nfl alphas - microsoft · | 3 | nfl alphas 2017-2018 table 1 alphas for all 32 nfl teams alpha...

NFL ALPHAS 2017-2018

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99.8%With 6:04 remaining in the third quarter of Super Bowl LI, the Atlanta Falcons were shocking the football world. They led the favored New England Patriots 28-3 and made their seemingly invincible quar-terback Tom Brady look merely mortal in the process. At this very moment, ESPN computed that the Falcons had a 99.8% chance of winning their first title. But it was not to be. What ensued was one of the most epic collapses in NFL history. The Patriots rallied back. With four minutes left in the game, a series of specious play calls and a sack forced Atlanta out of field goal range, which ended up being their last stand. The Patriots then tied the game with 57 seconds left, and then went on to win their fifth title with a touchdown run by James White in the first-ever overtime Super Bowl. As a result, Analytic’s prediction was incorrect, but we have successfully picked 10 Super Bowls out of the last 14 (71%).

Despite this defeat, some good came out of it. As we do when managing investment portfolios, we can learn from our mistakes. Half of a successful investment involves knowing what to buy, and the other half is knowing when to sell. Had the Falcons been a stock, the time to sell was at the 99.8% moment. Hindsight is indeed 20/20, but the silver lining is that our “buy signal” was right. Now if only we could factor in the human element, i.e., questionable coach-ing decisions by a Patriots opponent (see Seattle Seahawks, Super Bowl XLIX)…

The 2017 season was a “Groundhog Day” of sorts, as the issues of the 2016 season lingered. The National Anthem protests continued, prompting some choice words from President Trump on the matter, which in turn inspired both players and owners to stand in solidarity on the sidelines. Dallas Cowboys running back Ezekiel Elliott appealed his six-game sus-pension, resulting in his playing status being in limbo on what felt like a weekly basis. Television ratings for games declined yet again—with some attributing it to the protests and and others the oversaturation of its product with games played on Thursdays, Sundays, and Mondays. On the field, the game was affected by an abundance of injuries to star players like Aaron Rodgers, Odell Beckham Jr., J.J. Watt, and Deshaun Watson. The question “What is a catch?” became even more nebulous. Every pass play felt as though a pass interference penalty was immi-nent. Although the replay process was supposedly streamlined and simplified, it appeared as if every close play was under scrutiny, bring-ing games to a screeching halt.

“Upon further review, the ruling on the field stands—the NFL Alphas paper can continue.”

But not all was doom and gloom this season. While no teams relocat-ed to Los Angeles for a change, league owners did approve the Oak-land Raiders move to Las Vegas in 2020 (talk about a perfect football marriage). Former Dallas Cowboys quarterback Tony Romo showed a keen ability to predict upcoming plays in his first season as a CBS color commentator. Jon Gruden left the “television booth at the end of the season to return as head coach of the Raiders, sparing football fans from hearing him compliment every player on the field each Mon-day night. Finally, Commissioner Roger Goodell received a five-year contract extension —which may or may not have included his requests for lifetime use of a private jet—which ensures that we’ll have plenty more opportunities to comment on the league’s fearless leader in years to come.

On February 4 in Minneapolis, the Patriots dynasty goes up against the underdog Philadelphia Eagles in Super Bowl LII. Similar to last year, New England will be seeking to add to their case of Lombardi trophies, while Philadelphia is hoping to construct one to house its first. It remains to be seen if this paper correctly predicts the result via our quantitative process, but we can tell you that this matchup will certainly create a dilemma for New York Giants and Jets fans regarding who to root for.

What’s In Our Alpha?In the coming days, many football and gambling “experts” will give their predictions based on matchups, trends, and even data. Similar to how we manage investment portfolios using quantitative model-ing, we came up with a formula for every NFL team in which we com-pute the cumulative return on investment (ROI) relative to market (i.e., bettor) expectations for each team’s 16 regular season games. We call this NFL Alpha. As an illustration, let’s assume that an eager Raiders fan named Richard visits Las Vegas to check on the progress of the construction of his team’s new stadium. While there, he places 16 dis-tinct wagers of $100 for the Raiders to win each of their 16 games on the “money line.” This means that if the Raiders win, he will collect the $100 he put down, plus an additional sum that is computed based on the team’s win probability per market expectations. If they lose, he has lost his $100. Once the regular season ends, he adds up his total winnings, and compares it to his $1,600 in total wagers. Anything less than this amount indicates a negative NFL Alpha and anything above it is a positive one. Richard is now disappointed to learn that the Raid-ers had a -33.8% NFL Alpha (Table 1) and his $1,600 has become $1,060, but holds out hope that coach Gruden will reverse this trend in 2018.

