Chelsea – £1bn
(3) Man Utd – £1bn
(4) Arsenal – £900m
(5) Liverpool – £745m
If you then rank the clubs by average league position over the same period you get the following rankings: –
(1) Man City
(2) Chelsea
(2) Arsenal
(4) Tottenham
(5) Man Utd
You can see an interesting pattern in there and a net over and underperformance appearing in the last few years. But Wenger has actually done OK and Poccetino well beyond his funding. Without any major signing and a home ground that is like an away ground, it will be interesting to see if Spurs can keep up the momentum. Man City have spent a fortune this summer so the title should be theirs to lose, in theory!
It’s all relative
It’s all relative as well. Wage bills have sky-rocketed over the years so it’s just not good enough to spend money, you have to spend more money faster than your rivals. If you look at the average weekly wage for a top-tier footballer it’s risen 100 fold in 30 years, so unless you can increase your wage bill by that much over the same period then you will be in relative decline. For lower league teams, wages have only increased just less than five-fold during the same period so there is a huge disparity between lower league football and the top tier.
If you measure the wages bills by ‘market share’ then that paints a better picture of where each club is. You can see that Chelsea outspent others by a wide margin for a few years but have fallen back. Disappointed Arsenal fans can gain solace from the fact that your team is gaining ground relative to others. Though they have recently been outfoxed by lower spending Spurs.
Outperformance relative to spend
Overall under-performers tend to be clustered just outside the top four to mid-ranking spenders for some reason; I’ll need to do more research to understand why. Teams in this area are likely to perform poorly relative to spend. Over-performers tend to lurk in the lower part of the league. In the middle, it all averages out a fair bit and becomes a battle for points, consistency, and mid table obscurity.
Every year you do tend to get one large over or under-performer though. But in general, it seems that money does buy success! The advantage of this is that it allows you to, generally, forecast longer term success or failure of a club. Wages appear to be a good proxy for generally how well a club should perform. Arsenal have the most stable business model in the premier league as it stands and this could see them return, in relative terms, to nearer the top of the league subject to the financial fair play rules and their implementation. This also has important ramifications for how you should assess a manager’s performance and prospects. If we look at relative performance we can even out the playing field and see who really is achieving above their means.
Using this information
So how best can you use all this information?
From a betting or trading perspective, it’s useful to know, as it will allow you to anticipate if a team is performing above or below expectations. Also, you can tell if a team is likely to recover or lose points as the season progresses.I like playing in the promotion and relegation markets on this basis. You can pick up some real value from taking positions throughout the season and letting things pan out, as expected.
Before the start of each season and during the season you can watch the news flow coming from each club. If the club is struggling financially then it is certain that their prospects for doing well in the league will diminish. If a team has a bottomless pit of money then it will most likely improve prospects. New managers can wipe the slate clean and kick start the team back to their appropriate level, but there is little evidence they can get them to perform far above it. Popular managers that resign can have the opposing effect. Thanks to betting exchanges you can take advantage of temporarily success or failure by backing or laying a team and trading out when they regress to their rightful place in the league. But you may also be willing to take long term positions and benefit from increasing certainty or uncertainty as the season progresses.
Summary
At a core level, the economics of football is pretty horrible. Costs, mainly wage-related, are so high that aspiring football clubs often have to sell their best players just to stay afloat. But selling your best players will probably lead to poorer results; it’s a catch 22 situation. This can be very frustrating for fans that have seen somebody come up through the ranks only to see them sold off to a rival. It seems that the big clubs regularly buy up the best players from smaller teams, thereby retaining a fierce strange-hold on talent. With few restrictions in place, there seems nothing other than money to stop them from doing this.
With that in mind, try and have realistic expectations, but more importantly, enjoy the coming Premier league football season!
Category: Football trading strategies, Trading strategies
