by Declan Jordan

Fifpro, the international football players' union, launched an action with the European Commission last week to seek the abolition of transfer fees in professional football. They also want to see capping of agents' fees, limits to squad size, an end to the loan system, and limits to contract lengths. The latter points are necessary to address some of the implications of an end to transfers, as clubs could respond by keeping players on long contracts with perpetual loan periods which would be too expensive for players to break.

The proposals are radical, though probably seem even more so simply because football supporters, clubs, and players have become so used to transfers as a part of the game. This is despite the huge changes in player rights and transfer rules through the years - the most significant of which was the Bosman ruling enabling players to move clubs without a transfer fee after their contracts have expired.

The transfer system is a hang-over from the way football organised itself through the nineteenth and early twentieth centuries, when club owners retained huge power and players were badly paid and treated. This has meant that there is persistence in seeing football players as assets of clubs, which have come about through investment in player training and coaching. However, this would be a very peculiar view to take of players and would be inconsistent with every other industry, who also train staff and invest in them; and we would think it odd if a IT company sought a transfer fee for one  of its workers moving to a competitor. (Of course firms will always say that their greatest asset is their people - best not to go there). 

The existence of a transfer fee system limits the movement of players from employer to employer and requires a form of "ownership" of players, creating very highly payed slaves. It is difficult to see how the European Commission can rule that the football industry should be treated differently to all others and decide that the transfer system should be retained. It should be noted that Fifpro does not object to contracts for players (similarly to other industries) and that players would be required to honour contracts. However, it is presumed players can buy themselves out of contracts and clubs can end contracts by paying up the remainder of the money due under the contract. This is the case currently with managers.

So, what will be the impact of the removal of transfers? Stefan Kesenne of the University of Antwerp presented on this topic at the recent European Sports Economics Association conference in Zurich. The paper does not seem to be online but a similar presentation is available here. Prof Kesenne makes a very strong argument for the abolition of transfer fees. He recognises however that there may be implications for smaller clubs who invest in player coaching only for those players to move on to bigger clubs, who would act to hoover up top talent. This may not be dissimilar to the current situation of course, but the smaller clubs would lose out on the 'compensation' of a transfer fee. This may result in clubs under-investing or not investing at all in player development.

Prof Kesenne's solution is a Training Compensation Fund, where all clubs pay in an amount in proportion to their turnover and each club is paid from the fund based on the quantity and quality of their coaching schemes - irrespective of whether the player stays or leaves the club. This is a radical and potentially very positive proposal. There are some difficulties that I can see with such an approach, but these may be surmountable. The fund is managed on a league by league basis, but there are increasingly player movements between countries - so such a fund would need an international dimension. Also, it generates a strategic game (just like the current system does in a different way) in that it creates a known amount that a club must pay for player development e.g. 10% or 20% of their budget. Larger clubs could decide to forego this amount and not invest in player development, instead sitting back and taking the best talent from the other clubs' schemes. The method of assessing quantity and quality of player development at each club would be problematic, and this is an essential element of the fund to make it worthwhile for smaller clubs to invest. 

The paper prompted me to think of other alternatives to a transfer system that would still incentivise clubs to invest in player training. This is a problem in all industries of course where staff training may make employees attractive to other companies who then hire them away. Research and development involves a similar type of approach to player development in football. Some players will be successful and some will not - just as some R&D will result in new products and some will not. In the absence of some way of appropriating the returns to R&D, businesses will under-invest in knowledge production because competitors could simply imitate without incurring the fixed cost of generating the knowledge. To overcome this problem, there are patents which provide a monopoly right to use a piece of knowledge for a specified period, after which it becomes freely available. Perhaps a similar solution is possible for football talent, where a club that develops a young player is granted a right to a royalty for a specified period of time (though the problem of identifying which club should hold such a right may be difficult where a player moves clubs at a young age). So, in this case a club would be entitled to a fee - linked to the player's wage level and perhaps payable by the player himself - for a period of 5 years. This would incentivise clubs to invest in developing young players and making them as good as they can be to maximise the value of their investment.

There is little doubt that transfer fees are unlikely to persist in the medium-term. Innovative solutions will be needed to avoid a situation where football becomes even more polarised between elite and other clubs.

by Declan Jordan

Of course the new English football transfer record set by Manchester United this week in signing Angel Di Maria from Real Madrid is generating a lot of column inches. In coming days we can expect to see some questioning the amount of money being spent on a footballer and whether this is moral. We saw similar pieces after the previous record signing of Fernando Torres by Chelsea from Liverpool in 2012. 

