THE FAVORITES TO WIN THE WORLD CUP: Golden Sachs Soccer Economics Report

The favorites to win the World Cup

Brazil dominates the competition in Goldman's simulated World Cup, beating Mexico and Croatia 4-1 and Cameroon 5-0 in the group stage. Here are the complete predictions for the groups:

Goldman Sachs's predictions for the group stage of the 2014 World Cup. Used by permission.

The only team that Goldman predicts will give Brazil any competition is Germany, which loses 2-1 in the hypothetical semifinal. Brazil then goes on to win the championship with a 3-1 victory over Argentina, as shown in the investment bank's bracket below:

Goldman Sachs's predictions for the elimination round of the 2014 World Cup. Used by permission.

Brazil's odds of winning the championship are almost as good as even, according to Goldman. Argentina, which the firm says is the next most likely to win, has a 14 percent chance.

The United States is not forecast to exit the group stage. But American soccer fans are likely to point out a number of shortcomings of the model.
First, the model relies heavily on past performance, meaning that it will fail to accurately predict performance for a team that is improving rapidly or that is suddenly confronting a new obstacle, such as an injury. Such dynamism might be rare in soccer. It might be a comparatively boring sport in which the results of matches can usually be predicted based on how well teams have performed in the past.
It is hard to say, though. Goldman did not provide confidence intervals or an R-squared value for their model. These statistics would help readers understand how well the analysts' technique would have worked in past World Cups and how well past performance predicts future results in soccer generally.
Declining a request for an interview, a Goldman representative wrote that the authors of the report preferred to allow their work to speak for itself.

How Spanish football clubs explain the Euro crisis

Whatever the merits of Goldman's model, there is plenty of other worthwhile reading in the report. The section on Spain includes a contribution from D.E. Shaw's Ángel Ubide, who explains in detail how Europe's economy led to a crisis for Spanish football clubs. Ubide writes that many Spanish football managers depend on local banks for credit to recruit new talents, and that these loans are often made without much accountability or oversight.
As Spain's financial position deteriorated, this credit evaporated, and many managers found themselves unable to pay their players. In response to the crisis, the national football authority forced clubs to comply with new financial regulations, like so many European banks. The best Spanish players began moving overseas, just as the nation as a whole had to increase its exports, Ubide writes. (That didn't stop two Madrid teams from dominating the Champions League tournament. Real Madrid beat Atlético Madrid in extra time in Saturday's final.)
There is also this graph, which shows that the price level is a good leading indicator for the average number of goals scored in soccer matches. In short, high numbers of World Cup goals have tended to happen in times of higher European inflation:

From a Goldman Sachs report on the 2014 World Cup. Used by permission.

If the European Central Bank and other monetary authorities around the world were to raise their inflation targets above 2 percent, would football matches get more interesting? Unfortunately not -- the correlation is likely spurious -- but higher inflation targets might be a good idea all the same.