Moneyball – When sports teams embrace investing principles

The professional sports industry is full of hugely popular teams with large chequebooks. There are also many smaller teams that are desperate to compete despite their lower financial and reputational standing.

The best way for these teams to succeed is the Moneyball theory which attracted mainstream interest as a result of the popular 2011 Brad Pitt film of the same name.

Moneyball – based on a true story – revolves around Pitt’s character, Billy Beane, working with his deputy, Peter Brand, to use data analytics to assemble a competitive team despite having a shoestring budget.

This is more than a movie. It is just one of many examples of data analytics proving to be the ultimate equalizer in professional sports – just as it is in investing.

Furthermore, many of the world’s most successful “Moneyball” implementations have one thing in common: They are implemented by financial professionals.

Paul DePodesta – on whom the Peter Brand character was based – attended Harvard University, where he graduated with a degree in economics.

This qualification gave DePodesta an appreciation for the importance of data analysis and how this knowledge can cut through perception and sentiment to identify true value.

The only difference is that DePodesta used this to grow a sports team rather than an investment portfolio.

The Moneyball theory is not limited to the United States. In fact, it is more commonly seen in action in the most popular global sport – football.

There is a tremendous gulf in financial power between the most popular football clubs – like Manchester United, Liverpool, and Real Madrid – and the other teams they compete with.

This gap between teams is far higher for football teams than it is in the US sports leagues.

American competitions generally implement a salary cap, which limits how much any team may spend on player salaries and, by extension, how much a ‘big’ team can outspend a ‘small’ team.

By comparison, the salary-related rules for European football are almost negligible – skewing the advantage massively towards the clubs with the largest brands and financial resources.

However, in recent years, several smaller football clubs have embraced the Moneyball ethos, enabling them to punch far above their weights.

Perhaps the most well-known example is Brighton and Hove Albion, a football club that has spent most of its history outside of the Premier League.

However, the club has achieved tremendous success in recent years thanks to its analytics-heavy approach to player recruitment.

The Brighton and Hove Albion club owned by Tony Bloom – who, importantly, is an investment billionaire.

Leveraging his extensive knowledge and experience from his investing profession, Bloom set up a system that used data to emphasize the most simple investing advice—”buy low, sell high.”

The club has repeatedly succeeded in signing lesser-known football talents—most of whom are not on the “big” clubs’ radars—before selling them on to these same big clubs for a massive profit a few years later.

This money is then used to recruit more lesser-known talent, and the cycle repeats, with Brighton and Hove Albion succeeding on the pitch by enjoying the services of these once-hidden gems until a large enough transfer offer is received.

Examples of Brighton’s biggest successes include:

• Moises Caicedo
  • Signed for £4.5m in 2021
  • Sold for £115m in 2023
• Alexis Mac Allister
  • Signed for £7m in 2019
  • Sold for £55m in 2023
• Marca Cucurella
  • Signed for £15.4m in 2021
  • Sold for £63m in 2022

One way Brighton has found such impressive value is by signing talented players from obscure football leagues, where football clubs have far lower expectations for transfer compensation.

Caicedo, for example, was signed by Independiente del Valle in the top Colombian football division, while Argentinos Juniors of the Argentinian top flight signed Alexis Mac Allister.

These players are then sold to the largest football giants in Europe—Caicedo and Cucurella were both sold to Chelsea, while Liverpool bought Mac Allister.

The Brighton and Hove Albion strategy has since been embraced by several other smaller clubs. It serves as a reminder that strong transactional strategies and robust data analytics are the ultimate equalisers, both in sports and in investing.