Sack the Manager Part II

I wrote on here recently about sacking managers, specifically with regard Queens Park Rangers in the Premier League, but it turns out my own team, Oldham Athletic, is also struggling, and as a result naturally has fans calling for their manager, ex-Man City Paul Dickov, to be sacked.

I linked to a paper by three sports economists that looked at data between 1972 and 1997 on managerial tenure and changes, which showed that over that time, any managerial change was associated with a 3-month dip in performance - not necessarily the thing to do mid-season if you're already bottom with only 4 points.

I then had a few Twitter exchanges with both QPR and Oldham fans regarding managerial changes, and both said essentially one thing - their team is different, and/or 2012 is different to 1997.

The great thing about these statements is they are testable. The data exists out there in oodles. We can get information on all managerial tenures from Soccerbase, squads from Soccerbase, and results from Soccerbase (back to the 1800s!) or ESPN.

Data collected, merged and in an Excel spreadsheet, you can get going investigating.

There's huge amounts that could be done with this data that interests economists as well as sports fans, but probably of most interest here is what's the impact of managerial change? There's a variable in the dataset called manager_change, which is 1 if in that match, the manager of the team is different from in the previous match. We'd anticipate that the upheaval from a managerial change would play out over a longer period of time than just one match, so manager_change_1month and manager_change_3month are 1 if the team's manager has changed in the last one or three months.

What we're essentially talking about here is tenure - length of time in a job. The longer, the better? Or, is the relationship quadratic (improving to a point then deteriorating)? There are two variables in the dataset, tenure and tenure2, which allow you to look into that.

I ran a regression, using outcome as the dependent variable (which is 0.5 for a draw, 1 for a win, 0 for a loss), and regressed on tenure, tenure2, and the three managerial change variables above. The output is:

outcome = -.0000828** tenure + 0.0000000589*** tenure^2 - 0.025 manager_change + 0.001 manager_change_1month - 0.089*** manager_change_3month + error

The stars denote how significant the coefficients are (email me if you want the actual output), and they show that there's a U-shaped quadratic effect of tenure:

So it takes a while for a new manager to bed in! These results should be treated with a lot of caution (only since 2001, no other controls for team performance, type of manager separation, etc), but they strike some chord of common sense. It takes at least a full season, maybe two, for a manager to have any effect - in fact the effect plotted above says that for the first four years in the job, the new manager is simply playing catch-up to the point at which he arrived - but after that, the only way is up.

Furthermore, the results above show that in the first three months after a change, there's a further negative impact on top of what's plotted here - a drop of about 9% in the win probability of the team.

Now, the big question we can answer here now is: Are QPR and Oldham different? The way we do this is to add in dummy variables for those clubs. We can interact those dummies with the managerial change variables too, in order to be very careful about whether these clubs are different. And then we can test the significance of these dummies. The results: Oldham are certainly not different - the joint F-test of the two dummies (intercept and slope) is insignificant, with a p-value of 49%, but QPR stake a slightly better claim to "differentness" - the p-value on their joint F-test is 7.7%, close to the 5% conventional significance level we take, but not breaching it.

Is this over-sciencing things? No, it's not - we have terminally short memories, and forget things. Regression techniques like this can take into account every match, every managerial change not just since 2001 but if extended, back to the late 1800s. Every contention you throw at me (things have changed with squad sizes, for example), can be factored in - as mentioned, from Soccerbase we can learn how many players a team fields each season, giving a good idea of how high squad turnover is now, and whether that makes any difference.

The moral of the story is - get out there and play, use the data, and learn what it is telling us. It appears to tell us that the chairmen of QPR and Oldham should hold fire before getting rid of their managers...

Sack the manager!

Having just completed the lectures on the economics of sport, one thing we didn't have time to cover was managerial issues. A hugely common reaction of football supporters (and I don't doubt it's restricted to football) is when a team starts to struggle to call for the manager to be sacked (and failing that, the board too).

Clearly in the workplace if an employee isn't particularly good, it's best if they can be removed and someone more effective put in place. However, it is guaranteed that someone better can be found? Will the disruption be sufficiently small to make it worthwhile?