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Table 1 Alphas for all 32 NFL Teams

ALPHA 2017-2018Team 2017 - 2018 2016 - 2017 Alpha Change Record Favorite/Underdog

Carolina Panthers 40.2% -27.4% 67.6% 11-5 9-7

Minnesota Vikings 37.3% -5.5% 42.8% 13-3 12-3-1

Miami Dolphins 33.5% 38.2% -4.7% 6-10 2-13-1

Philadelphia Eagles 31.8% -11.0% 42.8% 13-3 11-5

Buffalo Bills 27.4% -16.1% 43.5% 9-7 7-9

Pittsburgh Steelers 23.3% 7.1% 16.3% 13-3 14-2

Jacksonville Jaguars 20.6% -56.6% 77.2% 10-6 11-5

Los Angeles Rams 19.2% -23.0% 42.1% 11-5 12-4

Kansas City Chiefs 18.0% 39.0% -21.0% 10-6 13-3

Arizona Cardinals 13.2% -15.4% 28.5% 8-8 5-11

New England Patriots 12.4% 40.5% -28.2% 13-3 16-0

New Orleans Saints 9.6% -11.7% 21.3% 11-5 11-5

Detroit Lions 4.9% 21.8% -16.9% 9-7 7-8-1

Atlanta Falcons -0.9% 29.2% -30.1% 10-6 13-3

Los Angeles Chargers -1.6% -35.6% 34.0% 9-7 8-8

Seattle Seahawks -1.7% 6.2% -7.9% 9-7 9-7

New York Giants -3.2% 35.8% -39.0% 3-13 3-13

Baltimore Ravens -4.3% -14.2% 9.9% 9-7 10-6

Dallas Cowboys -5.8% 50.6% -56.4% 9-7 12-4

Washington Redskins -7.5% 5.9% -13.4% 7-9 6-10

Cincinnati Bengals -7.5% -29.3% 21.8% 7-9 7-9

Tennessee Titans -9.0% 19.9% -28.9% 9-7 12-3-1

Chicago Bears -14.7% -52.9% 38.2% 5-11 3-13

Green Bay Packers -18.3% 6.6% -24.9% 7-9 6-10

San Francisco 49ers -19.6% -66.8% 47.2% 6-10 3-13

New York Jets -20.4% -32.5% 12.1% 5-11 2-14

Oakland Raiders -33.8% 42.1% -75.9% 6-10 7-9

Tampa Bay Buccaneers -37.0% 40.5% -77.6% 5-11 6-8

Denver Broncos -40.6% 6.6% -47.2% 5-11 9-7

Indianapolis Colts -44.0% 13.1% -57.1% 4-12 1-15

Houston Texans -47.5% 12.2% -59.7% 4-12 5-11

Cleveland Browns -100.0% -82.5% -17.5% 0-16 1-15

Sources: Analytic Investors and nfl.com.

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The Surprising and the PredictableWhen the NFL season concludes, we all hazard a guess or two as to which teams would be the high and low NFL Alpha teams prior to crunching the numbers. This year, the top team surprised us, while the bottom one did not. The Carolina Panthers rebounded from a disappointing 6-10 record in 2016 and finished 11-5 in 2017, earn-ing them a league-best NFL Alpha of 40.2% (Chart 1). On paper, the Panthers were not the impressive team that went to Super Bowl 50. They had a less-than-impressive offense that only generated attention when quarterback Cam Newton made controversial remarks directed at a female reporter. A pair of bad losses to the Bears and the Saints managed to temper market expectations enough to make upset wins over the Patriots, Lions, and Falcons more profitable. Winning seven of their last nine games certainly doesn’t hurt. While not compelling, they were consistent. It remains to be seen if this property will drive up the team’s sale price for the likes of Steph Curry and Sean “Diddy” Combs.

