Felix Salmon

How an investment banker thinks about cricket

Felix Salmon
Feb 14, 2011 02:05 UTC

Anshu Jain — yes, that Anshu Jain — has filed a lovely column for Newsweek on the subject of the cricket World Cup. Even as a magazine writer, he still behaves like the investment banker he is:

My picks for the Cup? I’ve learned always to heed the ineffable wisdom of market pricing, and only then to essay my own view… Here are the odds at the time of writing (from Bet365.com): India, 3.75; Sri Lanka, 5.5; South Africa, 6.0; Australia, 6.5; England, 7.0; Pakistan, 8.5; and the West Indies, 21.0.

I find Australia, Pakistan, and particularly the West Indies good value at those prices…

My perhaps parochial pick is India playing Australia or Pakistan in the final.

Jain has managed to name four different teams, here, as his picks; if you take Bet365.com’s pricing, the odds of one of those four teams winning the Cup are about 59%. So, he’s not exactly going out on a limb here.

I’m also fascinated by this:

West Indians will, more than a little wistfully, recall “Super Cat” Clive Lloyd’s 102 in the inaugural cup in 1975… I doubt there’s an Indian across the spectrum of caste, age, and language who doesn’t thrill, still, to the images of a feline Kapil Dev sprinting 30 yards to catch Viv Richards and set India on course for its only World Cup win, in 1983.

Jain is old enough to remember both of those events, but it’s worth noting that most of the people in India and the West Indies weren’t even born in 1983, let alone 1975. And frankly you had to be there: those thrilling images of Kapil Dev are pretty grainy and mundane taken out of context and presented on YouTube.

But that’s sport for you. As Jain says, the World Cup will render a billion and half people agog, while the rest of the world is oblivious. Still, that’s more than enough to value the broadcasting rights at some $2 billion, and to force a large chunk of the US population to shell out $149 for the ability to watch it on DirecTV.


And I will be one of the watchers, via Willow TV on the net. Not that most Americans care or even know about this. I was snagged by cricket during a holiday trip to New Zealand four years ago, making me one of the few US-born cricket fans… I imagine there must be others, but I’ve never met any. Everyone who knows about the game here was born in one of the Commonwealth countries.

To misuse an engineering term, cricket has more “degrees of freedom” in its modes of play than other sports. That is, there are more elements which can change the course of the game in more surprising ways.

Along with that is the great and deep literature of the game (led by indisputably the greatest cricket book of all, Beyond a Boundary by C.L.R. James, as much a meditation on the changes in a globalizing world as on the inner workings of the game), the completely unique idiom of cricket terminology and commentary, the fierce devotion to statistics and high-tech tracking devices well ahead of anything American sports can offer, and a penchant toward exercising all the Seven Deadly Sins and occasionally provoking a minor international incident or two, creating turmoil in national politics, but also building bridges and easing international political tension.

The game on the field has all the elements of gladiatorial combat and three-dimensional chess, with long periods of apparent tedium while players move about in mysterious formations to incomprehensibly named field positions, interspersed with moments of excruciating disaster, high drama, humor and triumph. Sometimes all within a matter of a single over.

The scoring, of course, is impossible for Americans to understand, and that’s even before getting to the business of run-rates-required, two wickets, two batsmen and two gloves for the wicketkeeper, oval fields with no foul lines, and the mysteries of leg-before-wicket, not to mention there are now three major forms of the game, including one specifically boosted up to compete directly with Bollywood in the subcontinent market. All of which attracted a lot of Bollywood money to where this new action is.

Cricket, of course, has always been about money, including the wagering kind, ever since “gentlemen in top hats laid stacks of guineas on the green.” Outright gambling has long been banned on the field, and this week the constabularies are chasing bookies out of major Indian cities to ply their trades in obscure smaller towns. But as always, the syndicates and tough guys circle around the action and the betting handles will nevertheless easily exceed $100 million for many of the World Cup games.

Yet, even more than other sports, the essence of cricket lies well beyond the monetary realm.

My friend who moved to New Zealand from the US couldn’t understand it at all. “How can you take seriously any game where the players wear sweaters?” he said. Cricket lives in some post-postmodern state, simultaneously rooted in a mythic past, a frantic now and a serene future. It is both an escape from the world and a mirror into it.

As for the 2011 World Cup, South Africa, India and England are the teams on form, and Australia is still quite strong after falling from unreachable heights only a few years ago. My Black Caps seem poised to continue their unfortunate era of NZ underperformance, despite the versality of the veteran Dan Vettori and the agility of the up-and-coming Ross Taylor.

