Issue 005 | Spreads, Scoring Matrix and Summer 2019 Portfolio Strategy

So it’s been an eventful couple of weeks in Football Index land! We’ve had spreadgate…….. do I need to list anything else to let you know it’s been eventful? As usual, I’m joined by both co-authors, Liam and FI Trader!

Spreads

FI Trader

It’s pretty easy to hate on the spreads and they certainly take a lot of stick on social media. The button is all angry and red. It takes a cut of our sale. And it’s not always as generous as we would like.

I have a very relaxed view of spreads though, for a few reasons.

Firstly, although it’s not something people very often think about, they are likely to work in our favour more often than not. For example, when you have a premium priced player in the £15-20 range, they will usually have a very large spread.

This large spread protects FI in case something goes wrong. But it protects holders too. If our star has a serious injury that puts them out for months, you can currently expect them to take a significant hit to their value, perhaps around 5-8%. But, at a point, traders stop panic selling because the spread and commission is so severe that it makes holding and waiting for the value to recover a much more sensible option. Were that big spread not in place, it would be absolute chaos as everyone would want to get out and then probably want to get in again when the price seriously tanked.

Throughout FI, even at the cheaper end of the market spreads are incredibly important to market stability because whilst they allow you an exit from a bad trade, the exit should be costly and losing your bet should have a consequence. Without this, people would fly in and out of positions far more often and market confidence would be shot to pieces.

Secondly, the fact that FI make efforts to protect themselves from silly risks should be welcomed by traders. We all need FI to be sustainable for the long term, and if they were willing to offer completely irrational buy back prices I would be very worried about their financial stability. That red button is a huge liability on FI’s balance sheet.

The current hot topic with spreads is the demand for consistency in application from FI. Traders often compare the spread on one player to another and say “hey we think these players are similar but there is no consistency between their spreads.” Well, we may think they look similar but FI clearly use a risk management methodology to determine risk factors and we can’t know exactly why they have set each price. And, I doubt we ever will.

I do not think they will ever release their system because if we knew the factors considered we could game them and factor it into our buys and sells, undermining the purpose of their exercise.

They would even be unwise to reveal some examples because for time ever after, current spreads will be compared back to the examples given and people will try to find inconsistencies.

Even the concept of the “right to consistency” is highly questionable. No other “market maker” (buyer of unwanted stuff) in other stockmarkets has to provide a reason for their price. They set whatever price they want. And if I was the guy who had to buy the players nobody else wanted, you bet I would want to set my own price and I would not reveal my exact method.

Ultimately, FI provide the Instant Sell function voluntarily. They do it because knowing you can sell at will even for a penalty gives traders huge confidence, without which the market would really struggle to get going. Therefore, they seek a balance between giving traders confidence whilst still protecting themselves. They definitely pay out far more than a rational person would in order to keep the market flowing in most cases.

So, a few headscratching examples aside, I think they by and large get the Instant Sell and spread system right.

An Instant Sell should be a last resort, for use when something goes wrong. It’s possible to lose your bet and we have to take that on the chin even if it is through bad luck. The best trades are exited by selling to market without the penalty.

Compare this to the equivalent system at the bookies. If your bet isn’t going your way, if you check your cash out value it will be a pittance. They have no intention of giving you your money back.

FI is vastly more generous and I think we should just be happy it is there and get on with trading, there are far bigger priorities to improve upon in my view.

Liam

Once again a hot topic and to be honest I want to try my best not to repeat the same complaints or issues that have been brought up before but when absolutely none of them have been addressed or managed it’s difficult not to. To be clear, this is not an attack on the company or the platform. I love the Index, but this has been a persistent issue. One that easily gets swept under the rug when everything is green and we’re all making money but still one that is present.

Again, my issue here isn’t that they have spreads. I understand the need for them and the need for them to be fluid in different situations. In fact, I have often defended some of the wider spreads on the platform by looking at them from a business perspective and the fact that they shouldn’t have to continually pay you back at the same spread as before when a players value is heavily impacted by new information, I.e a an injury that puts someone out for months.

