Competitive Strategies Unveiled

Focus on the Game – Long-Term Success On and Off the Field

In the football world, individual match results often create big headlines and heated discussions. But just as stock prices do not always reflect a company's true value, the result of a single match does not tell the whole story of a football team. To achieve long-term success, both on and off the field, football clubs need to focus on long-term strategy rather than short-term results. Let’s explore this further with insights from both football and business.

True Value on the Football Field

Just as a company has a true value based on its fundamental economics and future prospects, a football team has a true value based on the players' talent, the team's strategy, and the club's long-term goals. In the book "How Hard Can It Be?" by Mads Davidsen and Dan Hammer, the importance of football clubs sticking to their long-term strategy despite short-term setbacks is emphasized.

Robert J. Shiller’s research on stock markets showed that stock prices often overreact to short-term information. Similarly, football results can sometimes be misleading and exaggerated due to luck, injuries, or other external factors. A loss in an important match does not necessarily mean that the team is bad or that the coach's strategy is wrong.

The analysis of Legia Warszawa's managerial history provides a clear example of this principle in action. The data reveals that many of Legia’s coaches were dismissed following periods of poor short-term performance, as indicated by their low 5-match average points leading up to their dismissal. However, these short-term metrics often did not reflect the team’s overall performance for the season, which was typically more stable. For example, even when the 5-match rolling average was low, the season's average often remained relatively strong. This highlights the dangers of making hasty decisions based on short-term fluctuations without considering the long-term trend.

Market Noise and Match Results

Fischer Black introduced the concept of "noise" to describe irrelevant or exaggerated reactions to market news. In the financial markets, this noise can lead to significant short-term volatility in stock prices, which does not necessarily reflect the underlying value or long-term prospects of a company.

Analyzing Apple Inc.'s daily stock returns alongside a 180-day moving average of cumulative returns reveals a telling pattern: while the daily returns often exhibit sharp fluctuations, these short-term movements are smoothed out when viewed over a longer period. The 180-day cumulative return presents a more stable and consistent growth trajectory, underscoring the importance of focusing on long-term trends rather than reacting to daily volatility.

This same principle can be applied to football management. Davidsen and Hammer describe how short-term results are often overemphasized by both the media and fans, leading to poor decisions by club management. But just as executives should not make decisions based on daily stock price movements, football clubs should avoid making drastic changes based on a few matches' results. Instead, they should focus on the bigger picture, maintaining a steady course towards long-term goals.

Investor Sentiment and Fan Behavior

Malcolm Baker and Jeffrey Wurgler showed that investor sentiment can influence stock prices more than fundamental factors. Similarly, fan behavior and media reactions can influence decisions within a football club. When a team performs poorly for a short period, pressure from fans and media can lead the club to make hasty decisions, such as firing the coach or buying expensive players without a long-term plan.

The example of Legia Warszawa shows how fan and media pressure can result in the dismissal of a coach, even when the team's season-long performance is not as dire as recent results might suggest. This pattern reflects the broader issue of overreacting to "noise" rather than focusing on the long-term health of the team. Additionally, strong short-term results can have a similar effect. Clubs may become overconfident, or fall into "hybris," leading them to make costly and impulsive decisions, such as overpaying for players or neglecting essential long-term planning, which ultimately jeopardizes their future stability.

Strategic Planning and Patience

To achieve long-term success, football clubs must focus on strategic planning and patience. John Y. Campbell and Robert J. Shiller emphasized the importance of looking beyond short-term market fluctuations and instead focusing on long-term growth and stability. For football clubs, this means sticking to a long-term vision and investing in player development and team strategy, even if the short-term results are not always positive.

Strategic Insights for Football Clubs

1. Think Long-Term: Build the team and the club for long-term success instead of chasing short-term wins.
2. Communicate Clearly: Be open with fans and the media about the club's long-term goals and strategies.
3. Invest in Development: Allocate resources to developing players' talent and the team's strategy to create sustainable competitive advantages.

Conclusion

Focusing on the true value of a football team instead of reacting to every single match result is crucial for long-term success. By adhering to long-term goals and not being distracted by short-term fluctuations, football clubs can create stability and growth, both on and off the field. This strategy, supported by extensive research and insights from both football and business, is the key to building successful and sustainable clubs in a changing world.

Sources

• Davidsen, M., & Hammer, D. (2021). How Hard Can It Be? Strategies in football – on and off the pitch. Zuma Publishing.
• Shiller, R. J. (2000). Irrational Exuberance. Princeton University Press.
• Black, F. (1986). Noise. Journal of Finance.
• Baker, M., & Wurgler, J. (2007). Investor Sentiment in the Stock Market. Journal of Economic Perspectives.
• Campbell, J. Y., & Shiller, R. J. (1988). The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies.