May the best team win the Cup, but …
The starting point to determine the winner of the FootballWorld Cup has to be to look at some combination of rankings, past form, players and market odds. We (at Deutsche Bank) employ a quantitative approach using these inputs to spit out a first cut of likely winners.
Our models point to Brazil having the greatest chance of winning followed by Germany, Spain and France. But to leave it at that would be boring and too conventional. So we introduce what some would call ours bias, but we like to think of it as a discretionary overlay.
To begin with, we note that since the inception of theWorld Cup in 1930, there has been a pattern to runs of different teams winning theWorld Cup. On three occasions, we have had four consecutiveWorld Cups when different teams have won, and on another three occasions we have had two consecutiveWorld Cups where different teams have won.
So, to make this sound more scientific, we have a bimodal distribution of “runs”. The latest “run” started in 2002 with Brazil winning, then 2006 with Italy winning and in 2010 Spain winning. If statistical history is anything to go by, thisWorld Cup has to be won by a different team, so that we have a run of four consecutive World Cups won by different teams.
That means Brazil, Spain and Italy are not going to win theWorld Cup. From our models, we’re then left with Germany, France, Argentina, the Netherlands, Portugal, Uruguay and England as possible winners.
Narrowing it down, the record shows that every team that has won theWorld Cup has gone on to either win anotherWorld Cup or at least reach the final. The exception is England, which significantly tilts the odds in its favor. Moreover, most analyses tend to miss out playerby-player analysis ofWorld Cup squads.
It is noticeable that the most well represented team in the England squad is Liverpool with six players, one of the authors’ favorite club. In the lastWorld Cup, it was Tottenham Hotspur, so it was no wonder that England did not do well.
The fact that Liverpool is most represented is significant for two reasons. First, Liverpool is the most successful English club team having won more top-flight matches than any club (yes, includingMan United); it has also won five European Champions Cups— more than any other English Club. Second, and most intriguingly the last time the England squad was dominated by Liverpool was …1966.
To reiterate, England are among the best teams according to our static model. The history ofWorld Cup winning runs suggest that England is among the teams that could win the 2014 FootballWorld Cup. Within this group of teams, England is the only one that has won a World Cup and not reached another final. And the last time England had so many Liverpool players in the team, it won. Therefore, we believe that England will win thisWorld Cup.
Moving on to the smaller matter of market implications, we confirm that there is a small equity market impact for winning teams. More interesting, though, is that rates volatility tends to reverse course after theWorld Cup. It may be wishful thinking, but we hope this relationship holds true.
The authors are strategists with Deutsche Bank.