Manchester United's new shirt

Old Manchester United shirt:

New Manchester United shirt, to reflect change of sponsor:


And from the same loyal reader, I have no idea if this is true but it still is hillarious:

Bloomberg reports that Lehman's Brothers' Canary Wharf landlord prudently insured the firm's rent in case Lehman ever had difficulty paying up. It looked dodgy there for a moment, though, as the policy was taken out with AIG...

C'mon England!

Update.

Bluematter. corrects Reuters

London (Reuters): Premier League football club Arsenal [...] saw revenues shoot up 45 percent [...] However pretax profit dropped to 5.6 million pounds from 15.9 million a year ago after swallowing a one-off refinancing charge on the money it borrowed to build [its] 60,000-seat ground.

The result would have been worse but for the big money sale of talismanic striker Thierry Henry to Barcelona.

Thierry Henry was sold for £16m, translating to about £11m after deducting tax. This is not a trivial amount: it corresponds to about 200% of Arsenal's reported post-tax profits. It suggests that Arsenal is structurally loss-making and would need to raise around £10m from player sales every year to remain solvent.

Alas, Reuters got their story wrong. Arsenal sold Henry after the end of the May accounting period so the revenue from his sale will show up at next year's accounts. Furthermore, the provisional accounts have a whole section listing the players bought and sold, mentioning any sales since the end of the accounting period in a separate section - so we are talking about particularly sloppy research on this one. And to think that Reuters are supposed to be experts on finance reporting.

Thanks goes to one of my most loyal readers for the pointer and analysis.

Should I buy myself a football team? Part 2

Last Sunday's Times Money section included a section with Simon Jordan. He's 39 now and reveals that he made around £10m last year, having built a fortune of around £36m from scratch by the age of 32. When asked about his worst ever investment, he said financially it's the purchase and subsequent investment in Crystal Palace football club, originally bought for £11m but then he's spent about £24m on it since for a total of £35m. At current market value, if Aston Villa, one of the most successful English football teams of all time (in terms of League wins) and with a large, established fan catchment area cost under £60m, then I doubt Crystal Palace, with no history, no fans, no top-flight status and little chance of promotion are worth much more than the original £11m spent on them. Yet Simon Jordan says that "emotionally" Crystal Palace was his best ever investment.

This reminded me that this blog has covered the topic of investment in sports teams. The previous post explained the relatively straightforward phenomenon of wealthy individuals (such as Simon Jordan) investing in sports teams in cases where they could receive part of their “return” as a non-financial return, such as increased celebrity or utility from improving the teams they supported as children.

However, in England over the last couple of years there have been a number of cases where football clubs have been bid for or acquired by individuals or investment funds that have an exclusive aim of generating a financial return, with little or no scope for non-financial utility gains. In some cases the investment was even likely to be associated with substantial disutility, in particular with Malcolm Glazer, who bought Manchester United, becoming possibly the most hated man in the country and receiving numerous death threats. This poses the more interesting question of how and why these investors think they can get sufficient returns investing in English football clubs to exceed the returns they could have achieved on competing investments and the disutility from being hated by unwelcoming English football fans?

In the case of Malcolm Glazer’s purchase of Manchester United, this makes perfect sense as an investment. Based on my interpretation of Warren Buffett’s investment criteria, Man Utd is the best Buffet share I’ve seen amongst English companies with market values above £500m. The major factor input is a resilient intangible that has appreciated strongly over time without requirement for significant investment, i.e. the Man Utd brand. This has proved resilient to the relatively mediocre form between the Busby Babes and United’s all-conquering team of the 1990s and I’m always surprised when visiting continents outside of Europe to see the Manchester United team shirt as the most ubiquitous around the World, even ahead of the Brazilian national strip. To this classic Buffett company, Glazer added the private equity techniques discussed previously on this blog to leverage his upside in a conventional leveraged buy-out to make a deal with all the ingredients for success (until spoilt with a ridiculous and unnecessary transfer spend this summer).

Beyond Malcolm Glazer, I don’t understand any of the other return-seeking bids for or purchases of English football teams. Famously very few individuals have made any money out of investing in football, led by David Dein (who is rumoured to have once made a round-trip to Scotland to buy a single Arsenal share from an old widow), Alan Sugar (who supposedly made money at Spurs despite publicly suggesting it was a labour of love) and Ken Bates (who was close to losing his whole investment before Roman Abramovich bought Chelsea and who may now have overall lost money in football following his involvement with twice-bankrupt Leeds United). Even Doug Ellis was reported to only have achieved capital appreciation at Aston Villa just under the rate of RPI inflation during his 38-year involvement.

So why are the new investors coming in? They presumably think they will generate a financial return, but I put this down to herding instincts similar to those that led so many investors into dotcom companies in the late 1990s. My record on predictions on this blog is appalling, running at 0% (0 out of 1), but in an attempt to get up to 50%, I predict that investors getting into English football for financial return will probably leave in a few years' time having made substantial losses.

PS. as datacharmer's back this is either my last or penultimate blog for now, depending on who writes the follow up to Popular Misconceptions about Private Equity, Part 1.

