Written by Omri Orgad, Managing Director, North America, Luminati Networks
In the film Moneyball, mainstream audiences saw for the first time how the data-based strategies that had long been adopted by financiers and businesspeople could be deployed by sports teams who wanted to gain an edge over the competition.
However, in 2020, the tables have turned. It is now professional sports teams such as the Premier League, NFL and NBA that are setting an example for UK businesses when it comes to using “alternative data”. This is where data from untraditional mostly online sources, covering everything from social media data to job postings or new vehicle registrations, is used to calculate the predicted return of big contracts such as one the £235 million deal Inter Milan are considering offering Lionel Messi if he leaves Barcelona next year.
With the currently chaotic (to say the least) economic environment, UK businesses could look to how these teams use data that goes far beyond obvious metrics like on the field performance to decide where they dish out their money, and to make decisions when the stakes are high and the returns are hard to quantify.
What online data professional sports leagues look at to make decisions
Though it’s fairly well-known that the Premier League has been employing data scientists to make decisions based on in-game performance metrics such as striking accuracy, most people don’t realize that many more types of data are taken into consideration than this. When clubs are spending millions on a single player, online data like merchandise sales, local property prices, game-day tourism spikes, and the effects of similar decisions made by competitor clubs are looked at to determine the potential return on investment. This online data is used to predict the effect that a deal could have on their ability to sell tickets, merchandise and even food at the stadium. After looking at this data clubs can then determine that they can increase ticket prices by say £6 pounds each, meaning that these jaw-dropping contracts can be logically justified. Though a player’s skills are undoubtedly important, it is only a small portion of a much more nuanced, quantitative decision-making process.
When it comes to Premier League decision making, it would be naive to think that profit isn’t the primary name of the game, but wider social factors also play an important role in large contracts. Signings can create many jobs in the local area and can even raise property prices nearby. For example, in Lebron James’ time at the Cleveland Cavaliers and Miami Heat, employment in the local area rose by around 23.5% and the total number of bars in the arenas’ direct vicinity rose by 13% according to the Harvard Kennedy School.
It is obvious that contracts on the scale of the Premier League in 2020 are methodical decisions based on online data. They are evaluated on a precise expected return on investment that is calculated on factors much deeper than projected merchandise or ticket sales. A player’s brand name, their social media following, broadcasting rights negotiations and even their effects on domestic tourism are all considered. So as sports contracts get more eye-watering every single year, fans can be confident these are significantly more rational than they may appear (though this may be little consolation to those of us bringing in significantly less per week).
What UK businesses can learn from how professional sports use online data
One area where professional sports have a lot to teach businesses is where they source all this data from. Contrary to what you might initially think, most of the data they use is publicly available online. Regional employment statistics and local economic reports can be found via sources such as those published by the Office of National Statistics, and local property prices can be calculated using data from free online from resources like Rightmove. This can all be collected in a simple and pain-free manner using automated data collection platforms. Data is the bedrock of all modern business decision making (and sports are no exception), and the worldwide web represents the largest source of data the world of ever known and should be tapped into.
So why is it so important that UK businesses take note right now? The avenues that businesses have traditionally looked at to inform their decision making, such as company reports, or reports issued by analyst houses are simply nowhere near fast enough to deal with the current pace of change, where government regulations vary almost weekly directly impacting consumer behaviour. Real-time online data may go a long way towards giving businesses the agility they need to make the right decision in tumultuous circumstances. So as businesses look to allocate their capital when returns are hard to predict, they should look to how professional sports teams incorporate the widest possible variety of online data into their decision making to get it right.