The Unpredictable: Lessons from a Black Swan Event in WFM

A "Black Swan Event," as described by Nassim Taleb, is "an unpredictable event that is beyond what is normally expected in a situation and that has potentially severe consequences." From a WFM perspective, these events often fall within the realm of demand forecasting. Typically, forecasters rely on historical trends and forward-looking assumptions to make educated guesses about how demand will shape in the coming days, weeks, and months. However, certain events can completely upend these assumptions, rendering the current forecasting model ineffective.

I recently encountered such a situation surrounding the Jake Paul vs. Mike Tyson fight. Generally in sports betting demand, after the first few weeks of the NFL season, demand trends downward, with volume stabilizing as Q4 progresses. Conversations with colleagues in marketing and their forecasts suggested this fight night, scheduled for a slower weekday like Friday, would be relatively uneventful. At best, I anticipated a slightly busier day, akin to a major UFC fight night, but nothing approaching a Black Swan event.

Then everything changed. The Google Trends data revealed the explosive interest in this event when comparing search terms like "NFL," "Jake Paul vs. Mike Tyson," and "UFC." The interest in the fight went parabolic, far exceeding daily volume forecasts and defying all reasonable expectations. To put it in perspective it was one the busiest nights of all sports betting calendar year.

Could this have been predicted? Hindsight, as always, is 20/20. However, this experience highlights the need to consider new variables in future forecasting models. For instance, this fight was one of Netflix’s first live-streaming events, which vastly expanded the audience compared to traditional pay-per-view platforms. Pay-per-view fights typically garner a few million viewers, whereas Netflix, with over 75 million subscribers in the U.S. and Canada alone, represented an audience base 20 times larger. Another critical factor was the salience of the fight itself. Mike Tyson is a household name, and his enduring popularity likely played a significant role in driving interest.

Lastly, Black Swan events will continue to occur. It’s important to learn from the experience and update the models to increase forecasting robustness in the model. Furthermore, its critical to have contingency plans and scalable solutions to ensure that any resulting backlog of tickets can be managed efficiently. I’ll dive deeper into contingency strategies in next week’s article. All in all, it was a fun night and a valuable learning experience!