GameChanger Masala
GAMECHANGER VOL 1.IV.2 Copyright 2010 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. Akhilesh Tilotia akhilesh.tilotia@kotak.com Mumbai: +91-22-6634-1139 Shubham Satyarth shubham.satyarth@kotak.com Mumbai: +91-22-6634-1320 Karan Durante karan.durante@kotak.com Mumbai: +91-22-6634-1527 Vineet Thodge vineet.thodge@kotak.com Mumbai: +91-22-6634-1225 Kotak Institutional Equities Equities Research Research 2
LOOKING FORWARD We continue our walk on the wild side along with 300 mn bleary eyed, sleep deprived, nail-chewing, popcorn-popping football devotees tracking World Cup 2010. With Looking Forward, GameChanger humbly notes that reality has turned its analysis and gut-feel on the head. With the finalists of 2006 bowing out in the group stage and one of the favorites (Spain) battling for survival on the last day of the group matches, the world-cup has proven that it can surprise and delight. We still believe in our modeling and update our predictions based on the new circumstances: we concede that we expect to be surprised again today in Group H, if not also in Group G. Using our arsenal of modeling tools (excruciatingly detailed in the Appendix for the brave), we determine the chances of each team in each game post the group stage. So will Spain make it? What about the Swiss? Will they face Brazil or Portugal? Can England triumph Germany to meet Argentina? And will Uruguay really have an easy ride to the semis? Can South Korea better their 2002 performance and can Honda really take Japan to the semi-finals? Can Netherlands overcome their under-achiever status? Read on to find out. Does your modeling-machine, gut, crystal ball or tea cup throw up the same results? Tell us. Kotak Institutional Equities Equities Research Research 3
TABLE OF CONTENTS How the groups stack up..... 5 Group A: Poetic justice for hand-ballers, hosts bow out.... 6 Group B: Maradona mesmerises, Korea in 2002 form.... 7 Group C: Stoppage time goal decides the group. 8 Group D: Serbia stun but Germans recover.. 9 Group E: Clear topper. 10 Group F: Italy miss buffon against Slovakia.. 11 Group G: In the end, no surprizes or will we eat our words?..... 12 Group H: The new Group of death....... 13 The forecasting model... 14 Numbers don t lie and brazil still wins!.. 15 Brazil and Spain emerge as the clear favorites for finals. 16 Road to victory. 17 Appendix: Understanding our forecasting model... 18 For Private Circulation Only. In the US, this document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933. This document is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions. Kotak Institutional Equities Equities Research Research 4
HOW THE GROUPS STACK UP
GROUP A: POETIC JUSTICE FOR HAND-BALLERS, HOSTS BOW OUT URUGUAY Manager: Oscar Washington Tabarez WC Appearances: 10 Team Points Won Draw Lost For Against WC Record (W-D-L): 15-10-15 Uruguay 7 2 1 0 4 0 Captain: Diego Lugano (Fenerbache/TUR) Mexico 4 1 1 1 3 2 Star Players: South Africa 4 1 1 1 3 5 Diego Forlan (Athletico Madrid/ESP) France 1 0 1 2 1 4 FIFA ranking 16 Luis Suarez (Ajax Amsterdam/NED) Elo points 15 Walter Gargano ( Napoli/ITA) What has happened - and what to expect 11-Jun France 0:0 World Cup Champions ' 30 16-Jun South Africa 3:0 World Cup Champions ' 50 22-Jun Mexico 1:0 MEXICO Manager: Javier Aguirre WC Appearances: 13 WC Record (W-D-L): 11-12-22 Captain: Rafael Marquez (Barcelona/ESP) Star Players: Guillermo Franco (West Ham/ENG) FIFA ranking 17 Giovanni Dos Santos ( Totenham/ENG) Elo points 8 Guillermo Ochoa ( Club America/MEX) 11-Jun South Africa 1:1 FIFA U-17 World Cup '05 Champions 17-Jun France 2:0 22-Jun Uruguay 0:1 Group Table After the listless French drew with Uruguay and lost to Mexico, they provided solace to the hosts by losing convincingly to them. Uruguay, strengthened