The Soccer Power Index, or SPI, is a power ranking of not just how a team has performed, but according to ESPN it is an objective measure of a team's current overall skill level and the SPI ratings are intended to be forward-looking so as to measure a team's relative likelihood of victory if a competitive match were to be held tomorrow.
The formula for devising the ratings is explained in detail here. A more layman's explanation of the purpose of the SPI is provided here.
Though the formula for the ratings is complicated, it's not arbitrary and convoluted; it makes sense. I won't go into detail explaining the system, but anyone knowledgeable about soccer would agree with how ESPN determines much of the formula. There is a lot of adjusting going on because in soccer, unlike most sports, who and where you play make a huge difference, and the ratings are not meant to rank past performance but predict future performance.
Home field advantage is much more important in soccer than in any other sport. Undeniably so. And goals for/against must be adjusted for competitiveness - not just the opposing team (Australia beating American Samoa 31-0 is really like a 4-1 victory between average teams) but also for the particular lineup of both teams. Makes sense that a victory over a B team is not as impressive as a win against a ful strength squad. Similarly, we know that a victory in CONMEBOL qualifying is worth more than a CONCACAF victory, and a Confederations Cup victory is more impressive than a Gold Cup victory. Interestingly, the ratings also use club results as a factor. So every time Barca crush someone via goals by Ibra and Messi from Iniesta assists, Sweden, Argentina, and Spain all benefit. Makes sense if you're evaluating current skill level. And even those numbers are adjusted to take into account the performance within the greater team - soccer is truly the most team oriented sport. The end result is a rating of a team's current skill and competitiveness level.
Though not shown in the ratings explicitly, the SPI formula essentially creates rough equivalencies between national teams and club teams. So Brazil = Barca, Germany = Chelsea (shocking comparison, I know), Sweden = Tottenham (about right), Bolivia = Sunderland (a little generous for Bolivia I think) and Tanzania = Derby County. Who is the USMNT equivalent? FC Porto. Style notwithstanding, the place in the larger order of giants of world football seems about right: dominant in their league/region, can spring upsets against any team in the world, can even advance from group stages and possibly another upset beyond, but not expected to win the whole thing (or really even be a semi-finals level team) - applies pretty well to both I'd say.
So what about the actual ratings? Brazil and Spain are 1-2. Can't argue there. England as no.3? Hmmm. But when you examine their qualifying results, the skill level and how they've played under Capello, I see why they're high, though this is the one of the teams that the SPI seems to have gotten clearly wrong in my eyes. I'd have them closer to 7 or 8.
The full top 25:
1. Brazil, 2. Spain, 3. England, 4. Netherlands, 5. Argentina, 6. Germany, 7. Portugal, 8. Chile, 9. France, 10. Uruguay, 11. Ivory Coast, 12. Italy, 13. Russia, 14. USA, 15. Serbia, 16. Cameroon, 17. Paraguay, 18. Mexico, 19. Croatia, 20. Ukraine, 21. Denmark, 22. Honduras, 23. Sweden, 24. Australia, 25. Czech Republic.
Some people might say the US is a little high, but really, this is about right. The USA is better than Mexico and Honduras obviously, and has beaten Sweden twice relatively recently. Maybe Serbia, Cameroon, and Croatia all have talents well above the US (players like Nemanja Vidic, Samuel Eto'o, Ivica Olić, and Luka Modrić) and I wouldn't argue if they were rated higher than the US, but as a team you'd have to say that a match between any of the four would probably be pretty close, with home field advantage or neutral field playing a big role in who gets the advantage that particular game.
The SPI ratings are also much better than FIFA's rankings. The US is not the 11th best team in the world, but 14 is a little more appropriate. Chile (17th in the FIFA rankings), Uruguay (25?!), Ivory Coast (19?!), and Serbia (20) are all given their proper due in the SPI, while Italy is rightfully dropped eight spots. Croatia may have a gripe, dropping from 8 to 19 between the two polls. But they also only finished third in their qualifying group behind England and Ukraine, only above superpowers Belarus, Kazakhstan, and Andorra. I also like how the SPI righted the fact that FIFA has Switzerland and Greece in the top 16 (absolutely no way) and Bosnia makes a significant jump from FIFA's ranking of 42 to 29 (as I've been telling people, Portugal has to watch out, especially with Ronaldo ruled out of their playoff tie).
Anyway, it's nice to see a ratings system like this that uses advanced statistical analysis and takes into account the unique factors of soccer without just giving credit to teams for beating up on lower opposition (BCS...). Plus, it's always fun to have one more thing to debate.