Does it work though?  The evidence suggests now; this paper by a couple of prominent sports economists, suggests not - in fact in the subsequent three months the team then underperforms. They look at about 25 years of data and find that there's no obvious improvement in the team's performance after a manager is replaced.

The biggest problem, of course, is that we never observe what economists call the "counter factual" - what would have happened had things been different. Hence, QPR fans can complain endlessly about how Mark Hughes has "taken them backwards", yet the fact is we don't know where QPR would be now if they had a different manager in charge since Mark Hughes was appointed.

Into that absence we can inject either some economic theory, or we can try and use data, which is what the paper linked above does. If we can look at enough episodes of teams doing badly getting rid of their manager (and not doing so), then we can see what happens, on average.

It tells us that, on average, it's not effective getting rid of a manager, yet teams persist in doing so...

Interesting post with important lesson

I just came across this blog post on an apparent relationship between obesity in the UK and Premiership revenues.

As the post shows using a scatter plot, the two look impressively highly correlated, and the author points out that the R^2 is 0.93.  It looks like either the Premiership's success causes more obesity, or the more obese people are, the more successful the Premiership is - not exactly the positive impact on health outcomes we might hope for!

However, further down the post, the author plots both series against time and you can clearly see that they are highly non-stationary - i.e. they trend upwards. The technical lesson to be learnt here is that these are two non-stationary series, and hence any strong correlation between the two will almost be erroneous, or "spurious" - i.e. not really there. That's because the regression model doesn't include a time trend and hence as the other variable closely resembles a time trend, it takes that place.

The less technical but equally important lesson is what the blog author emphasises - correlation does not imply causality.  That's a fundamental lesson to always be aware of. Alone, economic data can tell us nothing other than correlation. Only combined with some economic theory can we start to get any sense of causality.

Crazy Stuff

After yesterday's lecture, yours truly hopped on a train (which ended up delayed) to Reading, and just happened to stumble upon one of the most remarkable examples of joint production imaginable - a 12-goal football match between Reading and Arsenal.  It was live on TV, and the 25,000 supporters likely send hundreds of thousands of messages, Facebook updates and Tweets as the hard to believe action unfolded - all testament to the uncertainty of outcome hypothesis that we talked about yesterday!

Today, whilst reliving in my mind the events of last night (even happened to have seats very near to the divide between home and away fans), I came across this article on the NFL in London. You may be aware that each year an NFL match gets played in London - perhaps the starkest example of the difference between sport in North America and sport here in Europe, since the mere suggestion a Premier League match might be played outside England was shot down in flames just a few years ago.

Yet, playing at least one match over here in the UK must be profitable for the NFL, else it simply wouldn't happen.  Not only that, but London's Mayor, Boris Johnson, is engaging in suitably blue sky thinking, and talking about the idea of eventually having a franchise (i.e. a team) here in the UK.  More than likely this is just an attempt to sound really keen, in order to attract more business and attention to London (Boris, as Mayor, doesn't really have very much power at all so has to flex his muscles in other ways).

I suspect you will all be a little too young to recall a similar attempt to get American Football going here in Europe - London Monarchs (see Wikipedia if you're interested).  There may be a residual passion for something a bit different - the real thing, the actual New England Patriots packed with American superstars, but an NFL reserve league, which is what the European variant of NFL essentially became, is unlikely to generate a particularly high level of interest, particularly once novelty wears off.  However, maybe I'm just one big cynic...

Intro to Today's Lecture...

There's a very interesting blog I highly recommend you read, called The Sports Economist, and today they added a post on organisational structures in sport.

It leads us nicely into today's lecture, which will spend some time talking about the 'peculiar economics of sport', as Walter Neale described them and many economists since have commented upon.

Enjoy!

GDP Growth and the Olympics

Next week's lecture will be on the economics of sport, and hence what more timely a reminder do we need of sport's contribution to the UK economy than today's GDP growth figures?  The Office for National Statistics has released the preliminary estimate of GDP growth for the months surrounding the Olympics - 2012Q3, and they suggest that the ticket sales alone for the Olympic and Paralympic games contributed 0.2% of GDP. That's without considering other impacts on tourism spending, hotels and so on.

