Come Sunday, when the Green Bay Packers face off against the Pittsburgh Steelers in Super Bowl XLV, there will be a lot of numbers flying around. There's 11.2 million and 1.25 billion—the pounds of potato chips and total number of chicken wings to be consumed. There's $12.75 million—the amount Steelers quarterback Ben Roethlisberger makes per year in salary. And there's $10.1 billion—how much the National Retail Federation expects Americans will spend on the game.
Wall Street will parse those numbers and many more, and not just to make bets on the spread or to figure the teams' earnings reports. For nearly a half-century, traders have watched whether and how the big game impacts the markets, with a sense of humor more so than an eye for profit. And this year, they are gearing up for a bull market, one way or another.
So forget whether Super Bowl ads are worth it for the companies running them. (My colleague Tim Noah says no, by the way.) Instead, consider whether those companies are worth it for investors. A professor at the University of Wisconsin, Eau Claire, recently looked at the returns on publicly traded firms that ran Super Bowl advertisements, which are going for $3 million for 30 seconds this year. He found that companies that buy commercial time—like, say, Budweiser—beat the performance of the S&P 500 around the time of the game in 10 out of 12 years by a small but significant percentage.
"In essence, Wall Street rewards firms that run Super Bowl ads," prof. Chuck Tomkovick, who ran the experiment, explains. "It's a tradable event." Other studies have shown that when customers like a Super Bowl ad, the company's stock price tends to go up as well. So, trade away.
But Wall Street has much more analytically intensive ways to figure out what pigskin means for the financial future. Most notoriously, there is the Super Bowl Indicator, also known as the Super Bowl Predictor. It holds that a win by a team whose original home was the National Football League (that includes the Dallas Cowboys and New York Giants, among many others) tends to augur a bull market, whereas a win by a team that used to reside in the American Football League (the Denver Broncos or the New York Jets, for instance) means a bear market. The leagues merged in 1970, and the founding of new teams muddies the waters a bit—buyer beware. But the Super Bowl Indicator is clear in 2011: Since the Steelers and Packers are both old-time NFL franchises, we're in store for a bull market no matter who wins. Go crazy, everybody!
OK, perhaps a bull market is not guaranteed. Some naysayers scoff that the index is no more than mere coincidence and should even out over time. Some even note that the production of butter in Bangladesh predicts stock market movements with near-perfect accuracy—at least it did between 1983 and 1993—so all those football-obsessed traders should really focus on dairy products. But, well, it has been right 35 out of 44 times—a hardly shabby accuracy rate of about 80 percent.
The Super Bowl Indicator has gotten the academic treatment, with the Ivory Tower assessing it more than once. Back in 1990, two professors performed the first serious—very serious—analysis, finding the indicator to be correct 91 percent of the time between 1967 and 1988. And George Kester, a professor at Washington and Lee University, took another look at the predictor last year, placing his findings in the Journal of Investing. Kester figured out that it has become a touch less accurate, but that an investor who used the Super Bowl Indictator starting in the 1960s would have made twice as much as someone taking a more passive strategy. "The dollar values of the portfolios at the end of 2008 would have been $43,000 for a buy-and-hold strategy and $105,000 for the Super Bowl market-timing strategy," he notes.
The success of the indicator has led other traders to figure out football-based trading strategies. For instance, the program traders at HL Camp & Co. have come up with a huge number of correlations—causations?—between market movements and the game. ("We would not advise betting the farm on only one indicator," the company notes.) For instance, traders might want to go short over the weekend. "Since 1967, any Mondays after any Super Bowl Sundays have seen the Dow close negative 55.8 percent of the time," it notes. "More recently within the past ten years, these Mondays have seen the Dow close negative 60 percent of the time."
What does Wall Street have to say about this year's game? There are signs beyond the Super Bowl Indicator that the stock market will be heading up no matter who wins. The Dow Jones Industrial Average has never gone down in a year in which the Steelers have appeared in the Super Bowl—and, in fact, it has gone up about 20 percent, on average, when Pittsburgh has reached the title game. As for Green Bay, the Dow has picked up about 15 percent in the years the Packers made it to the big game.
So arbitrage away, Super Bowl traders. Who could lose?