Friday, 12 November 2010

Behind The Numbers

Joep again, who asks:

Why do you use your own handicaps in your Elo system while judging by this blog you mostly use the 1X2 market to bet on. Wouldn't it make more sense to use the 1X2 results in your rating system as well?
I'm not sure I totally understand the question, but I don't use the handicaps in my ratings. The handicaps are a product of the ratings. When I say that a team is -1.15 or whatever, I mean that for each team's rating to remain the same, this is the margin of victory that is required. A victory by less than the required margin will reduce that team's rating slightly, while a victory by more will raise it. I do usually use the ratings on the match odds markets, but I do occasionally venture into the world of Asian Handicaps or the over / under markets. No joy on the strong draw pick today, with Param scoring in the 84' minute, although at least the game finished under. It seems like there are a lot of late goals right now, but the 'strong' draws are still running at an impressive 35.29% in the top leagues.

I thought of something that I wish I had thought of a few days ago, and included in my Managing Expectations post from a couple of days ago.

Joep had asked how it was that Barcelona had overtaken Real Madrid in my La Liga ratings, and the answer was that while both teams had won at the weekend, Barcelona exceeded expectations, whereas Real Madrid fell short.

It occurred to me later, better late than never, that this is very similar to the business world, where a company announces its results, and the share price reacts. Anyone who follows these things knows that making a £50 million quarterly profit isn’t necessarily going to boost the share price. It all depends on the market’s expectations. If analysts were predicting profits of £25 million, then by exceeding expectations, the share price would likely jump, but if the expectations were for profits in the £100 million range, then by disappointing the market, the share price would likely fall. (There are other factors, but this is the basic idea).

Another parallel between football ratings and share prices is that results are not the whole story.

When a company reports its results, there is a lot more to it than just the bottom line of how much the company made. Analysts and investors look behind the numbers to gain an insight into the company’s future prospects, and so a company reporting an expected profit would see its share price plummet if something in the results indicated a bleak future. (Coincidentally, after I started writing this post, I saw this article regarding Cisco’s latest report).

It’s similar with football. The results are important, but other factors should also impact a team’s ratings. Some examples.

If a team wins, but a star player is injured and likely to miss several games, this should impact the ratings.

If a team loses, but had two players sent-off in the first five minutes of the match, this result should impact the ratings differently to the same result achieved in a match where the opposing team had two players sent off in the first five minutes!

If a team loses but had more shots on goal and more corners than the winning team who won the game on a dubious penalty, this should be factored in.

The star player wants to leave. The club are late paying wages. The young up-and-coming manager is being sought after by bigger clubs. All these things should somehow be factored in. The problem is finding the time to do all the research, which is a good argument for specialization, and then turning these subjective factors into meaningful numbers.

And Joep, sorry for messing up your name. The blog has been edited.

1 comment:

Joep said...

Thanks for your explaination. I still think I would base my results on the 1X2 markets instead of making goal difference compared to the expected win margin the key factor, because opposed to the financial market, there is a treshold for winning and exceeding this threshold doesn't bring you much. However, your system seems to be working for you and your picks usually make sense (look like they are value), so you must be onto something.

The only thing that seems out of line to me is that some of the very weak vs very strong teams have too much of an expected goal difference, compared to the asian handicap markets. While it is possible that you are getting value, I doubt that the asians are off by as much as .75 to a full goal.

Anyway, thanks for the explaination on how you shape your rating system and your reasons for doing it like this.