The issue arises with consistency in implementing them. What we have seen recently is not consistent at all, the Higuain fiasco, where he increased over £1 in value and was being shamelessly pumped on Twitter by football index whilst being slapped with a 15% spread. We’ve since seen similar issues recently with Dele Alli, and other players that have had either no reason to see an increased spread, or have had a minor injury that clearly doesn’t warrant a 20% spread.

I’m not even asking for some form of a matrix so we can understand exactly what a spread will be in certain circumstances and I wouldn’t expect any company to reveal that, but just some common logic that can be applied would be a start. Aside from being compared to dodgy garages, spreads have been compared to regular bet “cash outs” in the past by football index, but FI's don’t even work as well as them. If you back a team to win, you can intuitively understand that the cashout will reduce as the game goes on and the bet is losing, or increase as the game goes on if your bet is winning. The worse your bet is losing the worse the cashout is and the better your team is winning the closer to your full returns. Nice and logical. Now I get that the Index has a lot more variables involved but still I think it would be very easy to keep some consistency in there instead of every case seeming to be hugely different and just continually saying “it’s the risk team’s decision” at every possible opportunity. And the idea that it's always related to sell queues is also not very plausible because a players price would not continue to increase without any dip if a hefty sale queue was present.

FIG

So (deep breath) here goes an extended spew of brain farts on why I think the current spread system isn’t being done as well as it could be.

Now, whilst I sympathise hugely with the fact that FI are coping with an absolutely monstrous amount of sign ups- I still think that the lack of consistency across spreads is absolutely astounding to me.

I used Dele Alli in the infamous tweet that caused a bit of a stir on Friday night, but 3 hours later his spread went from circa 20%…..to about 10%. Whether or not I know the variables at hand applied by the risk team, what happened in those 3 hours that essentially doubled the risk/liability that FI were willing to take on? I cannot for a second sit here and think “yep, that’s fine- there’s absolutely nothing wrong with that”. It massively hinders liquidity, and I think for FI to ever get to a position where order books can be effectively implemented they have to review the spread process. I get that they have to be there, and as Trader above- it’s a good thing that FI look after themselves…..but let’s use it correctly, whether the variables at hand are visible or not, apply them consistently. To further my case, I believe Football Index RC had some great screenshots of him asking for spreads to be taken down, and the Customer service team obliging. I don’t really get how the initial spread wasn’t just random, rather than a consistent set of variables- that then allowed the team to arbitrarily shift the spread when it’s pointed out to them that it seems large.

I want to address something else as well, and this is the notion that it’s a ‘luxury’ that we can instant sell. It is not a luxury. Much of FI’s success is pinned down to the instant sell function. As discussed on Ep. 70 of the podcast, I was there with no instant sell- and the market was dismal. I was there when it was first was implemented, and I sold Douglas Costa for 12p a share. The reason the market has this much money in it is because instant sell is a function of the market. It is the ability to cash out your bet. It is not a luxury. In it’s current form, it is simply a cash out option that’s facilitated by FI. Lot’s of people have deposited and invested money into the platform due to the very fact FI offer instant sell. If you view it as last resort- that’s totally fine, but the way FI is designed, and indeed from a UX standpoint shows that it’s not a last resort, but very much part and parcel of the game. Lastly, on a slight tangent- I just want to amplify Liam’s point about the sell queue. A player cannot rise significantly if there’s a massive sell queue. It makes absolutely no sense, just from a ledger standpoint.

Scoring Matrix

FI Trader

This is another hot topic and broadly, my view is that FI rules do need to evolve over time but it should do so slowly and carefully.

People do buy on a certain basis, and wholesale rule changes that totally disrupt the values of players is something that will always need to be done with care. A stable market is more important than a perfect rule set.

And I don’t think there will ever be a perfect rule set. It’s a scoring system and it will never quite capture everything, there will always be quirks. FPL has been going for far longer than FI and it still has weird features. But, players have adapted to those and it is just part of the game.