by their strong performance against South Korea (3:0), now face an easy path to at least the semi-finals. After a slow start against the Bafafa-bafana boys, Mexico came second in the group defeating the hapless French: they now face a tough match against Argentina. What we had said earlier France, which qualified through a hand-of-god redux, seems the favorite to top this group. While our majority decision ranks Mexico second in the group, we think Uruguay (who qualified via the CONCACAF-CONMABEL play-off) could be a tough contender. And yes, never under-estimate the chances of the host remember 2002, when South Korea reached the semis. Kotak Institutional Equities Equities Research Research 6
GROUP B: MARADONA MESMERISES, KOREA IN 2002 FORM ARGENTINA Manager: Diego Maradona WC Appearances: 14 Team Points Won Draw Lost For Against WC Record (W-D-L): 33-13-19 Argentina 9 3 0 0 7 1 Captain: Javier Mascherano (Liverpool/ENG) South Korea 4 1 1 1 5 6 Star Players: Greece 3 1 0 2 2 5 Lionel Messi (Barcelona/ESP) Nigeria 1 0 1 2 3 5 FIFA ranking 7 Carlos Tevez (Manchester City/ENG) Elo points 7 Angel Di Maria (Benfica/POR) What has happened - and what to expect 12-Jun Nigeria 1:0 World Cup Champions ' 78, '86 17-Jun Korea Republic 4:1 22-Jun Greece 2:0 KOREA REPUBLIC Manager: Huh Jung-Moo WC Appearances: 7 WC Record (W-D-L): 4-7-13 Captain: Park Ji-Sung (Manchester United/ENG) Star Players: Park Chu-Young (AS Monaco/FRA) FIFA ranking 47 Lee Chung-Yong (Bolton Wanderers/ENG) Elo points 18 Ahn Jung-Hwan (Dalian Shide/CHN) 12-Jun Greece 2:0 World Cup ' 02 - Semi-finals 17-Jun Argentina 1:4 22-Jun Nigeria 2:2 Group Table Nigeria completely squandered away the continent advantage by failing to win even a single match. Argentina clearly showed that they richly deserve being among the top teams by winning all their matches. The Greek economic tragedy was reflected in their dismal performance also, they could only defeat Nigeria. South Korea are re-living their 2002 glory - and if they can overcome Uruguay, then they should fancy their chances of making to the semis again. What we had said earlier Argentina, coached by the legendary Maradona, is the clear favorite in this group. While the continent advantage would favor Nigeria, we believe Greece (who were Euro 2004 champions) could clinch the second spot. South Korea, which reached 2002 semis, would fancy their chances to move to the second round. Kotak Institutional Equities Equities Research Research 7
GROUP C: STOPPAGE TIME GOAL DECIDES THE GROUP USA Manager: Bob Bradley WC Appearances: 8 Team Points Won Draw Lost For Against WC Record (W-D-L): 6-3-16 USA 5 1 2 0 4 3 Captain: Carlos Bocanegra (Rennes/FRA) England 5 1 2 0 2 1 Star Players: Slovenia 4 1 1 1 3 3 Landon Donovan (LA Galaxy/USA) Algeria 1 0 1 2 0 2 FIFA ranking 14 Tim Howard (Everton/ENG) Elo points 24 Jozy Altidore (Villarreal/ESP) What has happened - and what to expect 12-Jun England 1:1 Confederations Cup finalists 18-Jun Slovenia 2:2 23-Jun Algeria 1:0 ENGLAND Manager: Fabio Capello WC Appearances: 11 WC Record (W-D-L): 25-17-13 Captain: Steven Gerrard (Liverpool/ENG) Star Players: Wayne Rooney (Manchester United/ENG) FIFA ranking 8 Frank Lampard (Chelsea / ENG) Elo points 4 John Terry (Chelsea/ENG) 12-Jun USA 1:1 World Cup Champions ' 66 18-Jun Algeria 0:0 23-Jun Slovenia 1:0 Group Table Last minute Landon Donovan goal against Algeria put USA on the top and showed that their victory against Spain in 2009 was not a fluke. The Rooney- Lampard-Terry trio failed to click and have made their path difficult by finishing second - they now face Germany. Slovenia were unlucky that their fate got sealed by Algeria losing to USA, especially after they defeated Algeria and held USA to a draw (though some think USA should have won that). What we had said earlier US defeated Spain (!) in 2009 in the Confederations Cup and could upset England s chance of topping the group. England with the likes of Rooney, Lampard and Terry are the current favorites (watch out of the match on Jun 12). Slovenia and Algeria are not expected to cause any upsets in this group. Kotak Institutional Equities Equities Research Research 8
