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Home , Ben McAdoo, Jerry Reese, Super Bowl LI, Super Bowl XLVI, Super Bowl XXXIX

NFL ALPHAS 2017-2018 NFL ALPHAS 2017-2018

99.8% With 6:04 remaining in the third quarter of LI, the But not all was doom and gloom this season. While no teams relocat- Falcons were shocking the football world. They led the favored New ed to Los Angeles for a change, league owners did approve the Oak- England Patriots 28-3 and made their seemingly invincible quar- land Raiders move to Las Vegas in 2020 (talk about a perfect football terback look merely mortal in the process. At this very marriage). Former Tony Romo showed a moment, ESPN computed that the Falcons had a 99.8% chance of keen ability to predict upcoming plays in his first season as a CBS color winning their first title. But it was not to be. What ensued was one of commentator. Jon Gruden left the “television booth at the end of the the most epic collapses in NFL history. The Patriots rallied back. With season to return as head coach of the Raiders, sparing football fans four minutes left in the game, a series of specious play calls and a sack from hearing him compliment every player on the field each Mon- forced Atlanta out of range, which ended up being their day night. Finally, Commissioner Roger Goodell received a five-year last stand. The Patriots then tied the game with 57 seconds left, and contract extension­—which may or may not have included his requests then went on to win their fifth title with a touchdown run by James for lifetime use of a private jet—which ensures that we’ll have plenty White in the first-ever Super Bowl. As a result, Analytic’s more opportunities to comment on the league’s fearless leader in prediction was incorrect, but we have successfully picked 10 Super years to come. Bowls out of the last 14 (71%). On February 4 in , the Patriots dynasty goes up against Despite this defeat, some good came out of it. As we do the underdog Eagles in Super Bowl LII. Similar to last year, when managing investment portfolios, we can learn from our New England will be seeking to add to their case of Lombardi trophies, mistakes. Half of a successful investment involves knowing what while Philadelphia is hoping to construct one to house its first. It remains to buy, and the other half is knowing when to sell. Had the Falcons to be seen if this paper correctly predicts the result via our quantitative been a stock, the time to sell was at the 99.8% moment. Hindsight is process, but we can tell you that this matchup will certainly create a indeed 20/20, but the silver lining is that our “buy signal” was right. Now dilemma for Giants and Jets fans regarding who to root for. if only we could factor in the human element, i.e., questionable coach- ing decisions by a Patriots opponent (see Seattle Seahawks, Super What’s In Our Alpha? Bowl XLIX)… In the coming days, many football and gambling “experts” will give their predictions based on matchups, trends, and even data. Similar The 2017 season was a “Groundhog Day” of sorts, as the issues of the 2016 to how we manage investment portfolios using quantitative model- season lingered. The National Anthem protests continued, prompting ing, we came up with a formula for every NFL team in which we com- some choice words from President Trump on the matter, which in turn pute the cumulative return on investment (ROI) relative to market (i.e., inspired both players and owners to stand in solidarity on the sidelines. bettor) expectations for each team’s 16 regular season games. We call Dallas Cowboys Ezekiel Elliott appealed his six-game sus- this NFL Alpha. As an illustration, let’s assume that an eager Raiders pension, resulting in his playing status being in limbo on what felt like fan named Richard visits Las Vegas to check on the progress of the a weekly basis. Television ratings for games declined yet again—with construction of his team’s new stadium. While there, he places 16 dis- some attributing it to the protests and and others the oversaturation tinct wagers of $100 for the Raiders to win each of their 16 games on of its product with games played on Thursdays, Sundays, and Mondays. the “money line.” This means that if the Raiders win, he will collect the On the field, the game was affected by an abundance of injuries to star $100 he put , plus an additional sum that is computed based on players like , Odell Beckham Jr., J.J. Watt, and Deshaun the team’s win probability per market expectations. If they lose, he Watson. The question “What is a catch?” became even more nebulous. has lost his $100. Once the regular season ends, he adds up his total Every pass play felt as though a pass interference penalty was immi- winnings, and compares it to his $1,600 in total wagers. Anything less nent. Although the replay process was supposedly streamlined and than this amount indicates a negative NFL Alpha and anything above simplified, it appeared as if every close play was under scrutiny, bring- it is a positive one. Richard is now disappointed to learn that the Raid- ing games to a screeching halt. ers had a -33.8% NFL Alpha (Table 1) and his $1,600 has become $1,060, but holds out hope that coach Gruden will reverse this trend in 2018. “Upon further review, the ruling on the field stands—the NFL Alphas paper can continue.”

