FIFA World Cup Joachim Klement, CFA 24 April 2018

Transcription

1 FIFA World Cup 2018 Predictions Joachim Klement, CFA 24 April 2018 Every four years, the world s best football teams meet at the FIFA World Cup to determine who is best. And every four years economists create silly statistical models to predict which team is going to win the championship. We are no exception to this rule. This is our not so serious prediction for the upcoming World Cup. Enjoy.

2 PAGE 2 Introduction On 14 June 2018 the 21st FIFA World Cup will open in Russia. 64 matches will be played until on 15 July 2018 the world champion of football is crowned at the final in Moscow. Every four years 32 teams from around the world compete against each other to figure out who is the best nation in what I can only describe as the best sport in the world and a modern day religion. And every four years, economists from every major bank in the world will try to predict the winner of the World Cup in advance using more or less ridiculous econometric models in an attempt to seem more fun than economists usually are. The remainder of this paper is organised as follows. In the next section I will clarify some common misunderstandings about football and explain the model, its input factors and its methodology. Then, I will briefly tackle the group stage of the World Cup in order to determine which teams will make it into the knock-out stage. The final section then simulate the knock-out stage in order to determine the likely winner of the World Cup. If you expect concrete investment advice, stop reading now. Tongue firmly in cheek, I will explain which team will win this year s World Cup. Being the fun economist that I am, I will join this chorus of World Cup predictions. Tongue firmly in cheek I will explain which team will win this year s World Cup and why you can safely ignore the dozens of reports from other banks on the subject. Before we get into the details of the model, however, let me warn all the readers of this report. If you expect concrete investment advice, stop reading now. Some economists try desperately to make these reports about investments by choosing German automotive stocks to represent Germany and the like. But let s face it. Trying to predict a football tournament with the help of an econometric model is outrageous in itself already. No need to make it even more outrageous than that. To address the last point first: In this report I will use an updated version of the econometric model I used four years ago to predict Germany as world champion 2014 (including a victory of Germany in the semifinals against Brazil). This model has a 100% success record which is clearly higher than any model other economists use. Also, the model is developed and run by a German which is why in our 2014 predictions the seasoned judgement of the modeller was used to change the predicted outcome of the semi-final between Germany and Brazil from a victory for Brazil to a victory for Germany. It is this genetically inherited knowledge about football that makes the combination of economist and model superior to any model developed by an English or an American economist.

3 PAGE 3 The model The model I use is a regression-based model that tries to predict the percentage of games won by each country in past World Cup appearances. For example, Brazil has historically been the most successful team at previous World Cups and won on average 67% of all the matches it participated in. At the other end of the spectrum are World Cup newcomers, Panama and Iceland, that have never qualified for a World Cup before. These two teams, together with Egypt, have never won a match at a World Cup so far and thus have a winning percentage of zero. In order to avoid confusion, let me be clear that the term football in this report refers to the sport called football in England and across the British Isles. It is a game played by 11 men or women in each team where the ball is kicked by foot (hence the name) and only the goalkeeper is allowed to use his or her hands under certain restrictions that I won t go into here. The game lasts 90 minutes and is split into two halves (plus some injury time in each half at the discretion of the referees but I can t get into this either). A goal counts as one point (not three, six, seven or whatever funny number you happen to make up) and it is perfectly normal for a game to end 0-0. The game that Americans call football has nothing to do with football whatsoever and is effectively rugby for Nancies. And what our Australian friends and colleagues call footie is also not football but rather a glorified pub brawl. 1 In order to predict the winning percentage of World Cup games for every team I use the following macroeconomic variables: GDP/capita: While football can be played anywhere, a successful national team needs appropriate infrastructure and a systematic support for talented young 1 If you do not believe me then I recommend the 2016 AFL Injury Survey ( aflprod.com/staticfile/afl%20tenant/afl/2016- AFL-Injury-Survey.pdf), which documents that on average players in each club missed games in the 2016 season and lists the prevalence of injuries such as concussions, facial fractures, ACL injuries, forearm, wrist, and hand fractures, and thoracic spine injuries etc. players. This means that countries that are too poor have a hard time building and maintaining the necessary training and medical infrastructure to be successful on the big stage. At the same time, the relationship between a nation s wealth (as measured by GDP/capita) and its success in football is non-linear. Very wealthy nations like Switzerland or Luxembourg may have the money to build the necessary infrastructure but cannot recruit enough youngsters for their youth teams. Effectively, football remains a sport played by working class and middle class people. If a nation is too wealthy, the youngsters rather participate in more expensive hobbies or simply play video games instead of going outside to play football on the street. Average temperature: Football is an outdoor sport. It is difficult to play football year-round if the climate in a country is too cold or too hot. It turns out that a temperate climate with an average annual temperature of 14C is optimal. Population: Of course, if a country has more citizens, the talent pool is bigger. Thus the share of a countries population as percentage of world population is another determinant of football success. Being the host: Time and again the home field advantage proves crucial in determining success at a World Cup. England won its only World Cup, 1966 at home. In 1958 host Sweden celebrated its biggest World Cup success ever when it only lost in the final to Brazil with the immortal Pelé. And South Korea s biggest World Cup success was the semi-final at the 2002 home tournament. Clearly, the home team has a distinct advantage over other teams and our model indicates that on average the home team is about one third more likely to win a game than a foreign team with the same qualifications.

