Leitner, Christoph and Zeileis, Achim and Hornik, Kurt
Who is Going to Win the EURO 2008? A Statistical Investigation of Bookmakers Odds.
Research Report Series / Department of Statistics and Mathematics, 65.
Department of Statistics and Mathematics, WU Vienna University of Economics and Business, Vienna.
This June one of the biggest and most popular sports tournaments will take place in Austria and Switzerland, the European soccer championship 2008 (UEFA EURO 2008). Therefore millions of soccer fans in Europe and throughout the world are asking themselves: "Who is going to win the EURO 2008?" Many people, including sports experts and former players, give their guesses and expectations in the media, but there is also a group with financial incentives, like some economists who expect economical increases for the country of the winning team and bookmakers and their customers who directly make money with their beliefs. Some predictions are only guesses, but other predictions are based on quantitative methods, such as the studies of UBS Wealth Management Research Switzerland and the Raiffeisen Zentralbank. In this report we will introduce a new method for predicting the winner. Whereas other prediction methods are based on historical data, e.g., the Elo rating, or the FIFA/Coca Cola World rating, our method is based on current expectations, the bookmakers odds for winning the championship. In particular we use the odds for winning the championship for each of the 16 teams of 45 international bookmakers. By interpreting these odds as rating of the expected strength of the teams by the bookmakers, we derive a consensus rating by modelling the log-odds using a random-effects model with a team-specific random effect and a bookmaker-specific fixed effect. The consensus rating of a team can be used as an estimator for the unknown "true" strength of a team. Our method predicts team Germany with a probability of about 18.7% as the EURO 2008 winner. We predict also that the teams playing the final will be Germany and Spain with a probability of 13.9%, where Germany will win with a probability of 55%. In our study, Italy, the favorite according to the current FIFA/Coca Cola World ranking and Elo ranking, has a much lower probability than these teams to win the tournament: only 10.6%. The defending champion Greece has low chances to win the title again: about 3.4%. Furthermore, the expected performance of the host countries, Austria and Switzerland, is much better in the bookmakers consensus than in the retrospective Elo and FIFA/Coca Cola World ratings, i.e., indicating an (expected) home court advantage. Despite the associated increase in the winning probabilities, both teams have rather poor chances to win the tournament with probabilities of 1.3% and 4.0%, respectively. In a group effect study we investigate how much the classification into the four groups (A-D) affects the chance for a team to win the championship.