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Table 1 Alphas for all 32 NFL Teams ALPHA 2017-2018 Team 2017 - 2018 2016 - 2017 Alpha Change Record Favorite/Underdog 40.2% -27.4% 67.6% 11-5 9-7 37.3% -5.5% 42.8% 13-3 12-3-1 33.5% 38.2% -4.7% 6-10 2-13-1 31.8% -11.0% 42.8% 13-3 11-5 27.4% -16.1% 43.5% 9-7 7-9 23.3% 7.1% 16.3% 13-3 14-2 20.6% -56.6% 77.2% 10-6 11-5 19.2% -23.0% 42.1% 11-5 12-4 18.0% 39.0% -21.0% 10-6 13-3 Arizona Cardinals 13.2% -15.4% 28.5% 8-8 5-11 12.4% 40.5% -28.2% 13-3 16-0 9.6% -11.7% 21.3% 11-5 11-5 Lions 4.9% 21.8% -16.9% 9-7 7-8-1 -0.9% 29.2% -30.1% 10-6 13-3 Los Angeles Chargers -1.6% -35.6% 34.0% 9-7 8-8 Seattle Seahawks -1.7% 6.2% -7.9% 9-7 9-7 -3.2% 35.8% -39.0% 3-13 3-13 Baltimore Ravens -4.3% -14.2% 9.9% 9-7 10-6 Dallas Cowboys -5.8% 50.6% -56.4% 9-7 12-4 Washington Redskins -7.5% 5.9% -13.4% 7-9 6-10 -7.5% -29.3% 21.8% 7-9 7-9 Tennessee Titans -9.0% 19.9% -28.9% 9-7 12-3-1 Bears -14.7% -52.9% 38.2% 5-11 3-13 -18.3% 6.6% -24.9% 7-9 6-10 -19.6% -66.8% 47.2% 6-10 3-13 New York Jets -20.4% -32.5% 12.1% 5-11 2-14 Oakland Raiders -33.8% 42.1% -75.9% 6-10 7-9 -37.0% 40.5% -77.6% 5-11 6-8 -40.6% 6.6% -47.2% 5-11 9-7 Colts -44.0% 13.1% -57.1% 4-12 1-15 Texans -47.5% 12.2% -59.7% 4-12 5-11 -100.0% -82.5% -17.5% 0-16 1-15

Sources: Analytic Investors and nfl.com.

