Assessing Premier League Odds With The Transfer Price Index

Which clubs will surprise the bookmakers this season? With the help of the Transfer Price Index, today Zach Slaton simulates the 2013-2014 Premier League season.

In less than a week the Premier League will kick off its twenty-second season of play with a number of new faces. For the first time in that league’s history Alex Ferguson will not be on the Manchester United touchline, and instead has been replaced by Everton’s longtime manager, David Moyes. In fact, four out of last season’s Top Six teams will have new managers; with the only holdouts being the long-tenured Arsene Wenger at Arsenal and Andre Villas-Boas in his second year at Tottenham Hotspur.

If this management flux gives a feeling of uncertainty to the upper half of the table, a similar feeling of uncertainty can be found in the bottom half of the table. Teams like Aston Villa, who have been on a long decline, and Newcastle United, who surprised everyone with just how far they dropped from their 2011-12 over performance, were nearly dropped last season but still find themselves in the Premier League this term. Stoke City parted ways with long-time manager Tony Pulis even though the club never finished lower than fourteenth under his tenure, while Sunderland made a managerial switch late last season to avoid relegation. Throw in a summer transfer window where the Premier League has had a net transfer spend of €344.8M/£296.5 as of August 11th<, 2013, and it can be tough to make sense of where the table might end up next May.

One way to make sense of it all is to compare the bookmakers odds in the aggregate and compare them to another publicly available model that doesn’t necessarily have some of the bias required for the bookmaker to make a profit. For the purposes of this article that model of comparison will be the Transfer Price Index’s mSq£R model that uses squad valuations from transfer fees paid and inflated over time as a proxy for squad quality or strength (and which are highly correlated to squad wage bills). Squad values as of August 2, 2011 were fed into a 10,000 run Monte Carlo simulation of the 2013/14 season, and the results were then mapped to likelihoods of each team winning the title, finishing in the Top Four, finishing in the Top Ten, and finding themselves in the relegation zone. These results provide just one comparison that can be made to the bookmaker odds for those same events, which were taken from twenty-three bookmakers listed on a popular odds comparison site at August 11th 2013.

Premier League Title Odds

The table below summarises the results for each bookmaker’s title likelihoods as expressed by their decimal odds. Overall, the bookmakers see it as a very close race with Manchester City being the ever-so-slight favourite. Just over 20% of the bookmakers surveyed held identical decimal odds for all three of the league’s top clubs – City, Chelsea, and Manchester United – when it came to winning the title.

The TPI’s mSq£R model shows a relatively similar story in how close the three teams are to each other at the top of the table, but it gives a bigger edge to Manchester City given the amount of net squad value they’ve added this summer while Chelsea and Manchester City have been less active.

Odds as at 13th August 2013.

 Average Bookmaker Probability  TPI ProbabilityTPI Odds bet365LadbrokesWilliamHill
Man City 28.9%% 26.0% 3.85 3.20 3.25 3.25
Chelsea 28.8% 22.1% 4.52 3.25 3.20 3.25
Man Utd 26.8% 21.3% 4.69 3.50 3.50 3.50
Liverpool 3.1% 8.6% 11.63 29.00 23.00 26.00
Tottenham 2.8% 7.1% 14.08 34.00 34.00 34.00
Arsenal 8.5% 6.1% 16.39 11.00 12.00 11.00
Sunderland 0.1% 1.7% 58.82 2501.00 3001.00 3001.00
Aston Villa 0.1% 1.6% 62.50 2001.00 2001.00 2001.00
Everton 0.3% 1.4% 71.43 251.00 501.00 501.00
Newcastle 0.1% 1.1% 90.91 1001.00 1501.00 1501.00
Stoke City 0.1% 1.0% 100.00 3001.00 4001.00 4001.00
Southampton 0.1% 0.6% 167.67 2001.00 2001.00 2001.00
Swansea City 0.1% 0.4% 250.00 1501.00 1501.00 2501.00
Norwich City 0.0% 0.4% 250.00 4001.00 3501.00 5001.00
West Ham 0.1% 0.3% 333.33 2001.00 2001.00 2001.00
Fulham 0.1% 0.3% 333.33 2001.00 3001.00 3001.00
Cardiff City 0.0% 0.1% 1000.00 5001.00 5001.00 5001.00
West Brom 0.1% 0.0% NA 1501.00 2001.00 2001.00
Hull City 0.0% 0.0% NA 7501.00 7501.00 7501.00
Crystal Palace 0.0% 0.0% NA 10001.00 10001.00 10001.00

