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June 12, 2014

Goldman Sachs and the World Cup

By Seth Burn

Snorting_BS

Despite having over 700 billion dollars in assets under management, Goldman Sachs really isn’t that much different than you or me. They like to watch a good game of futbol over a pint. In fact, every four years they come out with their World Cup preview:

http://www.goldmansachs.com/our-thinking/outlook/world-cup-and-economics-2014-folder/world-cup-economics-report.pdf

Lovely! Included in their WCP is a table that lists the odds of each team winning the cup. Now, you might be aware that there are wagering markets on the World Cup.

Whoa, are you ok? You must be an American. Here, have a sip of water. Relax, I fainted too when I first heard people actually wager on international sporting competitions. Feeling better? Good. Back to the wagering.

Because Goldman Sachs gave percentages for each team’s title chances, and because this guy was awesome, we can figure out how much they should wager on or against each team.

Except…

While that might work for most people (such as Nate Silver, whom I’ll get to in a bit), that won’t work for an animal as large as Goldman Sachs. As such, I gave Goldman Sachs a budget of $10,000,000 and estimated how much they could bet into the market without moving the lines so much that they are damaging their expected value. In some cases that was simply the maximum bet allowed on a line at a certain site, while in other cases I had to look at the market depth at multiple locations and use certain estimates as to how much more could be offered and filled at that price.

Without further ado, Goldman Sachs 2014 World Cup wagers:

Brazil to win: $3,130,000 to win $9,390,000
Iran to win: $5,000 to win $15,000,000
Netherlands to win: $145,000 to win $5,800,000

Japan not to win: $500,000 to win $2,400
Ivory Coast to not win: $540,000 to win $3,000
Mexico to not win: $504,000 to win $1,500
Columbia to not win: $540,000 to win $9,000
Chile to not win: $500,000 to win $8,000
Uruguay to not win: $720,000 to win $20,000
Argentina to not win: $470,000 to win $100,000
Spain to not win: $560,000 to win $80,000
England to not win: $732,000 to win $24,000
Italy to not win: $600,000 to win $20,000
France to not win: $550,000 to win $20,000
Portugal to not win: $504,000 to win $15,000

Between Brazil, Iran, and the Netherlands, Goldman Sachs gives themselves a 54.2% chance of winning outright. I find it highly amusing that their single best possible outcome is an Iran victory.

I promised I would come back to Nate Silver. I’ll write a separate post, but the short story is I am giving Nate $100,000 to invest in the World Cup, with the formulas provided by John Kelly, and the individual game odds from 538.

Spoiler alert: Nate is going to be investing over 52% of his bankroll game one on Brazil ($52,600 to win $17,884 on Brazil -0.5).

Good luck Nate!

Article by Seth Burn