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The Surprising and the Predictable Bad Teams, Good Alphas When the NFL season concludes, we all hazard a guess or two as to For fans of the Miami Dolphins and Giants, the end of the season which teams would be the high and low NFL Alpha teams prior to couldn’t come soon enough. Both teams were coming off playoff crunching the numbers. This year, the top team surprised us, while appearances in 2016 and expected to improve on that in 2017. Instead, the bottom one did not. The Carolina Panthers rebounded from they imploded thanks to a series of injuries and controversies to finish a disappointing 6-10 record in 2016 and finished 11-5 in 2017, earn- with records of 6-10 and 3-13, respectively. The Dolphins lost start- ing them a league-best NFL Alpha of 40.2% (Chart 1). On paper, the ing quarterback Ryan Tannehill for the season when he tore his ACL Panthers were not the impressive team that went to . during training camp in August. Head coach wasted no They had a less-than-impressive offense that only generated attention time in finding a replacement, luring the recently-retired (and under- when quarterback Cam Newton made controversial remarks directed achieving) Jay Cutler from the Fox broadcast booth to make him the at a female reporter. A pair of bad losses to the Bears and the Saints Dolphins new starting QB. Then starting running back Jay Ajayi was managed to temper market expectations enough to make upset wins benched in week 1 by Gase, upsetting him and leading to his trade over the Patriots, Lions, and Falcons more profitable. Winning seven of to the Eagles on October 31. However, none of this was reflected in their last nine games certainly doesn’t hurt. While not compelling, they the Dolphins Alpha of 33.5% (Chart 2)—the third-best in 2017 and the were consistent. It remains to be seen if this property will drive up the second-highest ever for a team with six wins. They only had a nega- team’s sale price for the likes of Steph Curry and Sean “Diddy” Combs. tive Alpha at one point during the season (following a 20-0 loss to the Saints in week 3) and were aided by upset wins over the Falcons and On the flip side, the Cleveland Browns became only the second team Patriots. While Cutler may be good from an Alpha perspective, there in history to have a winless season. It should come as no surprise that are still many fans in Miami who hope that he is inspired by Romo’s they had the lowest NFL Alpha, a “perfect” -100.0% as seen in the broadcast success and returns to Fox in 2018. appropriately flat brown line below(Chart 1). Keep in mind that the Browns passed on the following in the NFL draft: Derek The Giants were an even bigger mess. They started the season with Carr and in 2014, Jared Goff and Carson Wentz in a five-game losing streak and a Browns-esque -100.0% flatline Alpha, 2016, as well as the aforementioned Watson in 2017—all of whom are thanks in large part to a porous offensive line and underachieving currently starters for their teams. Since 2016, when Paul DePodesta defense. After losing to the Los Angeles Chargers and of “Moneyball” fame joined the front office as chief strategy officer suffering season-ending injuries to wide receivers Beckham Jr. and and Hue Jackson became head coach, the Browns are 1-31. Both Brandon Marshall in week 5, the wheels came off. Coach Ben McAdoo men still have their jobs, giving a glimmer of hope to underachievers (previously known more for his bad wardrobe and hairdo) had a everywhere. That said, we’ll go out on a limb and say that analytics be near-mutiny in the locker room, with players openly criticizing him and damned, new Browns general manager John Dorsey may want to take even appearing to quit on the field. The season spiraled out of control a quarterback with either the first or fourth pick they hold in the first on November 28, when McAdoo announced that starting quarter- round of the upcoming draft. back would be benched in favor of the much-maligned , ending his streak of starting 210 consecutive games. The Chart 1 CUMULATIVE ALPHAS: public backlash against this decision was so strong that it resulted in Carolina Panthers vs. Cleveland Browns McAdoo and general manager being fired the following 100 week. But as with the Dolphins, this had zero effect on their NFL Alpha. 80 The Giants reached positive Alpha after upset victories over the Denver Carolina Panthers 60 Broncos and Kansas City Chiefs, and nearly made it into positive terri- 40 tory after defeating the Washington Redskins to end the season. Their 20 -3.2% Alpha was the highest ever for a three-win team. That said, 0 the Giants should be joining the Browns in the QB market with their -20 second overall pick in the draft. -40 % ALPHA -60 -80 Cleveland Browns -100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 GAMES Sources: Analytic Investors and nfl.com.