All that said, with the slow, turning pitches and sultry weather of the subcontinent, I will pick balanced and focused Sri Lanka to take it all, with the ageless Jayasuriya and the incomparable Muralidaran bringing home the honors.

Posted by FredHeutte | Report as abusive

Steinbrenner datapoints of the day

Felix Salmon
Jul 13, 2010 19:02 UTC

What is the financial legacy of George Steinbrenner? Certainly he’s built a hugely valuable franchise: he bought the Yankees for $10 million in 1973, and they’re now worth just over $1 billion, $1.6 billion, according to Forbes, with Steinbrenner personally worth slightly more than that, some $1.15 billion. That’s a lot more money than he could have made if he just stuck with shipbuilding, and it’s proof of how profitable it can be to overpay for talent.

Steinbrenner also professionalized the business of sports teams, not only in terms of paying lots of money for free agents, but also in terms of financial sophistication when it came to things like setting up the YES Network in league with Goldman Sachs and Providence Equity Partners. He also proved adept at extracting large amounts of money from the the public sector: this breakdown, for instance, puts the total cost of Yankee Stadium at $2.3 billion, of which only $670 million was paid by the Yankees, while taxpayers ultimately ended up on the hook for $1.19 billion.

The new Yankee Stadium was also ahead of the curve in terms of reducing the number of seats while massively jacking up the price of entry, taking the cost of going to a Yankees game out of the reach of many of the most fervent fans who live in the shadow of the stadium (although they’re welcome, of course, to watch all the games on YES). When Steinbrenner first bought the Yankees, the owners of sports teams tended to be very wealthy. He was instrumental in making the players very wealthy as well. And now the crowd is getting much wealthier too. I guess rich people tend to cluster together.


So sports teams are run by billionaires, making athletes millionaires, to sell tickets only millionaires or fanatics can afford… the way of sports has definitely been lost. Even the Olympics, for all their bluster over amateur athletes blahblahblah can really only be attended by the wealthy or the guy who says ‘I don’t care what it costs, I want to be in this moment.’ It’s a shame that something that should belong to all has been given ownership by the few, but that’s capitalism eh? Everything has a price…

Posted by CDNrebel | Report as abusive

Are basketball economics broken?

Felix Salmon
Jul 8, 2010 15:05 UTC

Amy Shipley has an odd piece today on the economics of signing basketball stars. I know absolutely nothing about basketball, but I do know that Shipley’s story doesn’t convince me that the NBA is suffering the “economic woes” of her headline because “a broken economic system” has resulted in teams spending too much money on players.

For one thing, Shipley never explains the mechanism by which player salaries are being overinflated, beyond waving vaguely in the direction that such salaries constitute “gambling, perhaps foolishly, that the expensive addition of a star player from a historically talented free agent class will generate interest in their franchises and ignite a significant payoff in the box office.” But your foolish gambling is my smart investing, and of course box office revenues are only a fraction of the value that teams extract from players.

What’s more, Shipley concentrates on dubious and vigorously contested cashflow figures, saying that the league will lose about $400 million this year, with the average team losing $13 million. That doesn’t seem like a huge amount of money to me, in a world where players can take home $20 million a year each. Instead, it looks like smart accounting: it’s clearly smart for an owner to lose a modest amount on a cashflow basis, thereby avoiding taxes, and instead build a much higher franchise value for his team, thereby increasing his net worth substantially.

As a datapoint, check out the market capitalization of MSG, the owner of the Knicks, as speculation rises that LeBron James might come to New York. The share price closed at $21.57 yesterday, up a good $2 from a week earlier — that’s an increase in franchise value of $150 million, give or take.

And indeed, as Shipley notes, it’s not the teams paying out monster salaries which are hurting the most:

“The most significant challenge facing the NBA today is the gap between the teams at the top and bottom,” said sports consultant Andy Dolich, a former Capitals executive who has worked for NBA, NFL and Major League Baseball front offices.

Think about it this way: big-name basketball players earn much more in endorsements than they do in salary. It’s reasonable to assume, given how much value they add to the brands they advertise, that they add much more to the teams they play for. And that if smart business owners are competing desperately for the privilege of signing these players, then the chances are that their services are underpriced, not overpriced.


Personally, I couldn’t care less if some billionaire owners want to make a bunch of goofy kids millionaires – my problem is when these billionaires begin to expect and demand that taxpayers subsidize their play toys. That, my friends, is absolute ‘male-bovine solid fecal matter’. And any community that has allowed itself to be blackmailed in this way should be ashamed of themselves.