GROUP D: SERBIA STUN BUT GERMANS RECOVER GERMANY Manager: Joachim Low WC Appearances:17 Team Points Won Draw Lost For Against WC Record (W-D-L): 55-19-18 Germany 6 2 0 1 5 1 Captain: Philipp Lahm (Bayern Munich/GER) Ghana 4 1 1 1 2 2 Star Players: Australia 4 1 1 1 3 6 Miroslav Klose (Bayern Munich/GER) Serbia 3 1 0 2 2 3 FIFA ranking 6 Bastian Schweinsteiger (Bayern Munich/GER) Elo points 6 Lukas Podolski (FC Cologne/GER) What has happened - and what to expect 13-Jun Australia 4:0 World Cup Champions '54, '74, '90 18-Jun Serbia 0:1 23-Jun Ghana 1:0 GHANA Manager: Milovan Rajevac WC Appearances: 2 WC Record (W-D-L): 2-0-2 Captain: Stephen Appiah (Bologna/ITA) Star Players: Sulley Muntari (Inter Milan/ITA) FIFA ranking 32 John Pantsil (Fulham/ENG) Elo points 41 Asamoah Gyan (Rennes/FRA) 13-Jun Serbia 1:0 African Nations Cup Winners, '63, '65, '78, '82 19-Jun Australia 1:1 23-Jun Germany 0:1 Group Table Serbia enlivened the group by briefly halting the German juggernaut, though the Germans proved their mettle against Ghana to top the group. Serbia handballed their way to defeat (not everyone is as lucky as Theirry Henry) against Ghana in the dying moments of the game. Ghana now carry the hopes of the African continent and could stun USA for a place in the quarter finals. What we had said earlier Ghana may lose its chance to move forward due to injury to Essien (poetic justice for them? Ghanian Boateng recently injured Michael Ballack of Germany). If that were to happen, we fancy Serbia over Australia (this is a close call: Serbia topped the qualifying group which had France). Germany, despite the experienced Ballack out of the way, should still top the group. Kotak Institutional Equities Equities Research Research 9
GROUP E: CLEAR TOPPER NETHERLANDS Manager: Bert Van Marwijk WC Appearances: 9 Team Points Won Draw Lost For Against WC Record (W-D-L): 16-10-10 Netherlands 9 3 0 0 5 1 Captain: Giovanni van Bronckhorst (Feynord/NED) Japan 6 2 0 1 4 2 Star Players: Denmark 3 1 0 2 3 6 Wesley Sneijder (Inetr Milan/ITA) Cameroon 0 0 0 3 2 5 FIFA ranking 4 Van Persie (Arsenal/ENG) Elo points 3 Arjen Robben (Bayern Munich/GER) What has happened - and what to expect 14-Jun Denmark 2:0 Runners-up, 1974 and 1978 19-Jun Japan 1:0 24-Jun Cemeroon 2:1 JAPAN Manager: Takeshi Okada WC Appearances: 4 WC Record (W-D-L): 2-2-6 Captain: Yoshikatsu Kawaguchi Star Players: Kengo Nakamura (Espanyol) FIFA ranking 45 Keisuke Honda (CSKA Moscow) Elo points 40 Junichi Inamoto (Kawasaki Frontale) 14-Jun Cameroon 1:0 Asian Cup Champions, 1992, 2000, 2004 19-Jun Netherlands 0:1 24-Jun Denmark 3:1 Group Table Failing to live up to the expectations of the African people, Inter-Milan forward and Cameroon captain Eto'o failed to inspire his team to even a draw (leave alone a victory). The paper-tigers Netherlands are now charged up and should have an easy win over Slovakia but should look forward to a clash with Brazil/Spain in the quarters. Keisuke Honda powered Japan to the last 16, where they should fancy their chances against Paraguay in the pre-quarters. What we had said earlier Well-stacked but under-achievers Netherlands are paper-tigers in the group and we put our money on them as the group toppers. The Danes have fared well in their previous World Cup appearances; Japan moved past the group stage in 2002 world cup however, we think Eto o will captain Cameroon to number 2 position in the group (and silence the critics who question his commitment). Kotak Institutional Equities Equities Research Research 10