On the flip side, the Cleveland Browns became only the second team in history to have a winless season. It should come as no surprise that they had the lowest NFL Alpha, a “perfect” -100.0% as seen in the appropriately flat brown line below (Chart 1). Keep in mind that the Browns passed on the following quarterbacks in the NFL draft: Derek Carr and Jimmy Garoppolo in 2014, Jared Goff and Carson Wentz in 2016, as well as the aforementioned Watson in 2017—all of whom are currently starters for their teams. Since 2016, when Paul DePodesta of “Moneyball” fame joined the front office as chief strategy officer and Hue Jackson became head coach, the Browns are 1-31. Both men still have their jobs, giving a glimmer of hope to underachievers everywhere. That said, we’ll go out on a limb and say that analytics be damned, new Browns general manager John Dorsey may want to take a quarterback with either the first or fourth pick they hold in the first round of the upcoming draft.

Chart 1 CUMULATIVE ALPHAS: Carolina Panthers vs. Cleveland Browns

-100-80-60-40-20

020406080

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

% A

LPH

A

GAMES

Carolina Panthers

Cleveland Browns


Bad Teams, Good AlphasFor fans of the Miami Dolphins and Giants, the end of the season couldn’t come soon enough. Both teams were coming off playoff appearances in 2016 and expected to improve on that in 2017. Instead, they imploded thanks to a series of injuries and controversies to finish with records of 6-10 and 3-13, respectively. The Dolphins lost start-ing quarterback Ryan Tannehill for the season when he tore his ACL during training camp in August. Head coach Adam Gase wasted no time in finding a replacement, luring the recently-retired (and under-achieving) Jay Cutler from the Fox broadcast booth to make him the Dolphins new starting QB. Then starting running back Jay Ajayi was benched in week 1 by Gase, upsetting him and leading to his trade to the Eagles on October 31. However, none of this was reflected in the Dolphins Alpha of 33.5% (Chart 2)—the third-best in 2017 and the second-highest ever for a team with six wins. They only had a nega-tive Alpha at one point during the season (following a 20-0 loss to the Saints in week 3) and were aided by upset wins over the Falcons and Patriots. While Cutler may be good from an Alpha perspective, there are still many fans in Miami who hope that he is inspired by Romo’s broadcast success and returns to Fox in 2018.

The Giants were an even bigger mess. They started the season with a five-game losing streak and a Browns-esque -100.0% flatline Alpha, thanks in large part to a porous offensive line and underachieving defense. After losing to the San Diego Los Angeles Chargers and suffering season-ending injuries to wide receivers Beckham Jr. and Brandon Marshall in week 5, the wheels came off. Coach Ben McAdoo (previously known more for his bad wardrobe and hairdo) had a near-mutiny in the locker room, with players openly criticizing him and even appearing to quit on the field. The season spiraled out of control on November 28, when McAdoo announced that starting quarter-back Eli Manning would be benched in favor of the much-maligned Geno Smith, ending his streak of starting 210 consecutive games. The public backlash against this decision was so strong that it resulted in McAdoo and general manager Jerry Reese being fired the following week. But as with the Dolphins, this had zero effect on their NFL Alpha. The Giants reached positive Alpha after upset victories over the Denver Broncos and Kansas City Chiefs, and nearly made it into positive terri-tory after defeating the Washington Redskins to end the season. Their -3.2% Alpha was the highest ever for a three-win team. That said, the Giants should be joining the Browns in the QB market with their second overall pick in the draft.