Robbie Butler posted on this blog a couple of times about the importance of adjusting for inflation when comparing transfer fees in deciding which are the largest transfers. Equally it's important to have a mechanism for comparing transfer fees across time. For example, how do we compare the transfer of Di Maria in 2014 to, for example, the then record transfer of another Manchester United Number 7, Bryan Robson from West Bromwich Albion in 1981 for £1.5m?

One approach would be to compare the purchasing power of the transfer fees in terms of another product. The graph below shows the number of average price houses that could be purchased with each record transfer fee paid by an English club. The data on transfer fees is sourced from Wikipedia (health warning attached) and the data on house prices is sourced from the Nationwide House Price Index (a little less of a health warning). The house price is the mean price for all housing units taken for the last quarter of the relevant year. This may be an appropriate benchmark as both are capital rather than current expenditure. Of course, housing will be a longer term investment than a striker.

So, in 1951, Jackie Sewell went from Notts County to Sheffield Wednesday for £34,500. That was the equivalent of 18 average priced houses. Angel Di Maria's fee is the equivalent of 320 houses. It's clear that football transfer fees have risen significantly in a relative context over the last 60 years. What is interesting, I think, from the graph is the decline in relative transfers fees through the 2000s - since these are all record transfers it must be driven by a booking UK property market. The Di Maria transfer is not significantly higher in relative terms than the transfer of Sebastian Veron from Laxio to Manchester United in 2001 for £28.1m. I really hope this latest transfer of an Argentinian to United works out a lot better than the last one.

While gathering the data I also came across an article with the cost of everyday consumer items in 1973 and 2013. It may also be useful to see how many of these products could be purchased with the record transfer fees at those times. Using the prices from 1973 and the nearest record transfer to that time (Bob Latchford from Birmingham to Everton for £350,000 in 1974) it's possible to compare the Di Maria transfer in terms of purchasing power. The table below shows how many of the products could be purchased with the transfer fees and the multiple increase. So one Bob Latchford would have bought 5.8 million pints of milk in 1973 and one Angel Di Maria would get you just under 130 million pints now. That's a 22 fold increase.

What's noticeable in the table is the differences in the rate of increase for some products. While Di Maria is equivalent to 22 times more milk than Latchford, he would 'only' but 8.3 times more lager and 9.7 times more diesel. This indicates the choice of reference point can provide somewhat different stories.

By Robbie Butler 

This week Sky Sports reported that more than £660,000,000 had been spent on transfers during the 2014 Summer Transfer Window. This figure will break through the £700 million figure once Angel di Maria signs for Manchester United, and with the window not closing until Monday night, will no doubt rise further. The table below lists the sixteen most expensive transfers during the current window (including di Maria), each of which broke through the £20 million barrier.

It may seem crazy but £20 million is no longer an absurd amount of money to spend on a player. In fact, bids of this size raise few eyebrows in the world of football. While it’s obvious to see that transfer fees have increased in size over the years it’s more interesting to consider the ‘real’ value of a transfer through time. I previously investigated this with Cristiano Ronalado and Gareth Bale and showed that despite the fact Bale was bought for £85.3 million in 2013, Ronaldo was actually more expensive. The £80 million spent on the Portuguese star in 2009 was the equivalent of more than £90 million in 2013, when taking inflation into account.

But what about historical transfer fees? Where would these stand if one were to consider the impact of inflation over the years?

Given my age, I’m a little biased when it comes to where to start. For me Diego Maradona is the greatest player that’s ever played the game. The Argentinian was the most expensive player in the world twice, the second of which was his £5 million move from Barcelona to Napoli in 1984. It’s this point from where we start. The table below lists every transfer that broke the record transfer fee since 1984. Sixteen transfers are reported with the nominal fee (what was paid) listed next to the real fee (cost in today's money). 

It's clear to see that not only have nominal transfer fees soared but so too have real fees. Diego Maradona cost Naopli a mere £11.9 million in real terms today. Roberto Baggio cost less than £15 millions in real terms. The pending transfer of Angel di Maria to Manchester United is just less than the money paid by Real Madrid to Juventus for Zinedine Zidane. Di Maria is an excellent footballer but I'm not so sure he's a 'Zidane'.  

There are various reasons for the huge surge in the real cost of transfers over the past thirty years. TV broadcasting revenue have risen exponentially over the course of the past two decades. Merchandising is at saturation point and is now truly a global thing for the world's top clubs. Ticket prices have also soared. Attending football matches, historically a past-time of the working class, is now a pursuit for those with money. All of this means that transfers and by extension wages have rocketed since the early 1980s. If Maradona were playing today he likely to be sold for closer to £119 million rather than £11.9 million. What a bargain he was. 

By Gary Burns

A‘Franchise Tag’ is a concept that exists in the NFL that allows each team (franchise) a once off mechanism to restrict the movement of a player that is (generally) due to become a free agent. This restricts from a player in that year from moving to another team. The window to apply the tag opened on Monday 17th February and will close on the 3rd of March.