GROUP F: ITALY MISS BUFFON AGAINST SLOVAKIA PARAGUAY Manager: Gerardo Martino WC Appearances: 8 Team Points Won Draw Lost For Against WC Record (W-D-L): 6-7-9 Paraguay 5 1 2 0 3 1 Captain: Denis Caniza (Leon/MEX) Slovakia 4 1 1 1 4 5 Star Players: New Zealand 3 0 3 0 2 2 Roque Santa Cruz (Manchester City/ENG) Italy 2 0 2 1 4 5 FIFA ranking 28 Oscar Cardozo (Benfica/POR) Elo points 19 Nelson Haedo Valdez (Borussia Dortmund/GER) What has happened - and what to expect 14-Jun Italy 1:1 Olympics, Athens '04 runners-up 20-Jun Slovakia 2:0 Copa America winners, 53, 79 24-Jun New Zealand 0:0 SLOVAKIA Manager: Vladimir Weiss WC Appearances: Debut WC Record (W-D-L): -- Captain: Marek Hamšík (Napoli/ITA) Star Players: Martin Skrtel (Liverpool/ENG) FIFA ranking 48 Miroslav Stoch (Chelsea/ENG) Elo points 28 Stanislav Sestak (Vfl Bochum/GER) 15-Jun New Zealand 1:1 --- 20-Jun Paraguay 0:2 24-Jun Italy 3:2 Group Table Defending champions Italy proved to be the biggest disappointment (especially since no one in their team was abusing the coach or missed training). Debutants Slovakia provided the best entertainment in this world-cup till date in their superb outing against Italy. Paraguay, having topped the group, have avoided a tougher competitor in Netherlands. New Zealand drawing all their matches was a commendable performance. What we had said earlier The Midas-touch Marcelo who coached Italy to their 2006 triumph is back. Paraguay out-qualified Argentina in the CONMEBOL play-offs. New Zealand and Slovakia have limited past WC experience or pedigreed players -- we don t fancy their chances of creating upsets in this group. Kotak Institutional Equities Equities Research Research 11
GROUP G: IN THE END, NO SURPRIZES OR WILL WE EAT OUR WORDS? BRAZIL Manager: Dunga WC Appearances: 19 Team Points Won Draw Lost For Against WC Record (W-D-L): 64-14-14 Brazil 6 2 0 0 5 2 Captain: Lúcio (Bayern Munich/GER) Portugal 4 1 1 0 7 0 Star Players: Ivory Coast 1 0 1 1 1 3 Kaka (Real Madrid/ESP) North Korea 0 0 0 2 1 9 FIFA ranking 1 Maicon (Inter Milan/ITA) Elo points 1 Luis Fabiano (Sevilla FC/ESP) What has happened - and what to expect 15-Jun Korea DPR 2:1 Winners '58, '62, '70, '94, '02 20-Jun Cote D'Ivoire 3:1 25-Jun Portugal?? PORTUGAL Manager: Carlos Queiroz WC Appearances: 5 WC Record (W-D-L): 11-1-7 Captain: Cristiano Ronaldo (Real Madrid/ESP) Star Players: Deco (Chelsea/ENG) FIFA ranking 3 Ricardo Carvalho (Chelsea/ENG) Elo points 12 Nani (Manchester United/ENG) 15-Jun Cote D'Ivoire 0:0 Third Place, 1966 21-Jun Korea DPR 7:0 25-Jun Brazil?? Group Table Portugal sealed the fate of Ivory Coast by demolishing North Korea completely, who created a flutter by holding Brazil goal-less in the first half. While Brazil have won all their matches till date, they are yet to weave the Brazillian magic. Neither Brazil nor Portugal know who they will be up against given the chaos in group H - which has taken on the mantle of "Group of Death". What we had said earlier Isn t it obvious? Brazil first and Portugal second? Be ready for upsets as Drogba (Cote d Ivore) or Ronaldo (Portugal) can upset Brazil s pole position. If Brazil wants to avoid Spain in the pre-quarters (Brazil-Spain will be a dream final), it needs to top this group. Oh, by the way, we don t know anything about North Korea, do we? they knocked out Italy in their 1966 outing. Kotak Institutional Equities Equities Research Research 12