4 PAGE 4 FIFA ranking: The FIFA ranking of national teams is based on the results of international games in friendlies and competitive matches of the last few years. Thus, the FIFA world ranking provides a crucial input about the recent strength of a team. advance to the next round. If on the other hand the random chances for team A and B would have been the reverse, team A would have achieved a total score of 45% + 70% = 115% and team B would have achieved a total score of 35% + 30% = 65% and team A progresses to the next round. Many of these variables have been used in academic studies to explain football success 2 and my model explains about 44% of the variation in winning percentage amongst teams. Of course, this also means that about 56% of the variation in winning percentage is unexplained by these factors and due to luck or other idiosyncratic factors. In order to account for this, I have added an element of chance to determine the winner of each game in the knockout stage. Once a team reaches the knockout stage or even the quarter- and semi-finals there are no easy opponents left. So winning depends to a larger and larger extent on the form of each team on the day the match is played. The model accounts for this element of chance by adding a random chance of winning to the actual winning percentage of each team. For example, assume team A has a winning percentage of 45% according to the model prediction, while team B has a winning percentage of 35%. Note that the winning percentages do not have to sum to 100% because they only measure how often a team won a match in a statistical average, not in a head to head with a specific team. Now we add a random winning chance for team A and B for the specific match of A vs. B. Let s assume that the random draw concludes that team A has a 30% chance of winning, while team B has a 70% chance of winning. If we add the model prediction of team A and the random chance of winning for team A we get a sum total of 45% + 30% = 75% and for team B we get 35% + 70% = 105%. In other words, team B was able to overcome the advantage team A had based on its model prediction and team B would 2 R. Hoffmann, L. C. Ging, and B. Ramasamy, (2002). The Socio-economic determinants of international soccer performance. Journal of Applied Economics, Vol. 5 (2), And yes, I could not believe that someone actually published a paper about this either.

