Continuing my occasional foray into sports analytics, I look at the President's Trophy curse. This ubiquitous observation (ubiquitous in hockey circles, which you really should be in) can be summed up as “the winner of the President’s Trophy, awarded for the best record in the regular season, usually doesn’t go on to win the Stanley Cup, as of course they should. Thus, winning the trophy is cursed.”
It’s true. The President’s Trophy winner usually doesn’t win The Cup. It’s true and yet it’s still really dumb.
Since 1986, the year the trophy was inaugurated, the President’s Trophy winner has won The Cup eight times. That is out of 37 years. So that means 29 out of 37 years an inferior team (going by the regular season) wins the championship. Cursed!
Uh, no. The hockey playoffs have been 16 teams this whole time. If each of these teams had an equal chance of winning The Cup, that would be just over a 6% probability for each team in the playoffs each year. But the President’s Trophy winner has sported an almost 22% chance of winning The Cup (8 over 37). That’s more. A lot more. If the teams were equally probable to win The Cup, the President’s Trophy winner would’ve won an expected 2.3 championships over time instead of the 8 that the trophy winner did win. 8 is substantially more than 2.3. I’m willing to die on that hill.
Basically, you want to win the President’s Trophy.
Now for the requisite slight complications.
You could argue that “every team has an equal chance to win” is a better approximation post the hard salary cap (starting in 2006) than before it (it was never true, and isn’t true now, it’s just perhaps less untrue with today’s hard cap induced parity). Since the hard cap, the President’s Trophy winner has only won two Stanley Cups. That’s just over 11% of the time. Not the edge it used to be, but still a lot better than just over 6%. And cutting the sample in approximately half is losing a lot of data. So, I don’t think we can draw any conclusions about the post-cap era. But even if true, it’s still just exactly what you’d expect with a hard cap. More parity. Closer (not all the way) to an equal chance for all (who make the playoffs at all). But still not equal. It’s still better to have the best regular season record.
Two things I didn’t do because I’m lazy and—as much as I love hockey—this isn’t my day job.
One, check the teams with the second, third, fourth, etc., best records and check their historical frequency of winning The Cup. With a long enough sample I’d expect all the higher-ranked teams to have a higher-than-equal (1/16) chance, and I’d expect it to be declining in rank (so the second place team has less of a chance than the trophy winner, the third place team has less of a chance than the second place team, etc.). I’m too lazy to type in all data, and it would be a very small sample to cut so fine anyway. But if someone else does it, I’d like to see it!
Two, compare to other sports. That would be kind of interesting, though it isn’t super simple to do.
But, neither of these two unexamined questions change the basic conclusion for hockey and the President’s Trophy. You want to have the best regular season record if you want to win The Cup. But you still can’t expect to win it most of the time. That’s life with 16 teams (and maybe, maybe, a bit more so with a hard salary cap).
Oh, and if you think I wrote this because my team, The New York Rangers, won the President’s Trophy this year, and are about to start round 3 of the playoffs, you would be correct. LGR!!!
This document is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein.
This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and AQR Capital Management, LLC (“AQR”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. This document is not to be reproduced or redistributed to any other person. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance. Diversification does not eliminate the risk of experiencing investment losses.
This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Diversification does not eliminate the risk of experiencing investment losses.
The information in this paper may contain projections or other forward-looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this document, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.