GROUP H: THE NEW GROUP OF DEATH CHILE Manager: Marcelo Bielsa WC Appearances: 8 Team Points Won Draw Lost For Against WC Record (W-D-L): 7-6-12 Chile 6 2 0 0 2 0 Captain: Claudio Bravo Spain 3 1 0 1 2 1 Star Players: Switzerland 3 1 0 1 1 1 Humberto Suazo (Real Zaragoza/ESP) Honduras 0 0 0 2 0 3 FIFA ranking 18 Matias Fernandez (Sporting Lisbon/POR) Elo points 11 Alexis Sanchez (Udinese/ITA) What has happened - and what to expect 16-Jun Honduras 1:0 Third place, 1962 21-Jun Switzerland 1:0 25-Jun Spain?? SPAIN Manager: Vincente Del Bosque WC Appearances: 13 WC Record (W-D-L): 22-12-15 Captain: Iker Casillas (Real Madrid/ESP) Star Players: Fernando Torres (Liverpool/ENG) FIFA ranking 2 Xavi (Barcelona/ESP) Elo points 2 David Villa (Barcelona/ESP) 16-Jun Switzerland 0:1 Fourth Place, 1950 21-Jun Honduras 2:0 European Championship Champions, '64, '08 25-Jun Chile?? Group Table After Switerland surprized Spain, this group has opened up completely with the dramatic possibility of Spain crashing out. To qualify, Spain need to win their match against Chile today, who would be hoping that Honduras deny Swiss three points. Chile defeated the 10-men Switerland but only after the Swizz created the world record of holding their backline for more than 550 minutes in the world-cup finals. What we had said earlier Euro 2008 Champions Spain are in dream form currently we don t doubt their ability to top this group (and hence the onus is on Brazil to avoid the Brazil-Spain clash in the pre-quarters). Switzerland held Italy to a draw in the warm-up matches would fancy their chances more given that Chile s topscorer Suazo has suffered a hamstring injury. Don t expect upsets from Honduras. Kotak Institutional Equities Equities Research Research 13
THE FORECASTING MODEL
NUMBERS DON T LIE AND BRAZIL STILL WINS! The theory of probabilities is at bottom nothing but common sense - Laplace, Théorie analytique des probabilités, 1820 And common sense is exactly what our proprietary model throws up ascribing to Brazil the highest probability of winning the world cup (common sense! Why do you need a probabilistic model for that?). Our model assigns exact probabilities of each team making to a particular round (there is a limit to what common sense can do!) Our model forecasts that Germany will possibly have a tough time against England. If Spain meet Brazil in the pre-quarters, we favor Brazil, who we believe will then go on to win the finals (or so the probabilities say). We forecast South Korea to repeat its 2002 feat and reach the semi-finals, where they should expect to meet Portugal. And yes, Argentina should triumph over England in the quarters. We are ready with for the brick-bats! Refer to the Appendix for a detailed description of our model. Kotak Institutional Equities Equities Research Research 15
BRAZIL AND SPAIN EMERGE AS THE CLEAR FAVORITES FOR FINALS There should not be many upsets in the top 8 teams reaching the QFs Probability of reaching quarter-finals Portugal Brazil Netherland USA Argentina Paraguay England Uruguay South Korea Germany 33% 32% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Kotak Institutional Equities estimates 68% 68% 67% 70% 74% 74% 77% 82% Portugal has best draw to reach semis Probability of reaching the semi-finals Portugal Brazil England Uruguay USA Argentina Netherland Germany 18% 22% 26% 37% 40% 49% 57% 66% 0% 10% 20% 30% 40% 50% 60% 70% Source: Kotak Institutional Equities estimates Brazil has the best chance of reaching the finals Probability of reaching the finals Brazil is the clear winner Probability of winning the World Cup 2010 Brazil 38% Brazil 27% England Portugal 22% 33% England 14% Argentina 20% Netherland 12% Netherland 17% Portugal 10% Germany Spain 12% 14% Argentina 8% USA 11% Spain 8% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Kotak Institutional Equities estimates 0% 5% 10% 15% 20% 25% 30% Source: Kotak Institutional Equities estimates Kotak Institutional Equities Equities Research Research 16
