If you are on this side of the Atlantic this week in sports was most uneventful. For the first time in decades the Knicks didn’t suck giving long suffering fans a thin ray of hope that they would make the playoffs. In Minnesota a pudgy utility player by the name of Willians Astudillo became an instant legend with pot bellied suburban dads everywhere by retiring the side on just seven pitches including … yes a whopping 46mph fastball that was slower than most of the pitches thrown by eight year olds in Little League.
One the other side of the pond however, the world of sport was in the midst of a revolution that brought back memories of Trotsky, Lenin and the workers uprising of 1917. The near mass hysteria that broke out across the Continent and the UK was the sudden announcement of the Super League – a league of superstar football clubs such as Chelsea, Man United, PSG, Juventus, Barcelona, Real Madrid and perhaps even Bayern Munich (the Germans were coy as to whether they would join the new enterprise). The economic impact of such a move would have been devastating to European soccer but very profitable for the elite. The top clubs would have sucked up almost all of the TV and endorsement revenue leaving all the national leagues in shambles.
Less than 24 hours later under pressure (and I am certain) threats of death from local fans everywhere the idea of the Super League lay in shambles. The British clubs buckled first with their multi-billion dollar owners offering weeping apologies that rivaled the Stalinist show trials of the 1930’s. No matter. The crowds wanted more blood and now most of the Premier League is embroiled in scandal with calls for wholesale replacement of the clubs board of directors.
If you are a fan of the great neo-Marxist philosopher Slavoj Zizek the Super League fiasco is just further evidence of the inherent contradiction between capitalism and nationalism and presents the perfect microcosm for many such conflicts to come. But if you are a simple chump like me the Super League story is just another example of what is known in sports as the home team bias.
Savvy gamblers have long known that betting in local sports books is wildly skewed towards the home team. People bet tribally not rationally. So for example if you were to take the long suffering Knicks that at certain times in the past decade couldn’t make a basket much less a win game the fair rational odds of their winning in years past may have been 10% for 90% against but the home crowd would always overestimate their chances and overbet making the odds 30% to 70%. This false confidence is a well known fact in sport bettings circles and professional gamblers are always engaged in a cat and mouse game with the bookies as they try to bet against the home bias in both markets in order to lock in risk free spreads.
The home team bias is not just endemic to sports. It’s present in investing as well. We are nothing if not tribal as a species. The US equity market for example is just 42% of capitalization of the world, yet US investors allocate more than 72% of their capital to US stocks. The phenomenon is not just American. Germans buy mostly German stocks. French buy mainly stocks on the CAC-quarante, the Aussies put most of their money in the ASX 200.
In fact the home team bias is so prevalent that it even exists in currencies. I’ve actually started to use the momentum methods of my algo to trade the opening rotation of each major pair at the start of each session. So for example I will get long Aussie, kiwi and yen in Asia. Long euro and cable at the London open and loonie at the start of North American trade. There is of course much more to the idea than that and of course it doesn’t work all the time, but it works often enough to give me a true edge.
As capitalists we all like to think that motives are always economic but the truth is that politics decimates economics each and every time which is why Marxists and libertarians are both hopelessly naïve and deluded in the exact same way allowing us to exploit this quirk of human behavior.