So I am looking for surgical tweaks rather than taking a chainsaw to it.

My biggest gripe is the game winning goal because it adds a huge element of random chance to the scoring system.

It’s important, yes. But it often has very little to do with skill or real performance and everything to do with luck. If FI are selling themselves as a more intellectually satisfying product, which they are, and so they should, I think this aspect of it is distinctly unsatisfying.

I am not clear on what you would replace it with. But rewarding 2nd or 3rd goals in a game makes a lot of sense. That will however tip things even further in favour of strikers. So I think a graduated goal system like FPL might work where defenders and midfielders get more credit for goals since they are harder to come by from deeper positions.

However, counter to that view, and as someone rightly pointed out to me on Twitter, the random element helps out people who are not strong analysts. Without game winning goal, given I spend more hours each week analysing stats than I want to admit, I would be able to clean up even more once that random element had been removed.

So, maybe it is a bit of a leveller and I should just shut up about it.

But. I do feel that if FI are creating a performance product, it should be about performance and perhaps there is a better way out there to introduce a random element that actually has something to do with quality of play.

We want it to be more intuitive and for none traders to see the link between who played well that day to their eye and who scored highly in the system. I think at the moment, it can look very random. You can imagine the chat down the pub:

Potential Trader: “So, why was Calhanoglu better than Piatek last night? Piatek scored two to Calhanoglu’s one?”

FIT: “Erm… So you see, Piatek failed to score his goals in the correct order.”

It’s not really an acceptable answer.

I won’t pretend I know the solution. Perhaps the Man of the Match gets the 40 point bonus rather than the Game Winning Goal scorer. It’s hard to predict MOTM through stats alone after all. I am sure there are better ideas out there

Liam

The matrix is something that wouldn’t be top of my list of things to change with Football Index, to be honest. I think it could be tweaked and improved to reward positive play like assists and chances created more but however they do it, it’s always going to be disliked by someone.

I think the closer they can get it to matching real-life rankings the better, but I also believe in the importance of an element of randomness provided by game-winning goal, because if you remove that, performance dividends would become as predictable as media dividends and the whole platform would become highly skewed and top heavy again which isn’t really good for anyone.

To be honest, at the moment I don’t think a change in it would have too much of an impact on the market because of the little influence being put on dividends at the moment anyway. Maybe if it was more realistic now then that would be different but I’m not convinced.

Overall I think consistency is key, after all many build their portfolio around this matrix and if something is to be done then it shouldn’t be until at least the summer.

FIG

The matrix is a really polarising subject, and rightfully so. There will be those who think that subjectively, x player is greater than y player. However, as discussed on the podcast- FPL have a more granular and accurate scoring matrix than Football Index. Considering there’s £30m+ in FI, and next to 0 money in FPL as it’s free to play…..this doesn’t really sit right with me.

It’s not that some players (Neymar, Messi) aren’t represented well- but there are those who are not on FI from a PB standpoint. I think (and this is my opinion) the following things should be done (and I’m sure to have missed a few)

• Add points for passes in the final third, to reward attacking thinking play that is more risky
• Add points for Key Passes and Chances Created
• Increase points for Assist
• Reduce GWG points
• Add points for scoring more than a goal in a game. I.E a multiplier of 1.25 for 2nd goal (50 points) and 1.5 for 3rd goal (60 points). You could do something similar for assists.

There’s many other things that could be done, for example- could we indeed (similarly to FPL) have different matrixes for DEFS/MIDS/FWDS. Now I’m speculating wildly, but just the fact that I’ve offered many iterations means that there’s room to make the matrix more robust.

Summer 2019 Portfolio Strategy

FI Trader

It might seem a bit early to be turning to this but it is often more profitable to worry about what will be happening in 2–3 months time than it is to worry about who is winning today or what people are currently saying on Twitter. It’s something I do a lot and I tend to move and wait for the market to come to me rather than follow who is rising after the fact.

