FIFA World Cup 2018 Predictions - Fidante Partners
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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.
PAGE 2 Introduction On 14 June 2018 the 21st FIFA World The remainder of this paper is organised as Cup will open in Russia. 64 matches will follows. In the next section I will clarify some be played until on 15 July 2018 the world common misunderstandings about football champion of football is crowned at the final and explain the model, its input factors and in Moscow. Every four years 32 teams from its methodology. Then, I will briefly tackle around the world compete against each other the group stage of the World Cup in order to figure out who is the best nation in what to determine which teams will make it into I can only describe as “the best sport in the the knock-out stage. The final section then world and a modern day religion”. And every simulate the knock-out stage in order to four years, economists from every major determine the likely winner of the World Cup. 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. If you expect concrete investment advice, stop reading now. Before we get into the details of the model, Tongue firmly in cheek, I will explain however, let me warn all the readers of this which team will win this year’s World Cup. 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. Being the “fun” economist that I am, I will But let’s face it. Trying to predict a football join this chorus of World Cup predictions. tournament with the help of an econometric Tongue firmly in cheek I will explain which model is outrageous in itself already. No team will win this year’s World Cup and why need to make it even more outrageous than you can safely ignore the dozens of reports that. from other banks on the subject. 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 semi- finals 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.
PAGE 3 The model The model I use is a regression-based players. This means that countries model that tries to predict the percentage that are too poor have a hard time of games won by each country in past World building and maintaining the necessary Cup appearances. For example, Brazil has training and medical infrastructure to be historically been the most successful team successful on the big stage. At the same at previous World Cups and won on average time, the relationship between a nation’s 67% of all the matches it participated in. At wealth (as measured by GDP/capita) the other end of the spectrum are World Cup and its success in football is non-linear. newcomers, Panama and Iceland, that have Very wealthy nations like Switzerland never qualified for a World Cup before. These or Luxembourg may have the money to two teams, together with Egypt, have never build the necessary infrastructure but won a match at a World Cup so far and thus cannot recruit enough youngsters for have a winning percentage of zero. their youth teams. Effectively, football remains a sport played by working class In order to avoid confusion, let me be clear and middle class people. If a nation that the term “football” in this report refers is too wealthy, the youngsters rather to the sport called “football” in England and participate in more expensive hobbies or across the British Isles. It is a game played simply play video games instead of going by 11 men or women in each team where outside to play football on the street. the ball is kicked by foot (hence the name) and only the goalkeeper is allowed to use • Average temperature: Football is an his or her hands under certain restrictions outdoor sport. It is difficult to play that I won’t go into here. The game lasts football year-round if the climate in a 90 minutes and is split into two halves country is too cold or too hot. It turns (plus some injury time in each half at the out that a temperate climate with an discretion of the referees but I can’t get into average annual temperature of 14C is this either). A goal counts as one point (not optimal. three, six, seven or whatever funny number • Population: Of course, if a country has you happen to make up) and it is perfectly more citizens, the talent pool is bigger. normal for a game to end 0-0. Thus the share of a countries population The game that Americans call “football” has as percentage of world population is nothing to do with football whatsoever and is another determinant of football success. effectively rugby for Nancies. And what our • Being the host: Time and again the Australian friends and colleagues call “footie” home field advantage proves crucial is also not football but rather a glorified pub in determining success at a World Cup. brawl.1 England won its only World Cup, 1966 at In order to predict the winning percentage of home. In 1958 host Sweden celebrated World Cup games for every team I use the its biggest World Cup success ever when following macroeconomic variables: it only lost in the final to Brazil with the immortal Pelé. And South Korea’s biggest • GDP/capita: While football can be played World Cup success was the semi-final at anywhere, a successful national team the 2002 home tournament. Clearly, the needs appropriate infrastructure and a home team has a distinct advantage over systematic support for talented young other teams and our model indicates 1 If you do not believe me then I recommend that on average the home team is about the 2016 AFL Injury Survey (http://s.build001. one third more likely to win a game aflprod.com/staticfile/AFL%20Tenant/AFL/2016- than a foreign team with the same AFL-Injury-Survey.pdf), which documents that on qualifications. average players in each club missed 139.8 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.