Due to the differences in wage caps and not having transfer fees, it is almost impossible to apply to concept to association football but is a novel idea to think about all the same.

There are two types franchise tags, exclusive and non-exclusive and can get quite complex as there is also a transition tag. I’ll focus on explain the exclusive and non-exclusive tags here. Contracts in the NFL work as per association football but transfer fees are not offered to contracted players to move to other teams and once a contract ends a player becomes a free agent and thus is free to discuss, with other teams, terms and conditions. The equivalent of a footballer who is out of contract. There is also restricted free agency where the NFL team in which the player is currently playing for has the option to match other offers made to that player. Finally an NFL franchise can apply one ‘Franchise Tag’ per annum to one player to keep them at the team for at least  one more year. There is set ‘Franchise Tag’ wages for the player depending on their position. For it to be an Exclusive Tag According to the NFL's collective bargaining agreement, the player must be paid the average salary of the top five players at his position or 120 percent of the player's previous year's salary, whichever is greater. The player is guaranteed his salary for the next season and the club is guaranteed his services. 

A non-exclusive Franchise Tag, allows the player to negotiate contracts with other teams with their current team is given the right to match whatever contract they sign, if the team decides not to match the contract they are given two first-round picks as compensation for the loss of the franchise tag that year. The contract salary formula for a non-exclusive Franchise Tag is based off the average of the last five years of salaries for the top 5 players at that position.

Teams can keep prized assets for another year so new longer term contracts can be negotiated or they can position themselves for when the player eventually leaves. 

The economics behind the concept is important as the mechanism is designed to reduce player movement. As with the Draft system in the NFL, it does not allow dominant markets (teams) to emerge as have happened in football. Coupled with salary caps, it promotes competitive balance. 
 
A team can tag the same player for consecutive years but will have to pay 120% in the second year of the salary and 144% of the second tag salary if the wish to pursue a third year which is highly unlikely. 

Problems do occur of course. At the moment the biggest story stateside is that of New Orleans Jimmy Graham. The New Orleans Saints wish to apply the tag to Graham but as a Tight End. Graham believes he is a Wide Receiver. The salary disparity is nearly $5m depending on whether he is designated as a tight end or wide receiver.

So applied to Association Football, what franchise tag would you apply to your team to restrict a player leaving in another year? With Wayne Rooney’s reported£300,000 per week contract almost agreed, assuming an opportunity cost of a large transfer fee for Rooney maybe Manchester United would have been better served allowing him to become a free agent in 2015(when current contract is up), apply the franchise tag and keep his services until 2016 when he would be 31 that October? Instead they will probably contract Rooney until 2019 when Rooney will be in his 34th year.

by Declan Jordan

It's hardly surprising that the focus of attention for football writers lately has been the 'will-he-won't-he' Bale transfer saga and the Rooney, Suarez and Fabregas rumour mills. These are all big transfers involving significant amounts of money, and even if the Bale transfer to Madrid is not the biggest in real terms (pun unavoidable) as colleague Robbie Butler points out here, £80 million is a lot of money to spend on a footballer.

But when I hear these large numbers thrown around I'm reminded of an old joke about an economist walking down the street who was asked by an old acquaintance how his mother was, to which the economist replied "Relative to what?". While Real Madrid may spend £80m on Gareth Bale and Manchester United may spend £35m on Cesc Fabregas, is this really a lot of money for these clubs? And is there a way to compare the profligacy of clubs in the transfer market?

It is very common in economics to control for size effects, for example to compare the wealth of countries we use Gross Domestic Product (GDP) per capita or to measure productivity we use GDP per worker. This allows comparison between different countries of different size. It should also be the case that transfer fees should be controlled for a variable that allows comparison between clubs. All transfers involve risk but an £80m punt on Bale may be less of a risk for Real Madrid than an £80,000 punt by a League of Ireland club.

So, if we control for size of a club, using annual turnover, which Premier League teams have been most profligate this summer and who have been the big signings? First of all the limitations in the data have to recognised. It isn't easy to get turnover data for football clubs - this is a usual source. Turnover for 2012 is the most recent. Also, there is no data for the newly promoted clubs. These clubs are about to experience a significant increase in turnover from promotion. Comparing turnover for previous years for promoted clubs, it is likely that these clubs will experience an increase of about £20m. This has been added to 2012 turnover for newly promoted Crystal Palace, Hull City and Cardiff City.

The other complication is the reliability of the transfer fee. I am using this list of summer transfers with reported transfer fees - it seems as good as any and since I am concerned with comparing fees rather than the nominal amount a systemic understatement or overstatement shouldn't be a problem.