In the past, the football transfer market was in the balance as the competition was not as fierce as it is now. Meaning while buying a new player, clubs mostly paid a transfer fee around the objective value of a player. With the entrance of oligarchs, sheiks, and investors to the football industry, this rule has lost its validity. Suddenly, clubs could not only spend what they earned but had much more money at their disposal due to the high investments from outside the football industry.
These investments cause massive disruption to the football industry. Certain clubs have unlimited money available and endanger the future of the football industry by damaging the market by disregarding the basic rules. The logic in the market changed from paying the market value of a player to spend whatever amount of the personal wealth in the desire to attract the best players to its team and win European titles.
Transfer analysis
In the summer of 2017, transfer spending in the football industry burst into a new dimension. PSG through its owners from Qatar bought Neymar from FC Barcelona for a record sum of 222 Mio. Euros. With that transfer, the whole market was disrupted. In this short article, I would like to analyse the inflation throughout the transfer market due to the spending to buy Neymar.
As we can all imagine, the negotiation position for FC Barcelona was very weak when the whole market knew that they carry a pocket full of money. To replace Neymar Barcelona had to pay a price over the market value and this development has taken place throughout the entire football industry as clubs that sold players to Barcelona faced the same problem in their negotiation position. With data from www.transfermarkt.ch, I calculated the inflation that happened throughout the football industry’s transfer market.
Table 1
Difference between transfer fee paid and actual market price in 2017/2018 season
Level 0 shows that PSG overpaid 122 Mio. Euros (transfer fee of 222 Mio. minus the actual market price of 100 Mio.) for Neymar and started the inflation in the football industry’s transfer market. Barcelona replaced Neymar with Coutinho, Dembélé, and Semedo from Liverpool, Dortmund, and Benfica. As mentioned above the negotiation position for Barcelona was very weak due to the full bank account. On average they overpaid for these three players around 58 Mio. Euros (highest overpayment for Dembélé by 102 Mio. Euros).
On Level 2 the negotiation position for Liverpool and Dortmund was now weak too as everyone in the market knew that they received a huge transfer fee from Barcelona. The same phenomenon happened, and the three clubs overpaid on average for a player around 10 Mio. Euros (highest overpayment for van Dijk by 54,65 Mio. Euros).
It is interesting to note that even on Level 3, 4, and 5 clubs had to overpay for their replacements. And on these levels, we do not only talk about Europe’s top 5 leagues but most of the transfers on this level were made by clubs from smaller leagues in Europe and South America for example. At these levels, it is actually very important for clubs to invest their money intelligently in order to keep up with the richer competition.
Table 2
Total overpayment per level in 2017/2018 season
While calculating the overpayment of all six levels, we can see that the market was inflated with a total of 767,74 Mio. Euros. This sum only reflects how much the clubs have overpaid for their transfers and does not illustrate the whole money flow into the football industry. If we put this figure in relation to the Premier League’s total transfer spending in the 2012/2013 season (in two transfer windows they spent a total of 775 Mio. Euros), only then we realise how insane this sum is. Within 5 years, the market has developed to such an extent that more money is wasted by overpaying for players than was previously spent in total.
Conclusion
It is interesting to see the far-reaching consequences on the transfer market if a club breaks the supply and demand balance and heavily overpays for a football player. The consequence is inflation as the transfer market is bombarded with money. Due to the reason that the whole football industry knows which clubs earned a lot of money from their transfer, the same clubs need to heavily overpay for their replacements. A lot of smaller clubs can profit from this inflation by selling their players overvalued to other clubs. However, the analysis showed that most clubs just had to reinvest this money into replacements for whom they had to overpay as well.
With more and more high-spending investors coming into the football industry, the situation of inflation in the football industry is likely to continue after the recovery of covid. In this situation lies a huge potential for football clubs. By using big data to drive decision-making in the recruitment process allows clubs to find undervalued players that can be sold at a premium to the overpaying competition. The excess of money can be strategically used to develop the club on and off the pitch and gain further competitive advantage. FC Midtjylland and Brentford FC are good examples we all know.
Limitation of the study
In this study the length of the player’s contract and the players value within the clubs was not included. These are possible factors that can influence the actual transfer fee to be paid. Furthermore, the entrance of investors to the football industry is not the only cause for this development. A certain part can also referable to the ever increasing TV rights in Europe’s top 5 leagues, especially England.
Author: Olivier Wicki