PAGE 4 • FIFA ranking: The FIFA ranking of advance to the next round. If on the other national teams is based on the results hand the random chances for team A and B of international games in friendlies and would have been the reverse, team A would competitive matches of the last few have achieved a total score of 45% + 70% years. Thus, the FIFA world ranking = 115% and team B would have achieved a provides a crucial input about the recent total score of 35% + 30% = 65% and team strength of a team. A progresses to the next round. Many of these variables have been used in academic studies to explain football success2 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), 253 – 272. And yes, I could not believe that someone actually published a paper about this either.
PAGE 5 Predicting the group neck for second place. In a thrilling match, Croatia wins 1-0 against Iceland in injury stage time and we have to bid goodbye to the Vikings that have given us so much pleasure Let’s move on from the theory of a model in recent years. to the practicalities of the tournament. The tournament starts with a group stage where Group E: No team is even going to touch four teams in each group play against each Brazil in this group and the Selecao takes other to determine the two best teams that the group by storm. In second place is will advance to the knockout stage. Switzerland with comfortable victories over Costa Rica and Serbia. Group A: Russia had the luck of the draw in group A and got arguably the easiest group Group F: This is the group with Germany and of all. Unsurprisingly, with the home field of course, “Die Mannschaft” will take the top advantage, Russia is favourite to win the spot, while Mexico qualifies as second placed group, while Uruguay is destined to come team. second. However, with an upset victory over Group G: As always, the English team counts Uruguay, outsiders Egypt will make it into itself as part of the favourites to win the title. the knockout stage as second place team. 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 With an upset victory over Uruguay, in the tournament in their group, England will only end up taking second place after outsiders Egypt will make it into the Belgium, but the nation will not lose hope knockout stage. that they might win the trophy this time after all. Group B: Morocco and Iran can only advance Group H: Poland with star striker Robert to the knockout stage if Spain and reigning Lewandowski and Colombia with James European champion Portugal stumble. And Rodriguez are favourites to advance to the this is very unlikely. It is about as likely as knockout stage. Senegal, however, deserves me pogo-sticking up Mount Everest – not an honourable mention for giving both teams impossible, but very unlikely. So Portugal a run for their money. and Spain advance with Portugal as group winner based on goal difference (thank you Christiano Ronaldo). 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.
PAGE 6 The last 16: No surprises Some exciting quarter- here finals The results from the group stages pit Russia All these developments lead to mouth- against Spain in the last 16. And no matter watering quarter-finals. Each of the four how big the home field advantage, Spain matches has the potential to become a clearly dominates Russia in this match and match for the ages and in each match, both reaches the quarter-finals with ease. There teams have a good chance of winning. In the they will face a formidable France. The end the team with the better tactics on the young French team has shown impressive day or the little bit of extra luck will advance football throughout the group stage and win to the next round. easily against Croatia. Quarter-final 1: Spain, the world champion In a Latin American match, Brazil faces of 2010 meets France, the world champion Mexico in the third match of the last 16. The of 1998. The Spanish team is clearly past cold weather in Russia makes it hard for both its peak with players such as Piqué, Andrés teams to play good football but in the end Iniesta, David Silva, or Sergio Ramos all 30 Brazil succeeds and advances to the quarter years or above. Younger players like Thiago finals. (26), Álvaro Morata (25) or Alberto Moreno (25) are good players, but just not the class In the fourth match of the last 16 Belgium of the previous generation. And the lack of is favourite to win against Colombia and a great goal scorer also makes it difficult does so convincingly. Belgium, together with to succeed against a world class team like France play the most impressive football France. France, on the other hand, fields a of the tournament so far but their next young team with formidable offensive power. opponent in the quarter-finals will be none Antoine Griezmann, Alexandre Lacazette and other than mighty Brazil. Kylian Mbappé are supported by wingers like Next up in the first round of the knockout Kingsley Coman and Ousmane Dembelé. In stage is Egypt vs. Portugal. Even though the end France simply outscores Spain to Portugal does sometimes have difficulties advance to the semi-final. playing against underdogs, outsiders Egypt Quarter-final 2: Brazil vs. Belgium. The are no match and Portugal advances to the most successful team in the history of next round. the World Cup against the up and coming Argentina also has no problems with Peru European force. Brazil is heavy favourite in its knockout match and easily advances but in the end Belgium wins on penalty to the quarter finals, where they will face kicks. Belgian goalkeeper Thibaut Courtois Portugal. becomes the hero of a nation when he saves the decisive penalty. It is Barcelona’s The seventh match in the round of the Paulinho who misses the penalty and will last 16 will take place between Germany end up on the front page of every Brazilian and Switzerland. Honestly, I can’t even be newspaper the next day, but not in a good bothered to comment on this one. Germany way. The attacks against him in the media beats Switzerland 3-0. and in social networks are so vicious that Finally, the match between Poland and Paulinho decides to retire from the Selecao England completes the round of the last the next day. 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.
