March Madness Confirms Humans Don’t Add Much Alpha

First let me tell you why I love the annual NCAA men’s Division I basketball tournament (aka March Madness). It’s the ultimate reality show. Where else can little known universities such as St. Peters, Loyola of Chicago, Murray State, Weber State, Florida Gulf Coast and Valparaiso suddenly jump into the national limelight with upset wins over perennial powerhouses.

If you don’t think March Madness success has much to do with a school’s brand recognition or athletic recruiting, think again. I know it’s hard to believe but 20 years ago, no one outside of eastern Washington had heard of Gonzaga University. Now the Zags are a national powerhouse. In fact, they’re the No.1 ranked team in the entire country ahead of Kentucky, UCLA, Kansas, Duke, North Carolina and all the Big Ten universities.

Don’t think that helps a school’s brand? Since 1999 applications to Gonzaga have increased 300 percent and enrollment has increased by  more than 86 percent. Hmm.

This year’s “Cinderella” team has been tiny St. Peter’s University of Jersey City, NJ (undergrad enrollment 2,200), The Peacocks upset mighty Kentucky (31,000 undergraduates) in the first round and then defeated former Cinderella Murray State in the second round to remain one of only 16 teams left in the tournament. Only 1.5 percent of brackets had the “Peacocks” advancing to the “Sweet 16.” St. Peters head coach Shaheen Holloway earns a fraction of what the lowest paid assistant in the Kentucky program earns.

What’s not to like?

St. Peter’s president, Eugene Cornacchia, told the North Jersey media “For our whole community, this is a seminal moment in our history. We can’t put $8-10 million into the (basketball) program,” [referring to Kentucky?] “but nonetheless you see what we can do if you have a great coach and players who are hard-working and committed. This is truly a miracle story.”

Not only did the St. Peters website crash after the win over Kentucky, but Cornacchia said the school has already seen increased applications from students. “There’s just been an outpouring of media attention across the country that has been unbelievable. Now I know why they call it March Madness… We’ve been hearing from people around the country about our T-shirts. We ran out real fast.”

Bracketology is not an exact science

Feel good stories aside, I love filling out the tournament brackets as do 20 million other sports fans, office workers, lodge buddies, fraternity brothers and millions of other people who never watch college hoops the rest of the year. Filling out brackets can be great for office morale, despite the drop in productivity. Plus, the tourney is a great reality show. It’s got heroes and villains, alliances and backstabbing. There’s no best of seven. It’s single-elimination win or go home. Just pick which team you think will win each game and each round. It couldn’t be easier. But it’s not -- at least for humans.

There’s no shortage of information to make an informed decision and you don’t have to be an “accredited” gambler to play. It’s almost impossible NOT to find a free printable bracket on the web. You get the official NCAA seeding number for each team (ranked 1 through 16). You get their season record. The Vegas odds for each game are everywhere on the web. You can even get injury reports, stats for each player, and each team’s national ranking on two-dozen common metrics. It’s all publicly available and free of charge.

Yet nobody – NOBODY -- seems able to fill out a perfect or even near-perfect bracket. This year, not a single one of the 20 million brackets filled out on the Yahoo, Capital One or CBS Sportline bracket challenges were correct after the first two rounds of the tournament. In fact, only one of the 20 million brackets had even 15 of the remaining “Sweet 16” correct and only .001 percent had even 14 out of 16 teams remaining.

As with stock picking, humans are just lousy identifiers of winners, even when you have a wealth of information, years of experience and high-powered computers at your disposal. Here’s another dirty secret. Despite all the upsets every year, you can do darn well just by picking the favored teams (i.e., the higher seeded ones). It’s like investing in index funds – unmanaged and emotion-free.

You’ll consistently finish in the 75^th percentile of your office pool just by picking the large cap favorites. This year that unmanaged “set it and forget it” strategy would put you in the 91^st percentile as we enter the Sweet 16. Sure, you need a few low-ranked small caps and under-valued “value picks” to score some bonus points in the early rounds, but by the time we got to the Elite 8 and Final Four, the big boys tend to rise to the top.

Going back to 1985, #1 Seeds have won the national title about two-thirds of the time (23 out of 36). That’s more than all the other seeds combined. Teams seeded #2 have won the title five times, #3 seeds have won four times and then just a smattering of one-offs for the remaining years. No team seeded 9^th or lower has ever won the tournament.

So how much alpha are human bracketologists adding? Not much. Just like active managers. That’s what makes March Madness fun – especially for behavioral finance observers like me. Just don’t put real money into your March Madness wagers.

Conclusion

Even with perfect information and a level playing field, humans just can’t override their emotions when it comes to March Madness. Same goes for the markets. I’m okay with that and so is my wallet.

Don’t agree? Tell me why.