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Chart 2 CUMULATIVE ALPHAS: Miami Dolphins and New York Giants

-120

-80

-40

0

40

80

120

160

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

% A

LPH

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Miami Dolphins

New York Giants


Low Volatility versus the LotteryAnalytic has been managing low volatility equity strategies since 2004, based on our published research which showed that stocks with low risk (i.e., low beta) have historically generally outperformed high-risk equities over time. Additionally, we have discovered this trend to be present when it comes to NFL wagering. In general, bets on teams that are large favorites and low payouts—the equivalent of lower-risk, less “exciting” wagers—tended to perform better than their risky, large payout, heavy underdog counterparts; somewhat analogous to lot-tery tickets. This trend resumed in 2016 and extended into the 2017 season. Low risk wagers returned 5.7%, while high risk ones had a return of -24.6% (Chart 3). An interesting side note: unlike the past few years when they saw negative returns, “fair” bets on teams that were between 3.5-to-9 point favorites were the best performers, returning 8.9%. US Equity markets displayed a different trend in 2017. Examin-ing Russell 1000 Index risk (beta) quintiles, high beta stocks (quintile 5) outperformed low beta ones (quintile 1) by 1.6% (Chart 4). This is the second consecutive year of outperformance for riskier equities; albeit not as large of a difference as we saw in 2016.

Chart 3 LOW VOLATILITY ANALYSIS 2017-2018 SEASON

5.7%8.9%

-0.8%

-19.0%

-24.6%-30%-25%-20%-15%-10%

-5%0%5%

10%15%

-9.5 andabove/Low

-3.5 to -9/Fair -3 to+3/Average

+3.5 to+9/Moderate

+9.5 andabove/High

AVG

RET

URN

TO

MO

NEY

LIN

E W

AG

ER

LINE/VOLATILITYSources: Analytic Investors and nfl.com.

Chart 3 RUSSELL 1000 RISK QUINTILE RETURN

14.6%17.1%

22.3% 21.9%

16.2%

0%

5%

10%

15%

20%

25%

1 2 3 4 5

RETU

RN

BETA QUINTILE

Sources: Analytic Investors.

Before we get to the moment you’ve all been waiting for, let’s first examine our methodology for predicting the results of the playoffs and Super Bowl. As is the case with investments, prices, or even the behavior of Cowboys owner Jerry Jones, things eventually revert to their mean. The NFL is no exception; teams that outperform their expectations tend to lag the following season (and vice versa). We have also discovered that this trend is prevalent in the postseason that immediately follows the regular season. Specifically, teams with high-er NFL Alphas usually underperformed in the playoffs, meaning that in terms of covering the point spread, the team with the lower NFL Alpha was the best selection. This thesis had mixed results thus far in the postseason, as we went 5-5 with our picks (Table 2). One of these correct picks included an unbelievable “walk-off” 29-24 victory by the Minnesota Vikings over the Saints, in which Stefon Diggs caught an improbable touchdown pass from Case Keenum. Had the Vikings kicked the extra point, our pick would have been incorrect (the Saints were getting 5.5 points and lost by 5 points, narrowly covering the spread). PUBLIC SERVICE ANNOUNCEMENT: they call it “gambling” for a reason, kids. Nevertheless, this marks the 14th consecutive year we’ve had at least a 50%.success rate, bringing our historical average to 61%.

Super Bowl LIISuper Bowl LII features the fourth-ranked NFL Alpha Philadelphia Ea-gles (31.8%) against the New England Patriots (12.4%) (Table 3). This is a rematch of Super Bowl XXXIX, but almost exactly the opposite from an Alpha perspective—the Patriots had an Alpha in the 30%s, while the Eagles (our correct pick) had one in the teens. Keeping with that theme, we will do the opposite: the lower-Alpha Patriots are our pick, as we believe they will win the game more than the 4 points by which they are favored. It’s worth noting that the last time New England didn’t cover as a favorite in a domed stadium, against a NFC East opponent, with a 30%+ Alpha, was in Super Bowl XLVI, when they were upset 21-17 by the Giants. Yet, we still feel confident that there won’t be a few rogue Eagles fans running amok in celebration on Sunday night, and therefore no need for the Philadelphia Police Department to grease utility poles with Crisco or worry about their horses getting punched.