We are economists so we ought to think a little further about the opportunity cost - were many tourists also put off coming to the UK in 2012 due to the Games? Did many Brits take the opportunity to leave the country to avoid the expected chaos (that actually never materialised)?

However, the bottom line is that the Olympic Games have helped return the UK to growth, displaying the economic impact sporting events can have.

The question will be how long this is sustained for - will 2012Q4 also report growth?

The Economics Nobel Prize

You may be aware that today the Nobel Prize for economics was announced - it went to Al Roth and Lloyd Shapley. You may well wonder who on earth these two guys are. If so, a little read of Marginal Revolution should help (or FT Alphaville).

One of Roth's contributions in particular was to think about repugnant markets - things we just think are plain wrong to be trading - kidneys, babies, etc. We'll be thinking a little about this in 217 over the coming year.

Shapley made his contribution in game theory, another tool we'll make use of during 217 to think about current events from the perspective of an economist.

Premiership Referees

A little bit of shameless self-promotion here, but some research I've been doing using the economics of sport has just been reviewed in the Guardian.

We detect using Opta data discrimination by Premiership referees. Before you jump out of your seat and shout down the nearest Premiership referee, this is implicit discrimination - i.e. referees are unaware they are discriminating.

This is an example of discovering evidence for something that interests economists using information (data) from sport. It's something I do a lot in my research - in sport we observe individuals making a large amount of decisions under varying degrees of uncertainty and pressure. Given that sport has generally quite simple rules that all participants are well aware of, and is very well measured and documented, this makes it interesting to be used for economists to conduct research.

A brief Economist’s view on the current draft Energy Bill

UK energy markets are in a mess for two basic reasons.

First, market liberalization, which began in the 1980’s under Thatcher, has not yielded the investment necessary to secure future supplies in the face of an ageing stock of coal and nuclear powered generators. The Government estimates, for example, that £110 billion is needed by 2020 to update and expand capacity.  

Second, the environmental costs of the sector remain stubbornly high, accounting for around 40 percent of total UK carbon emissions.  And there remains a considerable way to go in order to meet the Government’s stated goal to reduce emissions by 32 percent against 1990 levels by 2020.

The Government released its draft Energy Bill in May, which is set to be finalized in the forthcoming Parliamentary session. At its core are two government procurement measures, designed to encourage “green” energy investment, particularly in nuclear power; and help expand overall generating capacity, particularly from natural gas.

The case for policy intervention in relation to the first problem is well established. To avoid economically costly black outs, we need spare capacity. But operating such safety margins is not profit maximizing from the generators’ perspective. Thus procuring additional capacity on our behalf through a competitive tendering process, as is provided for under the draft Bill, appears not unreasonable. 

However, managing the later issue is more problematic. There are a number of economic theories for managing externalities. In the case of a global concern such as climate change, the lessons from Pigou are arguably much more powerful than, say, Coase (efficient outcomes are unlikely to be achieved through bargaining when everyone on the planet is affected, including future generations). Essentially, we should be trying to systematically tax the sources of the problem, like fossil fuels and deforestation. The extra revenue could be handy too, and arguably a far better tax base than investment or labour, say. 

Some progress has been made to this end, with the establishment of an EU Emissions Trading Market (ETS) in 2005, which covers the power and industrial sectors (although the revenues from this policy have so far been squandered through handouts of pollution rights to industry participants). But governments across Europe, including in the UK, have generally preferred to subsidise alternative technologies than strengthen the disincentives for polluting investments.

The draft Energy Bill effectively extends existing subsidies, which currently flow mostly for the wind industry, to Nuclear. The Government asserts that such temporary support is essential to ensure the necessary advancement in green technologies. However, this argument is weak, not least because the proposed contracts are long term, often extending over several decades (and subsidies are politically difficult to reverse in practice). And the effectiveness of past financial support is often only weakly demonstrated.

Even accepting the case for subsidy for a moment, the proposed measures raise a number of issues. A system of fixed payments to energy suppliers essentially transfers financial risk from new energy investments onto consumers. Arguably, this may be justified only to the extent that households are more willing and able to assume such risk than the industry players. This is far from clear…

…Moreover, the proposed system of contacts requires the government to forecast future energy prices in order to determine the “correct” subsidy level to particular technologies. This is inherently challenging and increases the chances of “regulatory capture”. Getting such assessments wrong may result in either too little (or the wrong type) of investment, and/or excessive rents flowing to private investors.