PAGE 7 Quarter-final 3: The third quarter-final is An all-European semi- Portugal against Argentina. Ronaldo against Messi, the best player of 2017 against the final best player of all time, the man who says of The semi-finals turn out to be a completely himself that he was sent by God to show the European affair with France playing Belgium world how to play football against the man and Portugal going head to head with who is God. The man who scored his first Germany. All the teams are evenly matched hat-trick at the age of 23 against the man and so France wins due to an undeserved who had a hat-trick of Ballon d’Ors at age penalty in the 72nd minute and ends the 23. Well, in any case, Messi is injured in the World Cup dreams of the Belgian team. Both quarter-final and can’t play so Portugal wins teams have played an exciting football but 2-1. 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 The third quarter-final is Portugal against games and in the end France simply is the Argentina. Ronaldo against Messi, the luckier team of the two. But the Belgian best player of 2017 against the best players can be proud of themselves. The future is clearly theirs and they will be a player of all time. force to reckon with in the 2020 Euros. Quarter-final 4: Here it is. Germany The second semi-final between Germany vs. England – again. Let’s review the two and Portugal is also a close affair. Ronaldo opponents here. Germany has Manuel Neuer, opens with an early goal to take the lead the best goalkeeper in the world, Mats for the reigning European champion against Hummels and Jerome Boateng, the best the reigning world champion. But Germany centre backs in the world, Mesut Özil, the strikes back quickly with a beautiful goal man with the most assists in the Premier from Özil. The game turns out to be similarly League since 2013, Thomas Müller, top entertaining as the legendary match for third goal-scorer of the World Cup 2010 and the place at the 2006 World Cup. And the result man with more goals in a World Cup than turns out to be the same as well. 3-1 for the entire England squad put together. And Germany. England has Harry Kane. The teams have met in a World Cup five times. In the final of the 1966 World Cup The semi-finals turn out to be a England won 4-2. So much for the glory completely European affair with France days of England. In 1970, Germany won 3-2, in 1982 the teams met at the group stage playing Belgium and Portugal going head and drew 0-0. In 1990 England lost against to head with Germany. Germany in the semi-finals in a penalty shoot-out. In 2010 Germany won against England in the last 16 4-1. 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.
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 1962. 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 2018. 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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PAGE 12 Contacts Research Trevor Barnett Joachim Klement +1 212 897 2807 +44 20 7832 0956 tbarnett@fidante-us.com jklement@fidante.com Adam Randall Martin McCubbin +1 212 897 2807 +44 20 7832 0952 arandall@fidante-us.com mmcubbin@fidante.com Market Making Aliy Akbarov STX 79411 79412 +44 20 7832 0957 aakbarov@fidante.com Mark Naughton +44 20 7832 0991 mnaughton@fidante.com UK Sales Daniel Balabanoff +44 20 7832 0955 Product Development dbalabanoff@fidante.com Tom Skinner +44 20 7832 0953 Max Bickford tskinner@fidante.com +44 20 7832 0934 mbickford@fidante.com Patrick Valentine Corporate Finance +44 20 7832 0932 John Armstrong-Denby pvalentine@fidante.com +44 20 7832 0982 jdenby@fidante.com Justin Zawoda-Martin +44 20 7832 0931 Nick Donovan jzawodamartin@fidante.com +44 20 7832 0981 ndonovan@fidante.com International Sales Christian Andersson +46 8 1215 1360 candersson@fidante.com Ian Brenninkmeijer +46 8 1215 1361 ibrennikmeijer@fidante.com
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