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SUPER BOWL Date Higher Alpha Team Lower Alpha team (Analytic’s Pick) Favorite Result

Prediction Correct

XXXVIII 2/1/2004 New England Patriots (67.0%) Carolina Panthers (39.0%) Patriots by 7 Patriots 32-29*

XXXIX 2/6/2005 New England Patriots (33.5%) Philadelphia Eagles (12.6%) Patriots by 7 Patriots 24-21*

XL 2/5/2006 Seattle Seahawks (25.0%) Pittsburgh Steelers (11.4%) Steelers by 4 Steelers 21-10

XLI 2/4/2007 Chicago Bears (17.8%) Indianapolis Colts (14.5%) Colts by 6.5 Colts 29-17

XLII 2/3/2008 New England Patriots (22.9%) New York Giants (14.6%) Patriots by 12.5 Giants 17-14

XLIII 2/1/2009 Pittsburgh Steelers (33.6%) Arizona Cardinals (-6.4%) Steelers by 6.5 Steelers 27-23*

XLIV 2/7/2010 Indianapolis Colts (37.6%) New Orleans Saints (12.8%) Colts by 4.5 Saints 31-17

XLV 2/6/2011 Pittsburgh Steelers (28.6%) Green Bay Packers (1.3%) Packers by 3 Packers 31-25

XLVI 2/5/2012 New York Giants (32.8%) New England Patriots (15.8%) Patriots by 3 Giants 21-17

XLVII 2/3/2013 San Francisco 49ers (23.1%) Baltimore Ravens (2.2%) 49ers by 4.5 Ravens 34-31

XLVIII 2/2/2014 Seattle Seahawks (13.7%) Denver Broncos (4.6%) Broncos by 2 Seahawks 43-8

XLIX 2/1/2015 New England Patriots (28.2%) Seattle Seahawks (9.9%) Patriots by 1.5 Patriots 28-24

50 2/7/2016 Carolina Panthers (61.5%) Denver Broncos (31.9%) Panthers by 4 Broncos 24-10

LI 2/5/2017 New England Patriots (40.5%) Atlanta Falcons (29.2%) Patriots by 3 Patriots 34-28

LII 2/4/2018 Philadelphia Eagles (31.8%) New England Patriots (12.4%) Patriots by 4 ? ?

*While in these games lower-Alpha teams did lose to the higher-Alpha teams, the predictions are correct because of the lower-Alpha teams covered their respective point spreads. Sources: Analytic Investors and nfl.com.

Table 2 POSTSEASON ANALYSIS (5-5 RECORD)

Higher Alpha Team Alpha“Lower Alpha Team

(Analytic’s Pick)” Alpha Favorite Result WIN

Kansas City Chiefs 18.0% Tennessee Titans -9.0% Chiefs by 8.5 Titans, 22-21

Los Angeles Rams 19.2% Atlanta Falcons -0.9% Rams by 6.5 Falcons 26-13

Buffalo Bills 27.4% Jacksonville Jaguars 20.6% Jaguars by 8.5 Jaguars 10-3

Carolina Panthers 40.2% New Orleans Saints 9.6% Saints by 6.5 Saints 31-26

Philadelphia Eagles 31.8% Atlanta Falcons -0.9% Falcons by 2.5 Eagles 15-10

New England Patriots 12.4% Tennessee Titans -9.0% Patriots by 13.5 Patriots 35-14

Pittsburgh Steelers 23.3% Jacksonville Jaguars 20.6% Steelers by 7 Jaguars 45-42

Minnesota Vikings 37.3% New Orleans Saints 9.6% Vikings by 5.5 Vikings 29-24

Jacksonville Jaguars 20.6% New England Patriots 12.4% Patriots by 7.5 Patriots 24-20

Minnesota Vikings 37.3% Philadelphia Eagles 31.8% Vikings by 3 Eagles 38-7


One final prediction: while we can’t guarantee that NBC’s Al Michaels will mention our pick during the broadcast Sunday, we’re fairly certain he will make reference to the point spread and the over/under at some point. Keep up the good work, Al.

Table 3 SUPERBOWL RESULTS

The opinions expressed herein are those of Analytic Investors and are subject to change without notice. The research is prepared for general circulation and is circulated for general information only. It does not have regard to specific investment objectives, the financial situation and the particular needs of any specific person who may receive this report. NFL and Super Bowl are registered trademarks of the National Football League.

The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index.

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