Alpha Generation in the NFL
Feb 11th, 2007 | Filed under: CAPM / Alpha Theory“NFL Alphas”
Admittedly, alpha is a bit of an obsession for us at AllAboutAlpha.com. We view alpha as the “magical”, un-replicatable, skill-based, value-add produced by human creativity. In a world where nearly everything can be explained by systems, just about the only thing we can’t synthetically and cheaply replicate is human ingenuity. In other words, what we can’t explain using known variables we chalk up to “alpha”. This applies to financial markets, business, education, the arts, and even - as this article points out - to American football.
Analytic Investors (see previous posting) calculates an “alpha” for NFL teams at the end of each season of American football. They define this alpha as “the extent to which each team exceeded or underperformed its expectations”. Essentially, they attempt to identify how well a team performed given the raw materials available to it. While a comprehensive list of these raw materials isn’t listed anywhere, the “market” (i.e. bettors) collectively defines them via predicted margins of victory. We might refer to this alpha - this unexplainable quality - as “heart” or perhaps “skill” displayed by the head coach in making the most with what he was given.
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