ROAD TO VICTORY 26-Jun 16.00 26-Jun 20.30 Uruguay South Korea USA Ghana South Korea 2-Jul 20.30 USA South Korea Brazil 6-Jul 20.30 Argentina Argentina Argentina 3-Jul 16.00 England Argentina Mexico Germany England 27-Jun 16.00 27-Jun 20.30 11-Jul 20.30 28-Jun 16.00 Slovakia Netherlands Netherlands 2-Jul 16.00 Brazil South Korea Portugal 10-Jul 20.30 Portugal Paraguay 3-Jul 20.30 Paraguay Japan 29-Jun 16.00 28-Jun 20.30 Brazil Spain Brazil 7-Jul 20.30 Portugal Chile Portugal 29-Jun 20.30 Kotak Institutional Equities Equities Research Research 17
APPENDIX
UNDERSTANDING OUR FORECASTING MODEL A simulation-based model with Poisson probabilities Our model calculates the probabilities of each team reaching different stages of the world cup. The results are derived by simulating the world cup games by assuming that goals scored by teams follow a Poisson distribution. The following steps are involved in developing the model: Step 1: Identifying the top 16 teams Step 2: Building lambdas Step 3: Simulation We identify the top 16 teams based on our subjective judgments, current ranking and forms. For each pair of team in the top 16, we assume that the goals scored in a match up between the pair will follow Poisson distribution. The mean (henceforth addressed as lambda) of the Poisson distribution is a function of historical performance with higher weight to recent matches, FIFA ranking and current form (captured by Elo ranking). Once we have lambdas for each possible combination, we run a simulation of the world cup post the league stage. For a draw, we assume that the team with better ranking has a higher chance of moving ahead. We believe that by taking goal scored as our simulation variable, we are closer to the actual match scenario and capture both attacking and defensive strengths of a team (vis-à-vis taking a win-loss as our simulation variable). Elo Rankings: The Elo rating system was originally developed for calculating the relative skill levels of players in two-player games such as chess and Go. The World Football Elo Ratings is a ranking system for men's national teams in football. The ratings take into account all international A matches for which results could be found. Ratings tend to converge on a team s true strength relative to its competitors after about 30 matches. Poisson distribution: A discrete probability distribution that expresses the probability of a number of events occurring in a fixed period of time if these events occur with a known average rate and independently of the time since the last event. The parameter λ is the mean number of occurrences and the number of observed occurrences fluctuates about its mean λ with a standard deviation equal to square root of λ. Kotak Institutional Equities Equities Research Research 19
Notes Kotak Institutional Equities Equities Research Research 20
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ABOUT GAMECHANGER Gamechanger offers perspectives on ideas and developments that can potentially alter the course of the markets. The series explores and analyzes ideas, challenges conventional wisdom, plays advocate or devil s advocate depending on research conclusions. The factors that we identify as market changers could come from anywhere from policy or politics, from people or ideas, from rain or from regulation. They could change the game for the better or for worse. Gamechanger research has implications for macro socio-economics and for long-term market behavior. Read it and stay ahead of the India story. Have you got your copy of Gamechanger? April 2010 365 million analyses India s readiness for its forthcoming demographic dividend May 2010 Deluge of Opportunity examines pricing and regulation changes that could make water a viable business proposition June 2010 Indian Household Savings highlights that US$10 tn is up for grabs in the next 15 years Kotak Institutional Equities Equities Research Research 22