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Chart 2 CUMULATIVE ALPHAS: Chart 3 RUSSELL 1000 RISK QUINTILE RETURN Miami Dolphins and New York Giants 25% 22.3% 160 21.9% 20% 120 17.1% 16.2% Miami Dolphins 14.6% 80 15% 40 10% 0 RETURN 5% % ALPHA -40 New York Giants -80 0% 1 2 3 4 5 -120 BETA QUINTILE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Sources: Analytic Investors. GAMES Sources: Analytic Investors and nfl.com. Before we get to the moment you’ve all been waiting for, let’s first examine our methodology for predicting the results of the playoffs Low Volatility versus the Lottery and Super Bowl. As is the case with investments, prices, or even the Analytic has been managing low volatility equity strategies since 2004, behavior of Cowboys owner Jerry Jones, things eventually revert to based on our published research which showed that stocks with low their mean. The NFL is no exception; teams that outperform their risk (i.e., low beta) have historically generally outperformed high-risk expectations tend to lag the following season (and vice versa). We equities over time. Additionally, we have discovered this trend to be have also discovered that this trend is prevalent in the postseason that present when it comes to NFL wagering. In general, bets on teams that immediately follows the regular season. Specifically, teams with high- are large favorites and low payouts—the equivalent of lower-risk, less er NFL Alphas usually underperformed in the playoffs, meaning that “exciting” wagers—tended to perform better than their risky, large in terms of covering the point spread, the team with the lower NFL payout, heavy underdog counterparts; somewhat analogous to lot- Alpha was the best selection. This thesis had mixed results thus far in tery tickets. This trend resumed in 2016 and extended into the 2017 the postseason, as we went 5-5 with our picks (Table 2). One of these season. Low risk wagers returned 5.7%, while high risk ones had a correct picks included an unbelievable “walk-off” 29-24 victory by the return of -24.6% (Chart 3). An interesting side note: unlike the past few Minnesota Vikings over the Saints, in which Stefon Diggs caught an years when they saw negative returns, “fair” bets on teams that were improbable touchdown pass from Case Keenum. Had the Vikings between 3.5-to-9 point favorites were the best performers, returning kicked the extra point, our pick would have been incorrect (the Saints 8.9%. US Equity markets displayed a different trend in 2017. Examin- were getting 5.5 points and lost by 5 points, narrowly covering the ing Russell 1000 Index risk (beta) quintiles, high beta stocks (quintile 5) spread). PUBLIC SERVICE ANNOUNCEMENT: they call it “gambling” for a outperformed low beta ones (quintile 1) by 1.6% (Chart 4). This is the reason, kids. Nevertheless, this marks the 14th consecutive year we’ve second consecutive year of outperformance for riskier equities; albeit had at least a 50%.success rate, bringing our historical average to 61%. not as large of a difference as we saw in 2016. Super Bowl LII Chart 3 LOW VOLATILITY ANALYSIS 2017-2018 SEASON Super Bowl LII features the fourth-ranked NFL Alpha Philadelphia Ea- gles (31.8%) against the New England Patriots (12.4%) (Table 3). This is 15% 8.9% a rematch of Super Bowl XXXIX, but almost exactly the opposite from 10% 5.7% an Alpha perspective—the Patriots had an Alpha in the 30%s, while 5% 0% the Eagles (our correct pick) had one in the teens. Keeping with that -5% -0.8% theme, we will do the opposite: the lower-Alpha Patriots are our pick, -10% as we believe they will win the game more than the 4 points by which -15% they are favored. It’s worth noting that the last time New England didn’t

WAGER -20% cover as a favorite in a domed stadium, against a NFC East opponent, -25% -19.0% with a 30%+ Alpha, was in Super Bowl XLVI, when they were upset 21-17 -30% -24.6% by the Giants. Yet, we still feel confident that there won’t be a few rogue

AVG RETURN TO MONEY LINE -9.5 and -3.5 to -9/Fair -3 to +3.5 to +9.5 and Eagles fans running amok in celebration on Sunday night, and therefore above/Low +3/Average +9/Moderate above/High no need for the Philadelphia Police Department to grease utility poles LINE/VOLATILITY with Crisco or worry about their horses getting punched. Sources: Analytic Investors and nfl.com. | 5 | NFL ALPHAS 2017-2018