Cricket (again) and Rational Expectations

On the subject of Sir Mix-a-Lot, when I was on holiday in the US a couple of months ago, I caught an episode of Who wants to be a Millionaire. For $500, the question was: Which of these musicians was not knighted by the Queen: A) Sir Elton John B) Sir Mick Jagger C) Sir Paul McCartney or D) Sir Mix-a-Lot. The contestant didn't even consult the audience, immediately giving her answer as B)
Sir Mick Jagger...

This is a quote from a cricket fan from the Test Match Special inbox on the BBC live text service cricket commentary during the last test match between India and England (a bore draw resulting in a series win for India).

Following on from "Cricket versus Baseball as an Engine of Growth", this quote is a fascinating insight into cricket and explains why it is unsuitable as an engine of growth to back up the empirical research on this issue. Whilst equivalent football discussion boards are full of vitriolic anger directed at the England manager and any player who hasn’t been outstanding for 90 minutes of every England match for the last 5 years, the official BBC live text commentary is full of running jokes and light-hearted banter. We’re mediocre at both sports so that doesn’t really explain the difference, so my best explanation is that cricket is an inherently chilled out Summer game in which at any given time only about 3 of the 22 players are actually doing anything much (unless you include fielding). Being so chilled out, those that play it tend to end up laid back to the point where we even saw our national vice-captain almost drown during the World Cup due to being too drunk to carefully man his pedalo at 3am in the morning less than 48 hours before a match.

More importantly though, this quote reminds me of an area of economics I'm not particularly comfortable with, which is that a lot of economic models seem to assume individuals are much brighter and more knowledgeable than they probably are.

Unfortunately, economics is a difficult subject involving a tricky mix of various branches of maths (lots of calculus, matrix algebra & stats), verbal skills, and the need for well-rounded knowledge and analytical skills to make sure you’re not missing something crucial on an issue (yet we all still often do). It’s also a subject dominated by heavyweight universities like Harvard & MIT and in which most major breakthroughs seem to come from an elite bunch of genius academics.

So it’s little wonder that the individuals driving the subject forward massively over-estimate the ability of most of the population. The average economics Nobel Prize winner probably doesn’t know many regular folk, spending most of their time with other highly intelligent academics and this selection bias leads them to build models where the core agents are like themselves, i.e. rational agents who build forward-looking expectations consistent with structural models of the economy whilst factoring in all knowable information.

I think we can be fairly confident that the basics still apply to our empty-handed Millionaire contestant, e.g. if you charge more for a good they want less of it, bundles of average amounts of products are preferred to extremes, etc. However, many economic models go further, e.g. with agents forming forward-looking expectations consistent with the structural parameters of the economy, or agents being able to act optimally in infinitely repeated games with uncertainty, so even if this accurately models all economists, how realistic is this across a full cross-section of society?

Racial discrimination in the NBA: Maybe not

A new paper by Wolfers and Price, covered in the New York Times, has been causing quite a stir recently. In short:

A coming paper by a University of Pennsylvania professor and a Cornell University graduate student says that, during the 13 seasons from 1991 through 2004, white referees called fouls at a greater rate against black players than against white players.

Justin Wolfers, an assistant professor of business and public policy at the Wharton School, and Joseph Price, a Cornell graduate student in economics, found a corresponding bias in which black officials called fouls more frequently against white players, though that tendency was not as strong.

This is a great piece of work, and the evidence presented is very convincing. However, I still have some doubts as to whether racial discrimination per se is indeed the driving force behind the results presented.

Consider these three facts:

First of all, interpreting the rules of the game is to some extent subjective, a truth every sports fan is familiar with. How much of a push constitutes a foul? How aggressive must a player get before having to be disciplined? How important is intention to foul?

Secondly, black and white players have different playing styles. This is not only due to physical characteristics and body types but also due to the different environments where black and white players learn to play basketball.

Finally, this also goes for the referees and their perception of what constitutes foul play.

Combining the above, it's very likely black referees grew up learning to interpret the rules of the game amongst a majority of black players, and so came to tolerate some 'black' playing behaviour that a white referee would not view so favourably - and vice versa. If this is indeed the case, the results in the Wolfers and Price paper could be driven by this fairly innocuous, colour-blind factor - the authors' research design does not allow us to distinguish between these two hypotheses.

So could this be a valid claim? I have my own anecdotal evidence to back the case. I am usually watching the football World Cup (soccer to my American readers) with an English friend of mine. Now, the Greek game is generally quite unspectacular and with a strong defensive element, while the English tend to play much more open and technical football. In many instances when calling a foul is not a clear cut decision (and there are many moments like this in a typical game), we often find ourselves disagreeing. Since this has happened quite a lot of times by now, I think I've spotted a pattern: I am generally way more lenient on players that tend to play strong defence, pushing and generally torturing their opponents, while he will be more forgiving of, say, unfriendly strikers trying to make their way into a defensive opponent's area.

And while it may be sport fan's paranoia, I think this is replicated in the field. My perception is that an Italian referee officiating a Greece v England game will generally be more 'friendly' to Greece than a Brazilian referee in charge of the same game. This has nothing to do with the Italians preferring mousaka to fois gras, but it has a lot to do with perception of the rules of the game and the environment in which this is developed.

Addendum: Despite the objections above, I still think there is a good chance the paper might showcase exactly what it says on the box. To see why, try the Implicit Association Test (thanks to Andrew Leigh for the link).