Posted by CDNrebel | Report as abusive

English masters of the dead bat

Felix Salmon
Jun 17, 2010 18:54 UTC

John Gapper isn’t letting the World Cup get to him: he knows that when it comes to Tony Hayward’s Congressional testimony today, the sports metaphor of choice has to come from cricket rather than football. “Tony Hayward plays a dead bat to Congress” is his headline, and he’s right: Hayward isn’t interested in winning anything, here, he’s just interested in letting the hearing time out by being infuriatingly passive and unhelpful. He’s simply letting the attacks come, refusing to show any spark of humanity or willingness to engage.


Here, then, are two masters of the dead bat. One of them epitomizes England across the Caribbean and the world; the other one is Geoffrey Boycott. I wonder whether Hayward was a cricket fan as a lad.

(Photo by Larry Downing for Reuters)


We already know why the BOP failed. Sorry, but your pro-BP nonsense won’t work with everyone.

There is no and will be no “investigation” – that’s simply gratuitous pablum. Why wait for something that will never be generated?

Posted by Unsympathetic | Report as abusive

World Cup betting pools: The price of entry

Felix Salmon
Jun 9, 2010 00:23 UTC

SOCCER-WORLD/As the World Cup approaches, I’m sure that Reuters isn’t the only place where betting pools are being filled out. Yahoo has quite a tool for such purposes, although it does require that everybody has a Yahoo account.

The microeconomics question here is the optimum entrance fee. The goal is to have the biggest possible pot with the greatest number of participants — but it seems clear to me that as you increase the fee from $5 to $10 and then to $20, the number of participants will fall even as the total size of the pot will rise. Beyond $20, I suspect you’re likely to see even the total size of the pot falling.

My feeling is that $20 is the optimum entry, and not only because it maximizes the size of the pool. If you set the entry fee at $5 or $10, or heaven forbid at some weird number like $12 or $15, then it becomes harder for people to enter, just because you start running into making-change issues. If you have cash in your wallet, chances are you have a $20 in there. Fives and tens are rarer, and in any case there’s always going to be people handing over a 20 and asking for change.

It would be nice to be able to include everybody who wants to play at say the $5 level: $20 is likely to be too much for someone who doesn’t know or care much about football. But $20, I think, it has to be.


The World Cup is by far and away, in a global sense, the largest event every four years. Small countries in economical and political turmoil rise with their nation’s football team. A World Cup goal can make the heart of a downtrodden country beat again. It’s truly a magical month, and it’s time that America joined the rest of the world in realizing the most beautiful game in the world.



Posted by MarkBez | Report as abusive

Spurious academic study of the day, Tiger Woods edition

Felix Salmon
Dec 28, 2009 20:42 UTC

You knew it had to happen at some point: a couple of economics professors at UC Davis have done an “event study” of the Tiger Woods news cycle, and concluded that

In the days beginning with Tiger Woods’ recent car accident and ending with his announced “indefinite leave” from golf, shareholders of companies that Mr. Woods endorses lost $5-14 billion in wealth.

This is silly stuff, of course: not only are the error bars larger than the estimated losses, but a huge proportion of those multi-billions comes from the decline of the share price of enormous companies like P&G, which had just one exposure to Tiger Woods through its Gillette subsidiary. Drawing a causal relationship between the Tiger Woods scandal and fluctuations in P&G’s share price is simply impossible.

What’s more interesting to me is that the numbers got weirdly changed when the UC Davis PR department got its hands on them and led not with the $5 billion to $14 billion range, nor with the $14 billion maximum figure, but rather with this:

Tiger Woods Scandal Cost Shareholders up to $12 Billion

I have no idea where the $12 billion number came from, as distinct from the $14 billion number in the study. But that’s the number that the WSJ’s Stephen Grocer decided to go with as well.

And how do the authors explain away the inconvenient fact that Tiger’s highest-profile sponsor, Accenture, saw no losses at all? You’re going to love this one:

Economic theory predicts that Mr. Woods should be able to capture nearly all of the excess profit generated by his endorsement of a firm like Accenture. For Tiger Woods, having Accenture as a sponsor probably does not increase the overall value of ‘the Tiger brand’ all that much. Mr. Woods should therefore have a lot of bargaining power when negotiating that deal, and may be able to extract a payment very close to Accenture’s incremental profit from the relationship. And if Accenture is paying Mr. Woods something very close to its extra profit from his endorsement, it is not much worse off without him than with him. Indeed, our estimates show no ill effect at all for Accenture after the accident.

This is completely bonkers. For one thing, the authors — Christopher Knittel and Victor Stango — have already pegged the value of the Accenture contract at $20 million a year — the same amount as the Gatorade contract, and less than the Nike contract. They then go on to say that the harm to Accenture of losing Tiger is unlikely to be much more than the $20 million that Accenture was paying him. Which might make some sense, if it wasn’t for the fact that they’re pegging the harm to everybody else of losing Tiger at $12 billion. (Or $5 billion, or $14 billion, or, well, just pull a number out of thin air, really.)