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#marchmadness, #bracketology, #stockpicking, #ncaabasketball, #StPeters

Baseball: The National Past (It’s) Time

With all the problems in the world today, the last thing we need are billionaire team owners squabbling with millionaire ballplayers over money. With Opening Day and the first week of the Major League Baseball season canceled, fans and viewers may not return if and when the owner-player dispute is settled.

With a “minimum wage” of $700,000, the lowest paid Major League ballplayer earns more than 12x what the average American household makes in a year. And that’s for a six month a year job that includes free healthcare, first class travel, generous per diem and a pension. Not good enough the player’s union says.

The owners meanwhile have long enjoyed a special anti-trust exemption from the U.S. government that allows them to collude on wages, territorial monopolies and TV rights etc. under the guise of “competitive” balance. They can also force municipal taxpayers to build them new ballparks or else threaten to take their franchise elsewhere. With these good ole boy provisions in hand, the average Major League Baseball franchise has nearly quadrupled in value over the past 10 year to over $1.9 billion. Not good enough say the owners.

Meanwhile, both sides couldn’t care less about the stadium ushers, locker room staff, food vendors, security guards and parking lot attendants who will be losing their paychecks as the lockout continues. Unlike the wealthy players and owners, those folks can’t afford to skip a year of work and still hope to make ends meet.

Three strikes, you’re out

Baseball’s No.1 job right now is to give us something to cheer about as COVID, war in Eastern Europe, sky high inflation, and a host of other worries test the resolve of even the most optimistic among us. STRIKE ONE! Baseball’s secondary job is to give us a sense of normalcy in an increasingly volatile and unstable world. STRIKE TWO! Job No.3 is to give those of us in the frigid Northeast and Midwest a sense of hope for springtime and a respite from sky high energy prices and Artic temperatures. STRIKE THREE!

Ring ‘em MLB. Yer’ outta here!

Hubris

For almost a century, baseball was America’s game (aka. “The National Pastime). Despite dwindling attendance, declining youth participation, evaporating minority representation and drug scandals, Major League Baseball continues its entitled ways like a petulant child told it can’t have ice cream right before dinner. The ancient Romans took the survival of their empire and republic for granted. They over-expanded and lost control of the wheel as infighting and hungrier global challengers knocked them off their pedestal. It was a sharp and painful fall. Sound familiar?

Clearly football and basketball have supplanted baseball as America’s past-times at both the professional and collegiate level. And if the owners and commissioner aren’t careful, Major League Soccer – which plays approximately the same March through October schedule -- while leave MLB in its dust as well. Soccer has clearly won the youth participation battle, so it’s only a matter of time.

Speaking of attendance, here are two stats that caught my eye:

Average Attendance 2021

• Major League Baseball: 18,900
• Major League Soccer: 15,158
  
  

• Atlanta Braves (2021 World Series champions) 29,490
• Atlanta United (Major League Soccer):  43,964

What owners, players and commissioners need to understand is that their days are numbered if they want to remain relevant. While soccer is considered the No.1 spectator sport in the world, it is not considered among the four major U.S. sports leagues (yet).

Personally, I’ll miss baseball for a number of reasons:

• Rebirth and renewal. Spring training means another frigid winter in the Northeast or Midwest is fast approaching. Every team has a .500 record and unlimited upside potential.
• In the blood. I played the game reasonably well growing up. My dad played. My father-in-law played. My brothers in law all played. Both my sons played, including my youngest who is still playing in college.
• Community fabric. Our hometown (population 80,000) has sent over half a dozen residents to the Major Leagues. The town’s two high schools finished first and fourth in the statewide baseball tournament last spring, and its youth teams routinely make it to the state, regional and national finals.
• Memories. I still remember my dad taking to my first game at Philadelphia’s crumbling Connie Mack Stadium. Phillies vs. Mets doubleheader. It was the greenest grass, whitest chalk lines and tastiest hot dogs I had ever experienced. Later I was an assistant coach for my son’s Little League team that won the state championship and came within one out of winning the New England Regional. What a ride! More than half of those kids are now playing in college.
• Leisurely pace. In this fast-paced frenetic world, I enjoy having a game on in the background. The players, not the clock, dictate the pace. Players wait patiently for their turn at bat. New pitchers and pinch hitters have all the time they need to warm up properly. The game ends when the game ends.

Let’s face it, even in the best of times, only five or six teams have a reasonable chance of making it to the World Series. The other two dozen teams are grinding through a way-too-long 162 game schedule. They’re  going through the motions, entertaining the fans, being role models for the kids and trying to figure out how to rebuild. As entertainers and role models, MLB is failing miserable at a time when we could sure use a distraction.

Conclusion

Without spring training and opening day, I’ll enjoy March Madness college basketball, the NBA and NHL playoffs into June, catch a few soccer games in July and before you know it, it will be late summer, time for NFL training camp and the college football season. Baseball, it’s been a wonderful 40 years together. But I think we all know it’s time to move on. You’ve betrayed too many times.

Don’t agree? Tell me why.

 

#baseball, #MLB, #baseballlockout