One item of note buried in the order of the title likelihoods is just how much bookmakers might see things changing from last season’s table to this season, which is to say they see very little change coming this season. The median change in predicted table position is only 2 table positions, and only four table positions change by more than two – Newcastle up eight spots to eighth, Southampton up five spots to ninth, and Norwich down seven spots to eighteenth.

Movement by Newcastle is perhaps a bit unfounded, and perhaps more based upon the club’s success two years ago with a +5 goal differential than the -23 achieved last season. There’s been little change in the team this offseason, and while they will perhaps not suffer as bad of a goal differential this season as last, it is unlikely they will be able to climb back into the eighth table position. The lack of projected changes in the middle to lower region of the table also suggest some money might be made betting on the usual volatility found at the bottom end of the table.

Premier League Top Four Odds

The significant financial advantages of the big three – Chelsea, Manchester City, and Manchester United – mean they are virtual locks for a Champions League position barring some struggles a la Chelsea in 2011/12. The only place in contention seems to be the fourth-and-final Champions League slot, and there seem to be two different answers.

The bookmaker odds suggest Arsenal has a nearly 1.8:1 advantage over their North London rivals (coincidentally, this is very close to the odds given by Bloomberg Sports’ model). The TPI, on the other hand, sees Tottenham with the advantage given their spending this summer and Arsenal’s corresponding lack of spending. It’s worth remembering that the point gap between Arsenal and Tottenham the last four seasons has been 1, 1, 6, 5, and 21, meaning that in four out of those five seasons the finish positions between these two rivals has been well within the range of random variation (see also: “luck”). At some point Arsenal’s luck will run out, and if the gap between the two team’s squad valuations remains the same throughout the season it looks like this may very well be the year where Tottenham cost the Gunners their precious Champions League revenue.

Odds as at 13th August 2013.

 Average Bookmaker Probability  TPI ProbabilityTPI Odds bet365LadbrokesWilliamHill
Man City 87.9%% 71.1% 1.41 1.06 1.09 1.10
Chelsea 87.5% 66.3% 1.51 1.07 1.09 1.10
Man Utd 87.0% 65.4% 1.53 1.10 1.08 1.12
Liverpool 31.4% 41.3% 2.42 3.00 2.62 2.75
Tottenham 32.9% 36.3% 2.75 3.00 3.20 3.00
Arsenal 59.0% 33.2% 3.01 1.57 1.67 1.67
Sunderland 0.6% 15.4% 6.49 151.00 151.00 101.00
Aston Villa 0.8% 13.3% 7.52 126.00 151.00 101.00
Everton 5.1% 11.3% 8.85 21.00 17.00 21.00
Newcastle 1.6% 10.9% 9.17 51.00 101.00 51.00
Stoke City 0.6% 9.3% 10.75 151.00 251.00 151.00
Southampton 0.9% 6.6% 15.15 81.00 101.00 101.00
Norwich City 0.4% 4.8% 20.83 201.00 251.00 201.00
Fulham 0.7% 4.7% 21.28 126.00 201.00 151.00
Swansea City 1.0% 4.1% 24.39 101.00 81.00 67.00
West Ham 0.8% 3.2% 31.25 101.00 101.00 101.00
Cardiff City 0.4% 1.7% 58.82 251.00 301.00 251.00
West Brom 0.8% 0.8% 125.00 101.00 101.00 101.00
Hull City 0.3% 0.2% 500.00 301.00 351.00 251.00
Crystal Palace 0.2% 0.1% 1000.00 501.00 501.00 251.00

Interestingly enough, the TPI model also suggests that Liverpool have better odds than Arsenal at Champions League qualification. This is due to a number of higher priced purchases made in the last few seasons compared to Arsenal’s, and may be a bit of the TPI model displaying factors it can’t account for like value for players’ contributions on the pitch.