5 PAGE 5 Predicting the group stage Let s move on from the theory of a model to the practicalities of the tournament. The tournament starts with a group stage where four teams in each group play against each other to determine the two best teams that will advance to the knockout stage. Group A: Russia had the luck of the draw in group A and got arguably the easiest group of all. Unsurprisingly, with the home field advantage, Russia is favourite to win the group, while Uruguay is destined to come second. However, with an upset victory over Uruguay, outsiders Egypt will make it into the knockout stage as second place team. With an upset victory over Uruguay, outsiders Egypt will make it into the knockout stage. Group B: Morocco and Iran can only advance to the knockout stage if Spain and reigning European champion Portugal stumble. And this is very unlikely. It is about as likely as me pogo-sticking up Mount Everest not impossible, but very unlikely. So Portugal and Spain advance with Portugal as group winner based on goal difference (thank you Christiano Ronaldo). neck for second place. In a thrilling match, Croatia wins 1-0 against Iceland in injury time and we have to bid goodbye to the Vikings that have given us so much pleasure in recent years. Group E: No team is even going to touch Brazil in this group and the Selecao takes the group by storm. In second place is Switzerland with comfortable victories over Costa Rica and Serbia. Group F: This is the group with Germany and of course, Die Mannschaft will take the top spot, while Mexico qualifies as second placed team. Group G: As always, the English team counts itself as part of the favourites to win the title. And as always nobody outside the UK thinks they have the slightest chance to win the title. With Belgium as one of the best teams in the tournament in their group, England will only end up taking second place after Belgium, but the nation will not lose hope that they might win the trophy this time after all. Group H: Poland with star striker Robert Lewandowski and Colombia with James Rodriguez are favourites to advance to the knockout stage. Senegal, however, deserves an honourable mention for giving both teams a run for their money. Group C: France will easily win the group while Denmark and Peru battle for second place. In the end Peru has a slight advantage over Denmark and takes second place. Group D: Argentina is favourite to win the group but Iceland and Croatia are neck and Figure 1: The results of the group stage Group A Group B Group C Group D Group E Group F Group G Group H Russia Portugal France Argentina Brazil Germany Belgium Poland Egypt Spain Peru Croatia Switzerland Mexico England Colombia Uruguay Iran Denmark Iceland Costa Rica Sweden Tuinisia Senegal Saudi Arabia Morocco Australia Nigeria Serbia South Korea Panama Japan Source: Fidante Capital.

6 PAGE 6 The last 16: No surprises here The results from the group stages pit Russia against Spain in the last 16. And no matter how big the home field advantage, Spain clearly dominates Russia in this match and reaches the quarter-finals with ease. There they will face a formidable France. The young French team has shown impressive football throughout the group stage and win easily against Croatia. In a Latin American match, Brazil faces Mexico in the third match of the last 16. The cold weather in Russia makes it hard for both teams to play good football but in the end Brazil succeeds and advances to the quarter finals. In the fourth match of the last 16 Belgium is favourite to win against Colombia and does so convincingly. Belgium, together with France play the most impressive football of the tournament so far but their next opponent in the quarter-finals will be none other than mighty Brazil. Next up in the first round of the knockout stage is Egypt vs. Portugal. Even though Portugal does sometimes have difficulties playing against underdogs, outsiders Egypt are no match and Portugal advances to the next round. Argentina also has no problems with Peru in its knockout match and easily advances to the quarter finals, where they will face Portugal. The seventh match in the round of the last 16 will take place between Germany and Switzerland. Honestly, I can t even be bothered to comment on this one. Germany beats Switzerland 3-0. Finally, the match between Poland and England completes the round of the last 16. For the first time in this tournament it becomes obvious how dependent Poland is on Robert Lewandowski. With Lewi in bad shape for the match and not scoring, it falls to Harry Kane to take England into the quarter-finals. Some exciting quarterfinals All these developments lead to mouthwatering quarter-finals. Each of the four matches has the potential to become a match for the ages and in each match, both teams have a good chance of winning. In the end the team with the better tactics on the day or the little bit of extra luck will advance to the next round. Quarter-final 1: Spain, the world champion of 2010 meets France, the world champion of The Spanish team is clearly past its peak with players such as Piqué, Andrés Iniesta, David Silva, or Sergio Ramos all 30 years or above. Younger players like Thiago (26), Álvaro Morata (25) or Alberto Moreno (25) are good players, but just not the class of the previous generation. And the lack of a great goal scorer also makes it difficult to succeed against a world class team like France. France, on the other hand, fields a young team with formidable offensive power. Antoine Griezmann, Alexandre Lacazette and Kylian Mbappé are supported by wingers like Kingsley Coman and Ousmane Dembelé. In the end France simply outscores Spain to advance to the semi-final. Quarter-final 2: Brazil vs. Belgium. The most successful team in the history of the World Cup against the up and coming European force. Brazil is heavy favourite but in the end Belgium wins on penalty kicks. Belgian goalkeeper Thibaut Courtois becomes the hero of a nation when he saves the decisive penalty. It is Barcelona s Paulinho who misses the penalty and will end up on the front page of every Brazilian newspaper the next day, but not in a good way. The attacks against him in the media and in social networks are so vicious that Paulinho decides to retire from the Selecao the next day.