So faced with such a draft bill, and an understanding of the basic economics of the issue, what should the politicians do?

Unfortunately, reform cannot wait. Action is required now to avoid potentially costly supply shortages in the future, especially given the currently weak investment climate. However, the policy on renewables is a mess and needs rethinking. Working with EU partners, the Government should strengthen the incentives for green investment under the EU ETS; in particular by tightening the emissions cap and broadening the scheme’s coverage. It could also simplify the schemes’ administration, and raise some cash by auctioning pollution rights rather than the currently complex system of handouts.

It should also seek to roll back subsidies for “green” (as well as “brown”) energies, which are imposing significant costs on consumers at a time of falling real wages (remember that the term subsidy can refer to many things, including favourable tax treatment relative to other markets). 

By removing, rather than adding, to energy market distortions (and avoiding interventions in favour of specific technologies) the government may ultimately achieve cleaner energy, and a more efficient allocation of scarce resources in this critical sector...

English Talent Stifled?

During the coming term (subject to confirmation!) we'll be talking about the economics of sport in Contemporary Issues. One thing we'll think about is applying the economically appealing concept of competition into the context of sport.

Roy Hodgson has spoken directly into that arena today, bemoaning that English talent is being stifled because of lack of opportunity in the Premiership. I should make it clear - I'm a big fan of Hodgson and fully believe he was the right appointment back in the Spring. However, his talent lies in coaching, rather than analysing events through the lens of economics.

You'll hopefully recall the first and second theorems of welfare economics from econ101a last year - that a competitive outcome is Pareto optimal, and that a Pareto optimal outcome is also a competitive outcome. In laymans terms this says we can't do better than the competitive outcome. Restrict competition, and while you might benefit some, you'll have an overall net negative impact - you'll negatively affect others.

English players, forced to develop within the Premiership system, have about the best training imaginable - each week they play against (and alongside) the greatest players in the world (bar those that have left for Barcelona or Real Madrid). They aren't in squads because they are protected by rules telling teams how many players from particular types of countries they can field.

The most likely impact of this is that the English players that make it are of world class - the other likely consequence is that there are fewer of these players. So what Roy Hodgson faces, compared to, say, what Bobby Robson faced in the late 1980s, is a smaller pool of higher quality players. But Hodgson knows that the ones he can put in his team are familiar with playing against the best players in the world week in, week out.

Surely that's much better than having a large pool of mediocre players?

Taxes and the Rich

There are few things more emotive than taxation and "the rich", and I have little doubt that as undergraduate students you have a few opinions on these issues.

It turns out Nick Clegg has made a public pronouncement (via the Guardian) that the rich should pay more tax - at least for a while...

The purpose of 217 is to encourage you to think about issues like this as an economist - to put your learning into practice.  So the think we should try our best to do is put politics out of the picture for as long as we possibly can, and try to think about things objectively - if that's possible!  Bernard Jenkins, a Tory MP, is very quickly political in the linked BBC article, trotting out the usual line that Clegg is indulging in the "politics of envy" (John Redwood does at least try and defend the Tory approach to taxation and the rich - something we are often quick to ridicule). Let's try and leave that behind.

One fairly commonly known theory, and one often cited when discussing matters of taxation is that of Ricardian equivalence, proposed by the famous economist himself.  It says that people are aware of the government's budget constraint, and hence realise that any cut in taxes now (or increase in spending) will have to be paid for, and hence they expect higher future taxes and so do not increase personal spending now but instead save up for when the tax bill will come in the future.

It's an intellectually appealing theory - we like to think people are rational and make sensible decisions like this. However, it does rely on a number of assumptions, as any economic theory does. For example it requires for its full effect that tax imposition is even across society, hence that all will feel the pain of increased future taxes to pay for current spending. In our progressive tax system, this is unlikely. It also does not reckon with our impatience - we want jam today not jam tomorrow and hence we'll spend today and face the consequences tomorrow.