Few pundits or models see Liverpool finishing ahead of Arsenal and Tottenham, especially if the Reds lose the services of Luis Suarez. Liverpool may end up keeping the race for fourth interesting throughout the season, but even noted Liverpool writer Paul Tomkins explained that success this season would be defined more upon point total than on Champions League qualification.

Premier League Top Ten Odds

When looking at the likelihood of each team finishing in the upper half of the table, only a few bookmakers will even quote odds for Chelsea, Manchester City, and Manchester United. They’re virtually assured of finishing in the Top Ten according to the bookmakers, and the TPI numbers agree with their forecasts.

Odds as at 13th August 2013.

 Average Bookmaker Probability  TPI ProbabilityTPI Odds bet365LadbrokesWilliamHill
Man City 99.7% 96.7% 1.03 NA NA NA
Chelsea 99.7% 95.8% 1.04 NA NA NA
Man Utd 99.7% 95.5% 1.05 NA NA NA
Liverpool 95.4% 85.3% 1.17 1.02 1.02 1.01
Tottenham 95.8% 82.7% 1.21 1.01 1.02 1.01
Arsenal 98.0% 80.4% 1.24 NA NA NA
Sunderland 25.8% 59.3% 1.69 3.50 3.50 4.00
Aston Villa 34.2% 55.8% 1.79 2.88 2.50 3.00
Newcastle 40.5% 50.6% 1.98 2.38 2.50 2.25
Everton 81.5% 50.2% 1.99 1.25 1.20 1.14
Stoke City 21.9% 47.0% 2.13 5.00 3.75 4.50
Southampton 38.3% 39.6% 2.53 2.50 2.50 2.62
Norwich City 20.8% 34.0% 2.94 5.50 4.50 4.50
Fulham 27.3% 32.3% 3.10 3.50 3.75 3.75
Swansea City 36.4% 30.7% 3.26 2.75 2.38 2.75
West Ham 31.9% 26.6% 3.76 2.75 2.75 2.75
Cardiff City 11.1% 18.8% 5.32 6.50 8.00 9.00
West Brom 37.3% 11.3% 8.85 2.50 2.50 2.62
Hull City 7.8% 5.7% 17.54 13.00 8.50 15.00
Crystal Palace 6.1% 2.1% 47.62 17.00 15.00 15.00

Arsenal, Liverpool, and Tottenham are also very likely to finish in the Top Ten, with the Gunners being given nearly 50:1 odds of finishing there while the other two clubs have nearly 20:1 odds of finishing in the top half of the table. This is where the TPI begins to diverge a bit from the bookmakers, where its model that assigns likelihood of match outcomes based upon home/away team and squad valuations foreseeing far less certainty in the outcome of the matches given the second big three clubs’ financial advantages are not as great as the three clubs at the head of the table.

The TPI sees a much lower likelihood of finishing in the Top Ten for Everton and West Bromwich Albion, while it favours Newcastle United, Aston Villa, and Sunderland over the bookmaker’s odds. This may be the more appropriate place to make a play on the likes of Newcastle, as it is very conceivable a modest rebound from last year’s disastrous performance would likely have them performing up to squad valuation expectations and showing up in the Top Ten.

Premier League Relegation Odds

Moving to the bottom of the table, bookmakers odds are implying they see the three promoted teams as being the most likely to go down at the end of the season. Astute readers of the numbers will note that the likelihood of all three going down is only 12%, meaning there is a significant chance another team will be left out when the music stops in May.