7 PAGE 7 Quarter-final 3: The third quarter-final is Portugal against Argentina. Ronaldo against Messi, the best player of 2017 against the best player of all time, the man who says of himself that he was sent by God to show the world how to play football against the man who is God. The man who scored his first hat-trick at the age of 23 against the man who had a hat-trick of Ballon d Ors at age 23. Well, in any case, Messi is injured in the quarter-final and can t play so Portugal wins 2-1. The third quarter-final is Portugal against Argentina. Ronaldo against Messi, the best player of 2017 against the best player of all time. Quarter-final 4: Here it is. Germany vs. England again. Let s review the two opponents here. Germany has Manuel Neuer, the best goalkeeper in the world, Mats Hummels and Jerome Boateng, the best centre backs in the world, Mesut Özil, the man with the most assists in the Premier League since 2013, Thomas Müller, top goal-scorer of the World Cup 2010 and the man with more goals in a World Cup than the entire England squad put together. And England has Harry Kane. The teams have met in a World Cup five times. In the final of the 1966 World Cup England won 4-2. So much for the glory days of England. In 1970, Germany won 3-2, in 1982 the teams met at the group stage and drew 0-0. In 1990 England lost against Germany in the semi-finals in a penalty shoot-out. In 2010 Germany won against England in the last Of the last fifteen matches against each other England won three. I am completely objective when I predict that Germany will advance to the semi-final. An all-european semifinal The semi-finals turn out to be a completely European affair with France playing Belgium and Portugal going head to head with Germany. All the teams are evenly matched and so France wins due to an undeserved penalty in the 72nd minute and ends the World Cup dreams of the Belgian team. Both teams have played an exciting football but the pressure of a World Cup semi-final was clearly visible in this match. None of the teams wanted to make a mistake as is so often the case in high stakes World Cup games and in the end France simply is the luckier team of the two. But the Belgian players can be proud of themselves. The future is clearly theirs and they will be a force to reckon with in the 2020 Euros. The second semi-final between Germany and Portugal is also a close affair. Ronaldo opens with an early goal to take the lead for the reigning European champion against the reigning world champion. But Germany strikes back quickly with a beautiful goal from Özil. The game turns out to be similarly entertaining as the legendary match for third place at the 2006 World Cup. And the result turns out to be the same as well. 3-1 for Germany. The semi-finals turn out to be a completely European affair with France playing Belgium and Portugal going head to head with Germany.

8 PAGE 8 And the winner is Which brings us to the final between France and Germany. Germany is the favourite to win this match and defend a world title for the first time since Brazil in But the French team is hungry for the title and their manager Didier Deschamp has prepared them well for the challenge. In the end the team that has played the most attractive football of the tournament wins. France beats Germany 2-1 and becomes world champion for the second time. So there you have it. France will win the World Cup Given the statistical accuracy of my model you don t even have to bother watching the games anymore. Just go and put some money on France and come back in July with a grin on your face to collect your winnings. The current odds of France winning the World cup are 6/1 by the way. Figure 2: The knockout stage France France Germany France Belgium Portugal Germany Spain France Brazil Belgium Portugal Argentina Germany England Russia France Brazil Belgium Egypt Peru Switzerland England Spain Croatia Mexico Colombia Portugal Argentina Germany Poland Source: Fidante Capital.

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12 PAGE 12 Contacts Research Joachim Klement Martin McCubbin Aliy Akbarov UK Sales Daniel Balabanoff Max Bickford Patrick Valentine Justin Zawoda-Martin Trevor Barnett Adam Randall Market Making STX Mark Naughton Product Development Tom Skinner Corporate Finance John Armstrong-Denby Nick Donovan International Sales Christian Andersson candersson@fidante.com Ian Brenninkmeijer ibrennikmeijer@fidante.com