Table 2 POSTSEASON ANALYSIS (5-5 RECORD) “Lower Alpha Team Higher Alpha Team Alpha (Analytic’s Pick)” Alpha Favorite Result WIN Kansas City Chiefs 18.0% Tennessee Titans -9.0% Chiefs by 8.5 Titans, 22-21  Los Angeles Rams 19.2% Atlanta Falcons -0.9% Rams by 6.5 Falcons 26-13  Buffalo Bills 27.4% Jacksonville Jaguars 20.6% Jaguars by 8.5 Jaguars 10-3 Carolina Panthers 40.2% New Orleans Saints 9.6% Saints by 6.5 Saints 31-26 Philadelphia Eagles 31.8% Atlanta Falcons -0.9% Falcons by 2.5 Eagles 15-10 New England Patriots 12.4% Tennessee Titans -9.0% Patriots by 13.5 Patriots 35-14 Pittsburgh Steelers 23.3% Jacksonville Jaguars 20.6% Steelers by 7 Jaguars 45-42  Minnesota Vikings 37.3% New Orleans Saints 9.6% Vikings by 5.5 Vikings 29-24  Jacksonville Jaguars 20.6% New England Patriots 12.4% Patriots by 7.5 Patriots 24-20 Minnesota Vikings 37.3% Philadelphia Eagles 31.8% Vikings by 3 Eagles 38-7 

Sources: Analytic Investors and nfl.com.

One final prediction: while we can’t guarantee that NBC’s will mention our pick during the broadcast Sunday, we’re fairly certain he will make reference to the point spread and the over/under at some point. Keep up the good work, Al.

Table 3 SUPERBOWL RESULTS SUPER Prediction BOWL Date Higher Alpha Team Lower Alpha team (Analytic’s Pick) Favorite Result Correct XXXVIII 2/1/2004 New England Patriots (67.0%) Carolina Panthers (39.0%) Patriots by 7 Patriots 32-29*  XXXIX 2/6/2005 New England Patriots (33.5%) Philadelphia Eagles (12.6%) Patriots by 7 Patriots 24-21*  XL 2/5/2006 Seattle Seahawks (25.0%) Pittsburgh Steelers (11.4%) Steelers by 4 Steelers 21-10  XLI 2/4/2007 Chicago Bears (17.8%) (14.5%) Colts by 6.5 Colts 29-17  XLII 2/3/2008 New England Patriots (22.9%) New York Giants (14.6%) Patriots by 12.5 Giants 17-14  XLIII 2/1/2009 Pittsburgh Steelers (33.6%) Arizona Cardinals (-6.4%) Steelers by 6.5 Steelers 27-23*  XLIV 2/7/2010 Indianapolis Colts (37.6%) New Orleans Saints (12.8%) Colts by 4.5 Saints 31-17  XLV 2/6/2011 Pittsburgh Steelers (28.6%) Green Bay Packers (1.3%) Packers by 3 Packers 31-25  XLVI 2/5/2012 New York Giants (32.8%) New England Patriots (15.8%) Patriots by 3 Giants 21-17 XLVII 2/3/2013 San Francisco 49ers (23.1%) Baltimore Ravens (2.2%) 49ers by 4.5 Ravens 34-31  XLVIII 2/2/2014 Seattle Seahawks (13.7%) Denver Broncos (4.6%) Broncos by 2 Seahawks 43-8 XLIX 2/1/2015 New England Patriots (28.2%) Seattle Seahawks (9.9%) Patriots by 1.5 Patriots 28-24 50 2/7/2016 Carolina Panthers (61.5%) Denver Broncos (31.9%) Panthers by 4 Broncos 24-10  LI 2/5/2017 New England Patriots (40.5%) Atlanta Falcons (29.2%) Patriots by 3 Patriots 34-28 LII 2/4/2018 Philadelphia Eagles (31.8%) New England Patriots (12.4%) Patriots by 4 ? ?

*While in these games lower-Alpha teams did lose to the higher-Alpha teams, the predictions are correct because of the lower-Alpha teams covered their respective point spreads. Sources: Analytic Investors and nfl.com.

The opinions expressed herein are those of Analytic Investors and are subject to change without notice. The research is prepared for general circulation and is circulated for general information only. It does not have regard to specific investment objectives, the financial situation and the particular needs of any specific person who may receive this report. NFL and Super Bowl are registered trademarks of the . The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index.

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