The Economics of Sport
  • Sports Economics
  • About
  • Workshop
  • Selected Publications
  • Book Reviews
  • A Primer on Gaelic Games
  • Upcoming Events
  • Media
  • Education
  • Resources & Links
  • Data

Valuing A Bale-Out

31/7/2013

 
By David Butler

When the back pages of the Sunday newspapers suggest that Real Madrid have made an offer of €95m euros for Tottenham wide-man Gareth Bale, it reminds me of how odd the labour market for sports stars really is and how interesting it is to study.

The answer may appear easy but valuing the worth of sports stars is extremely difficult. First for the technical interpretation; Gareth Bale and other world class footballers are what economists call ‘inelastic in supply’.  Economists would say that Gareth has an extremely high marginal productivity of labour (over the rest of us on the football pitch) and is the one who, if reports are anything to go by, would receive €10m a year for plying his trade with Real Madrid. To put this simply, there are very few players on the planet that have the ability of Gareth Bale. 

Given his unique talents and the relentless pursuit of billionaire owners to win, we can begin to explain the
considerable valuations and wages of top footballers with the same logic economists use to explain anyone’s wage rate in the labour market. It’s a case of supply and demand; while there are plenty of economists to replace me in my
job, there are very few, if any, close substitutes for Bale.

Of course, the matter of valuation and the quoted €95m euros is more complex than this. Explaining figures like this one has a long history.  Early attempts to understand the economics of sport and valuation were made in a seminal article by Simon Rottenberg in 1956 in the Journal of Political Economy and in the late 1960’s Peter Sloane became the first to address the transfer market from an institutional perspective. Since then the modelling of player valuation and the determining factors of an individual’s transfer fee has become of increasing interest to sports economists and ‘took off’ in the 1990’s with the growth of the English Premier League.  
 
So what characteristics determine a footballer’s value?

Fiona Carmichael and Dennis Thomas attempted to answer this question in 1993 and used data from 214 transfer during the 1990-1991 English First Division League season. They found that the league position of both the buying and selling club were not statistically significant variables when determining a transfer fee. In 1997 this finding was corroborated by Alan Speight and Dennis Thomas who looked at 217 arbitrated settlements on disputed transfers. Further studies have found additional variables, which one would expect to be correlated to a player’s fee, not to be statistically significant. A surprising example being a player’s number of previous clubs (Reilly and Witt, 1995).

In 1999 and the early 2000’s the movement to understand valuation gained speed as a set of academics including Stephen Dobson and Bill Gerrard developed an approach that uses what are called bargaining models to address the topic of player valuation. To reduce this to its bare bones, a player’s valuation was thought to be a consequence of personal characteristics (age, international appearances etc.), the selling club characteristics, the buying club characteristics and time effects over multiple seasons. Dobson and Gerrard assessed the issue of valuation with the largest sample size to date; while free transfers were not included, a sample of 1350 players was compiled. Their work around this time implied that a club’s position in the previous season had little impact on a footballers transfer fee and that transfer valuations differ between transfer market segments.

The work in the late 90’s and early 2000’s really underlined how complicated the market for footballers was but others have tried to understand the market too – and the results of what determines a player’s value are quite mixed when other studies are considered. Indeed, contrasting evidence suggests that the consensus as to the precise determinants of a transfer fee is absent. Career matches’ played and international caps attained, two logical influences that one would expect to influence a transfer fee were found not to be statistically significant by Bernd Frick in his 2007 paper.  
 
While rapidly evolving European football and the fact that player samples were taken from different European leagues may go some way to explaining the constantly changing characteristics that determine valuation, the puzzle 
will probably remain to the completely solved when football is changing so quickly. Indicative of this are the
findings of Professor Frick and his colleagues that show variables accounting for the Bosman ruling to be significant, in addition to whether the buying club has qualified for Europe. The significance of the latter variable would further
suggest the evolving nature of European football and the growing importance of European competitions. Given the influx of foreign owners to the Premier League and known information concerning the vastness of their wealth, I would think, that a variable concerning an owner’s wealth would need to be added to any valuation model – are players transferred for a greater amount when negotiators know that financial resources are not a question for the buying club? Again such an addition would be testament to the evolving nature of the sport.

The bargaining models used entail certain assumptions that may be deemed problematic. In particular the movement toward free agency is likely to reduce clubs having monopoly rights over human capital (Carmichael and Thomas 1993). A further shortcoming of the model Dobson and Gerrard developed in 1999 is the assumption of equal rent shares from a transfer presupposed under a bargaining approach.

But is it very unlikely that the transfer market and valuation is an arbitrary process with some of the most important pieces of information unfortunately out of reach for those that study the market. The often undisclosed nature of transfer fees and the high propensity for clubs to loan players and use player plus cash deals has resulted in an increasingly intricate transfer system. Most importantly the length a player has left on his contract is in the most cases unknown. A player’s contractual status really is an essential ingredient in determining the likelihood of a transfer taking place and the agreed fee with those players nearing the end of their contract have a lower transfer value and greater probability of being transferred. Despite the vagaries of contracts status, anecdotal evidence presented throughout the media would suggest this to be the case.

While the ultimate cause of Gareth Bale’s €95m value is due to the rarity of his ability and the desire of wealthy men to win football matches, what makes up this price tag is a convoluted set of factors more likely than not including his contract length, his age (that gives him a sell on value) and probably his ‘superstar effect’.

Comments are closed.

    Archives

    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013

    About

    This website was founded in July 2013.

    RSS Feed

    Categories

    All
    American Football
    Athletics
    Baseball
    Basketball
    Behavioural Economics
    Boxing
    Broadcasting
    Competitive Balance
    Cricket
    Cycling
    Darts
    David Butler
    Declan Jordan
    Drugs
    Ed Valentine
    Epl
    Esports
    Expenditure
    F1
    Fifa World Cup
    Finances
    Funding
    Gaa
    Gaelic Games
    Gambling
    Game Theory
    Gary Burns
    Geography
    Golf
    Greyhound Racing
    Guest Posts
    Horse Racing
    Impact Studies
    John Considine
    John Eakins
    League Of Ireland
    Location
    Media
    Mls
    Mma
    Olympics
    Participation
    Paul O'Sullivan
    Premier League
    Regulation
    Research
    Robbie Butler
    Rugby
    Simpsonomics
    Snooker
    Soccer
    Spatial Analysis
    Sporting Bodies
    Stephen Brosnan
    Swimming
    Taxation
    Teaching
    Technology
    Tennis
    Transfers
    Uefa
    Ufc
    World Cup
    Wwe

Related

The website is not formally affiliated to any institution and all of the entries represent the personal views and opinions of an individual contributor. The website operates on a not-for-profit basis. For this reason we decline all advertisement opportunities. 

Contact

To contact us email sportseconomics2013@gmail.com or find us on Twitter @SportEcon.