Volatility, NFL Playoffs, and the True Value of a Harbaugh

Ahead of this weekend's wild card playoffs, how are the odds stacking up for each team?

Jan 2, 2015 at 9:44 AM
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The already high (on a relative basis) CBOE Volatility Index (VIX) got significantly higher on Wednesday. Again, it's kind of unusual given the holiday week and the fact that realized volatility is rather low. Smart money? Usually not, but we'll see. We'll also cover it more extensively next week when everyone's back at work. For now? Football! Playoffs!

I put each of this weekend's NFL games through my own numbers, and then simulated them on the "Madden NFL" video game many times each and adjusted the Madden settings a bit. Anyway, here we go:

Arizona Cardinals at Carolina Panthers

  • Panthers -6.5, Total 38 (Vegas)
  • Panthers -2.21, Total 41.7 (Me)
  • Panthers -4.44, Total 41.8 (Madden)

My numbers are purely objective and unadjusted for the fact that Carson Palmer and then Drew Stanton QBed the Cardinals for most of the year, but Ryan Lindley will QB them in the playoffs. Madden did have Lindley, though. Either way, it suggests the Panthers are a little high here.

That's my subjective opinion, also. I see Bruce Arians as just about the best coach since 2002 at adding value behind the actual numbers, albeit in a two-and-a-half year sample (I give him half credit for the 2012 Colts). The Panthers' four-game win streak looked great, but it included three games vs. the terrible NFC South and one over the flailing Browns. It's almost a "fooled by randomness" situation -- someone had to emerge "hot" from the NFC South.

I'm less sold on the over. If the Cards cover, it's likely because the game becomes a total grind.

Baltimore Ravens at Pittsburgh Steelers

  • Steelers -3, Total 46 (Vegas)
  • Steelers -1.54, Total 54.42 (Me)
  • Ravens -5.51, Total 43.37 (Madden)

It's pretty automatic for Steelers-Ravens to open at three points in favor of the home team. Feels like they're always playing each other, and both always good. My numbers have suggested high totals for the Steelers all year, and have not particularly loved them as a side. Conversely, they've loved the Ravens. Madden really loved the Ravens; they covered about two-thirds of the time.

On the other hand, this game fails the eye test. The Steelers finished the season well, while the Ravens looked pretty bad. I'll still say Ravens and under.

Speaking of the Harbaugh brothers ... Jim Harbaugh vs. 7 years, $5 million per year base salary, plus incentives -- I bring this one up because Bloomberg had a debate on whether any coach is worth this much. It's a very easy answer: Yes. There's no guarantee Harbaugh is that coach. But it makes 100% financial sense for a big, brand-name college football program to pay up for what everyone assumes is an elite coach. There's a tidal wave of revenue in college football and there's a huge economic difference between being a non-bowl/minor bowl program (Michigan now) vs. a big bowl/playoff team (Michigan hoping in the future). And, given there's an artificially fixed low cost for talent (players), where else should they invest the money? You can only upgrade the facilities so much.

I could use the same logic to say that college coaches should make way more than pro coaches, setting aside that it's not really the original purpose of an institute of higher learning (wink wink, nod nod). We're talking pure dollars here. Nick Saban produces considerably more marginal revenue for Alabama than Bill Belichick does for the Patriots. Not even close.

Cincinnati Bengals at Indianapolis Colts

  • Colts -3.5, Total 49 (Vegas)
  • Colts -2.83, Total 46.48 (Me)
  • Colts -1.32, Total 41.8 (Madden)

I have the point spread on the other side of the key number, but given the margin of error and the fact I'm sure I'll revise my methodology 10 times before next season, that's not significant enough to be noteworthy. Plus, neither my formula nor Madden factors in the Andy Dalton "Deer in the Shiny Headlights Effect." Plus, AJ Green might not play. I have this thought, really far in the back of my mind, that Andy Dalton is almost exactly where Eli Manning was before he got incredibly hot in the 2007 Super Bowl run.

I do show the total a little high, and Madden thinks it's very high.

Detroit Lions at Dallas Cowboys

  • Cowboys -6.5, Total 48 (Vegas)
  • Cowboys -3.12, Total 44.84 (Me)
  • Cowboys -6.29, Total 52.93 (Madden)

My system has over-liked the Lions defense all season. They're good, but not sure they're as good as I think. The Cowboys are on fire since Thanksgiving, especially on offense, which makes taking the under a tough proposition. The Lions maybe need to keep the game under control with pace. If the spread gets over 7, I'd like the Lions, but I'm pretty indifferent at 6.5. I'd lean under, but only at 50 and above.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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