Accenture is clearly the biggest loser from the whole Tiger affair: it has to scrap its entire global marketing strategy and start from scratch. What’s more, Accenture’s total Tiger-related marketing spend is vastly greater than the $20 million a year it’s paying Tiger personally. The company has run into a large unexpected tail event, in a way that Nike and Gatorade haven’t. Those companies sponsor lots of athletes: one more or less has an affect at the margin, but that’s about it. If the Tiger scandal had no visible effect on the Accenture share price, you can be sure it had no effect elsewhere.

Update: Mike Konczal finds the real reason why P&G stock fell after Tiger Woods scandal erupted. Nothing to do with Tiger, and everything to do with revised earnings estimates.


Your blog makes exellent points, missed by so many media outlets who ran the release virtually word for word. My marketing students have learned much from the Tiger Woods case study in PR mgt., and the lessons will continue next semester with the UC Davis release and your blog (with the word use error corrected of course).

Posted by CSUSmktgfac | Report as abusive

Why the Olympics are good for infrastructure

Felix Salmon
Oct 1, 2009 19:15 UTC

Ryan Avent explains, contra Matt Yglesias, why hosting the Olympic games makes sense from a behavioral-economics perspective:

Infrastructure benefits begin appearing years down the road and last for decades beyond that, while many of the costs — the political headaches, the need to put together financing, the disruption of construction, and so on — are relatively immediate. Winning the Olympics ties an immediate benefit to the immediate costs.

More to the point, it sets a deadline. Infrastructure projects invariably end up plagued by endless delays: just ask anybody who currently commutes on the Second Avenue subway line in New York. And deadlines are often the only way that anything ever gets finished: just ask any journalist. If you win the Olympics, you know that for all the construction headaches you’ll have to endure before they open, at least you’ll have some decent infrastructure thereafter. If you don’t win the Olympics, then even if you’re enlightened enough to invest in infrastructure, you can have no faith in its arrival.

Rio de Janeiro has desperate need for a good subway system. If it wins the Olympics, it will probably have just such a system by 2016. If it doesn’t win the Olympics, there will still be a lot of infrastructure investment in the city. But without a deadline, I don’t think anybody has any faith in getting that subway system any time soon.



I´m also optimist about the impact of the Games on Rio infrastructure. But actually the subway network isn´t going to improve very much due to the Olympiads. Most of the improvements are incremental, and were already planned anyway _ of course the “deadline effect” you mentioned can be useful.

Authorities have mentioned the “hope” that the subway system can be extended to Barra da Tijuca (the neighborhood where a lot of action will happen)on time for the Olympiads, but I think this very unlikely. Barra is separated from the most populated areas of Rio (South Zone and North Zone) by two very big mountainous structures (“maciço da Tijuca” and “maciço da Pedra Branca”), and digging tunnels under it would be extremely expensive. Giving the fact that Rio´s subway construction started by 1970 and we still have little 42 kilometers in extension, one can´t really expect such quick increase of the network.

Olympic costs

Felix Salmon
Sep 23, 2009 12:25 UTC

When a number in the newspaper seems too outrageously large to conceivably be true, don’t believe it. For instance, from today’s WSJ:

The campaigns by the four bid cities, Rio, Chicago, Tokyo and Madrid, are heating up. Mr. da Silva has already approved some $240 billion in funding for the Games and offered the federal government’s financial guarantee to cover shortfalls in the organizing committee’s budget.

The Olympics are expensive, but they’re not that expensive — $240 billion would amount to more than 12% of the continent-sized country’s $2 trillion GDP.

The actual Olympic costs are $14.4 billion, and that includes $11.6 billion in construction and infrastructure costs — renovation of airports, roads, subway lines, that kind of thing. And the whole package has been incorporated into Brazil’s monster $240 billion federal investment program, 57% of which is public funds.

Most of the costs of the Rio Olympics, then, are a necessary part of the city’s (and country’s) regeneration in any event, they’re not Games-specific. The organizing committee’s operating budget is $2.8 billion, or about 1.2% of the number in the WSJ. That’s a much more realistic number to look at.


Hey! That’s 430 billion Reals! Now we’re talking real money.

Posted by jonathan | Report as abusive

Felix Salmon, athlete

Felix Salmon
Aug 20, 2009 13:36 UTC

Not only can I do mad tricks on my scooter, I’m also a baseball great. I’m thinking of taking up the javelin next.


Is ‘athlete’ spoken with one syllable or two…there is a distinction..

Posted by Griff | Report as abusive