The TPI agrees with the high likelihoods of Crystal Palace and Hull City going down – their squads are simply too inexpensive to stay up based upon historical standards. The only similarly valued clubs to avoid the drop right after promotion were 2011/12 Swansea and the 2003/04 Bolton Wanderers. Both of those clubs had a special way of playing better than their squad valuations suggested, and smart money is sceptical of such inexpensive sides pulling off the feat too often.

Odds as at 13th August 2013.

 Average Bookmaker Probability  TPI ProbabilityTPI Odds bet365LadbrokesWilliamHill
Crystal Palace 60.9% 69.8% 1.43 1.44 1.53 1.53
Hull City 55.2% 53.2% 1.88 1.68 1.62 1.68
West Brom 11.3% 37.8% 2.65 8.00 8.00 8.00
Cardiff City 35.4% 27.4% 3.65 2.75 2.30 2.38
West Ham 10.6% 19.0% 5.26 9.00 8.00 9.00
Swansea City 11.1% 16.3% 6.13 7.50 8.50 8.00
Fulham 13.5% 16.2% 6.17 7.50 5.00 7.00
Norwich City 24.8% 14.3% 6.99 4.00 4.00 3.50
Southampton 10.9% 10.8% 9.26 8.00 7.00 7.00
Stoke City 23.6% 8.4% 11.90 4.00 4.33 4.00
Everton 3.6% 7.4% 13.51 29.00 34.00 26.00
Newcastle 9.8% 7.0% 14.29 9.50 10.00 10.00
Aston Villa 12.2% 5.5% 18.18 8.00 9.00 8.00
Sunderland 16.2% 4.4% 22.73 5.50 5.00 5.50
Arsenal 0.1% 1.0% 100.00 1001.00 1501.00 751.00
Tottenham 0.3% 0.8% 125.00 501.00 401.00 251.00
Liverpool 0.4% 0.6% 166.67 501.00 501.00 2501.00
Man City 0.1% 0.1% 1000.00 5001.00 3001.00 2501.00
Chelsea 0.1% 0.1% 1000.0 2501.00 3001.00 2501.00
Man Utd 0.1% 0.1% 1000.0 5001.00 3001.00 2501.00

So where might the third relegated team come from? The bookies see Norwich, Stoke, and Sunderland as the next weakest teams in the league, and all three are safe bets to struggle given last season’s performances by each. The TPI agrees with this assessment of Norwich given their minimal player costs, but it also suggests high-flying West Bromwich Albion may be at risk of finishing in the lower parts of the table – their squad valuation is actually the fourth lowest in the league. Perhaps the conclusion to draw about Stoke and Sunderland from the bookmaker and TPI data is that their squads are highly overvalued given the projected results on the pitch. Interestingly enough, West Ham United is projected to have a 19% chance of relegation in the TPI model and only a 10% chance of relegation according to the bookmakers. It seems like the overall verdict is that Sam Allardyce is working his magic at recently promoted West Ham like he did at Bolton nearly a decade ago.

Conclusions

It appears as if the bookmakers and the TPI are largely in agreement. The only significant disagreements of note are in the final Champions League place - will Tottenham’s spending be enough to dethrone Arsenal? – and perhaps in the final relegation spot. There may be some positions to be played relative to a few over compensated squads like Stoke and Sunderland, but given the close proximity of point totals in that region of the table it may be difficult to find a winning position. Also, smart money is on Norwich to be the third team to join Crystal Palace and Hull City as the likelihood of all three promoted teams going down is very low.

Good luck with whatever bets you do place, and enjoy what should be a pretty wide-open table with all of the offseason managerial and player changes!

 

 

Read more of Zach's work on his blog at Forbes.com and on his blog A Beautiful Numbers Game

And follow him on Twitter: @the_number_game