For all those people who have heard of Super Bowl in passing conversations but never really decided to delve into understanding what it is, Super Bowl is the annual championship game of the National Football League (NFL). The NFL is divided into two conferences – the National Football Conference (NFC) and the American Football Conference (AFC). In 1966, the merger agreement between the NFC and the AFC stated that there would be a championship game that decided the champion of the NFL as a whole, and hence Super Bowl came into being.
The Super Bowl has been played on the first Sunday in February and is said to rake in millions of dollars through advertising (the cost of a half minute commercial is $5.5 million). It is the most watched annual sporting events in the world with the exception of the UEFA Champions League final. However, the viewership of the Super Bowl is highly domestic, which a majority of its viewers residing in North America. Super Bowl halftime shows are the most popular part of the event, lasting for an entire thirty minutes. Michael Jackson, Whitney Houston, The Rolling Stones and Lady Gaga have been some of the most popular performers during this time.
What does a football game have to do with economics? Leonard Koppett, a sportswriter for NY Times, introduced the Super Bowl Indicator in 1978 where he summarized it as a theory that the winner of the Super Bowl would foretell the trend for the stock market in the future. To elaborate on that, it essentially meant that if a team from the AFC won, it would be a bear market (i.e., decline in the stock market) whereas if a team from the NFC won, the stock market would rise in the upcoming year (i.e., it would be bullish). Up until the time Leonard Koppett first noticed it, it had not been wrong even once and till January 2020, it still held true for about 75% of the time (it was correct 40 times out of 53) in predicting the outcome of the S&P 500.
“Correlation does not imply causation” – This essentially means that just because we have seen a relation between the winners of the Super Bowl and the trend of the stock market, there isn’t a formal relation that actually causes this hence, we shouldn’t really believe it and base our decisions on its basis. However, this hasn’t stopped people from speculating and discussing about it.
According to a research by LPL Financial, the S&P has returned about 7.1% on an average in years when AFC has won and an average of 10.2% in the years when NFC has won. The market return average since 1967 has been 8.7%. As seen by these figures, the Indicator does have some substance to back its claims however this can only be done in hindsight and we should not take it as a basis for investment decisions. Additionally, the S&P has returned 26.4% per year in years in which the Tampa Bay Buccaneers won the Super Bowl (which has been only once in 2003 when the stock market was recovering from the Internet bubble).
Another theory surrounding the Super Bowl Indicator is that the more intense the TV advertising done by a group of companies belonging to a specific industry, the more likely it is that the stocks of those companies will perform poorly in the year ahead. This doesn’t predict the market trend as a whole but rather it focuses on the trends of various sectors. In the 2000s, during the dot-com bubble, majority of the companies that were advertising were Internet companies. In 2014, 11 out of 30 advertisers were automobile related companies and their stocks faltered in the coming year.
This year, on 7th February 2021, Super Bowl LV (fifty-five) has taken place between Kansas City Chiefs (belonging to the AFC) and Tampa Bay Buccaneers (belonging to the NFC). If we are to believe in the Super Bowl Indicator, we have a bullish year in front of us and seeing the current market conditions, I think that with the markets touching record highs, the indicator will not let us down.
Anyone foolish enough to bet on a game based on the stock market, or credulous enough to believe a football game can forecast the stock market, probably should hire a money manager, or a psychiatrist, or both. – Floyd Norris