So, there is no sugaring the pill. Some people will withdraw money over the Summer. They may want to pay for Summer holidays or whatever. That’s fine.

Money will flow towards the hoped for transfer sagas and the premium players that are getting the most attention as we see huge spells of back to back media days.

So, is it a case of mass withdrawals? I suspect we will see some but I think provided confidence remains as high as it is, we will see more money moving between different types of player rather than wholesale exits.

Summer is actually my favourite time of year and it is something I will be discussing heavily in the members area of my site in the coming months. You really can set yourself up to smash the start of the season if you are willing to stick in and hoover up those quality players who are at cut prices.

When everyone else is on the beach, I will be working harder than ever to ensure I start the season with the portfolio everyone will want in August and September.

Liam

Summer this year will be an interesting one and one I don’t think we can draw too much on past experiences to prepare. We have no major tournaments like the World Cup last year meaning it’s going to be triple media all the way through. We will have IPD’s for the nations league matches when England try to become the first nation to win it in Portugal which could give the national team some value for a short period at least.

Another interesting factor will be prices after the share split. Many of the big targets like Pepe, Werner and Leao could end up in the £1-£2 bracket post share split and if you consider user growth by then I think we could see substantial price growth in some of these players when rumours get stronger as many seen to be less interested in buy price anyway but the ceiling will appear a lot further away at just a couple of pounds.

As for the performance-based players, I have no idea. We have seen them decline at times in the past as the season ends but the tendency to hold is much higher this season than last so I’m not sure we’ll get too much of a decline.

FIG

I think the key thing is not to panic. That doesn’t mean ‘don’t do anything’, but there’s a feeling from many new traders that the market just dies during the summer. It’s actually sometimes entirely the opposite. Transfer rumours will be flying, traders will speculate about what players will have great seasons, new managers will come in, transfers will cause variables to change from a PB standpoint. There’ll be so much speculative trading, some that will end up good trades- and some bad. It’s on you to decide if you want to be part of that speculation over the summer. I would also not discount players that will see little action during the summer. Those who have little chance of MB for example during the break, may be good ones to accumulate over the summer.

Research, Resources, Tools & Tips:

Audio Content:

• FigCast Ep 69: Am I right in saying this podcast episode caused the most commotion ever? People loved it! I was joined by Sam Freedman, someone who used to work in the education policy, and now runs his own charity. The man is absurdly smart, and our chats about behavioural psychology and Economic theory & its application to FI really made my brain cogs turn!
• FigCast Ep 70: I’m being spoilt for guests at the moment…this time I was joined by FI panda, a former professional gambler with a 6 figure portfolio who joined Football Index relatively recently. Another awesome chat!
• On my other podcast, the State of Play- we spoke to the founder of scouted football. He talked about Reece James, Diego Lainez and a few other exciting talents!
• Mauro Icardi has been hot on the lips of lots of traders….big drama! David Amoyal on the CalcioLand podcast talks about it really well

Video Content

• I made my first Q&A video! I got some questions from the FI community and answered them. In this first episode I discuss the possibility of managers on FI, FI’s sustainability and a bit about how FIG started!
• I made a video on ‘who loses on Football Index’
• Considering the rumours of a Saudi Arabia takeover of Manchester United, I liked this video by the guys at Tifo Football

Articles, Reading & More:

• As mentioned last time FI Trader launched a members area to his site just a couple of weeks ago. The first reviews are in and you can check out what members are saying and more details on the site here. Check the reviews out
• Liam’s most recent Tricks of the trade articles were with Buzz-man Stamford about his dividend strategy: Read it here
• Sunday to Friday trader Pierre: Read it here
• This article about Ladbrokes is truly astonishing. Shows the true colours of some bookies.
• Top 5 Rising stars in Bundesliga by UniBet
• Scandinavia getting stricter about their gambling regs! Read this article
• Online Gambling Checks to be Strengthened

Still loving medium. Every post is getting plenty of views, so thanks very much for all your support!

Have a great couple weeks trading.