We'll think a lot about policy in econ217 over the coming year, and one thing it's important to recognise is that nothing can be proven one way or the other using the tools of economics - neither data nor clever reasoning constitute proof in matters such as this, particularly when we are trying to predict the future. But this also does not render what we will discuss as meaningless - it will still pay for political parties to put in place economically sensible policies rather than trying to use economists for intellectual cover for ideologically driven policies (a common trait of all political parties).  It should be an interesting year!

Be Inspired!

Even if you're not a football fan or even a Man City fan, City have potentially given you a boon today - see http://www.youtube.com/watch?v=ikm52r7RlKc&feature=youtu.be.

City are making available incredibly detailed data on all football matches from last season - could make for an ideal extended essay when you reach your third year!

Sign up here: http://www.mcfc.co.uk/Home/The%20Club/MCFC%20Analytics

Moneyball UK

If you're a football fan and an economist, you may have come across Moneyball, the story of some data junkies who revolutionised how teams approach baseball in the US, and you may have seen the response of many cynics to Liverpool's attempt to adopt statistical techniques to augment their pursuit of success.

Sadly for those cynics, Manchester City provide the ultimate rebuttal of their sneering at the use of statistics in football, as this Guardian article shows. Vincent Kompany, a man whose stock never seems to stop rising, instigated weekly reviews of highly detailed OPTA data on City's defensive performances on arrival at the club, and it's hard to argue that they didn't help, since City were one of the best defensive sides in the league last season (and the one before that).

However, for those of you football fans and studiers of econ217ab, there's a huge opportunity coming your way.  City are setting up MCFCAnalytics from today, and at 5pm are releasing OPTA data from the 2011-12 season free of charge. This kind of data costs thousands of pounds usually, yet it's precisely the kind of data necessary to pursue theories about how football works - have you got a budding theory about why City kept winning? About why teams always win at home? You can start now to investigate it as the data will be available!

I'd like to specifically encourage you ahead of your third year, when you'll write your extended essay. Data like this could form the basis of a fascinating essay.  I've currently got students looking into how and why players trust each other, I've done research personally on whether Premiership referees discriminate, and have many plans for future research projects using this kind of data. Making use of this data to either look at footballing strategy or test economic theories will be one of the options you can choose at the end of the coming year when you start thinking about your extended essay...

Rail Fares

Yesterday saw the announcement that rail fares are going up by 6.2% in January, which has naturally caused plenty of consternation, with Guardian blogs fuming about the social exclusion going on.  The same sentiment is declared on Liberal Conspiracy too, with another sentiment being expressed: Controlling train fares protects the consumer.

However, is that true? Is it really true that controlling prices protects customers? In Contemporary Issues we'll spend quite a bit of time looking at reasons why governments might intervene in various markets to do things like control prices.

If you think you agree with the sentiment that controlling prices protects customers, hopefully you'll be challenged about the bases on which you hold that view, while if you think it is much more complicated, the course will help you to articulate that sentiment better.

A view that controlling prices protects customers ignores the possibility that customers are affected by the quality of a good being produced, and also its quantity. The upward sloping supply curve we are all used to now tells us that if the price is held low, then the quantity supplied will be low - it's not worth firms providing.

The supply curve is just one analytical tool we'll make use of in the course, but hopefully your appetite has been whetted already...

Perspectives on Football

One of the topics taught on econ217ab is the economics of sport. This coming year this section will be heavily influenced by the Olympics that just finished; in previous years the focus has been more towards football, and if you are interested in how economists think and approach football, you might be interested in the following new site: Football Perspectives.

The idea of this website is to provide blog-style posts which have slightly higher analytical content than might be standard in a blog post. It is similar in essence thus to Vox, a more general policy-orientated research blogging site.

Both are great resources and well worth a read if you're thinking of getting in some advanced reading ahead of the coming year's course!

Welcome to the econ217ab Blog!

This is the first post of a new blog to accompany econ217ab or Contemporary Issues in the UK Economy, the second-year (intermediate) undergraduate teaching course provided by the Department of Economics at the University of Birmingham.

It is intended that posts will appear on this blog related to items being lectured on int the course; as the name betrays, we lecture on issues that are relevant to the current day UK economy.

Watch this space!