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Wanyama the biggest signing of the summer - relatively speaking - as Southampton push the boat out

7/8/2013

3 Comments

 
by Declan Jordan
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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. 

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So, while the largest transfer fee recorded this summer, so far(!), was Man City's £30m for Fernandinho with Soldado to Spurs for £26m also getting a lot of attention, it was not the "biggest" transfer when we control for the size of the clubs. Southampton's £12.5m purchase of Victor Wanyama from Celtic accounted for just under 40% of their annual turnover. Quite a risk for a club to take on one player. What's more they also spent a quarter of their annual turnover on Dejan Lovren from Lyon. West Ham have also spent big (relative to their income) on making Andy Carroll's loan move permanent. 

We need some caution on the spending by newly promoted clubs as we know they have increased income this year but it is unclear now just how much extra. These clubs are in a difficult position of deciding whether to spend to try to survive in the Premier League or be more cautious in case they drop back down again with expensive players on their wage rolls. Perhaps Cardiff's 'big' signing of Stephen Caulker was helped by the wealth of their owner relative to other clubs, as David Butler pointed out here.
It's also possible to look at which clubs are most profligate and based on the previous table it's hardly surprising that Southampton lead the way. Man City feature more prominently here as they have spent large sums on several players (Fernandinho, Jovetic and Navas). 

There is likely to be change before the transfer window closes. Especially if Man Utd land Fabregas (though at £35m he would come in as the 12th "biggest signing" after Van Wolfswinkel of Norwich). Also, Arsenal purchase of Suarez would move them up significantly - a purchase fee of £40m would put him in as ninth after Spurs' Soldado.

Of course turnover is less important when there is a billionaire available to fund marquee signings and, while the Financial Fair Play rules will make this a more relevant exercise, it is likely that there are too many loopholes in those rules to stop clubs splashing the cash for a shot at glory.
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3 Comments
Tom Ward link
7/8/2013 06:08:05 am

While it's clear Southampton have spent heavily, I'm not quite sure how you've calculated their turnover. The last available figures I'm aware of were £21m for the year up to 30th June 2012 - before they joined the Premier League. To get a good figure for comparison, I think you'd need to take this and add the same £20m bonus you've given the newly promoted teams. The same might be true for West Ham as well.

Reply
Declan Jordan link
8/8/2013 06:42:20 am

Thanks for your comment Tom. The figure I used for turnover for Southampton was £33m. You're right that turnover for June 2012 was £21m but they released data for the 6 months to December 2012 (http://www.dailyecho.co.uk/sport/10276383.Massive_rise_in_Saints_revenue/) which had income of £33m. The club generated £13.3m in the year to June 2011 and I wanted to be (somewhat) consistent in the treatment of Southampton and the other clubs promoted recently. So I chose the £33m figure as it is nearer to the Championship level plus £20m.

The £33m figure is also more conservative. Using the £21m figure pushes Victor Wanyama up to 59.5% and total spending to exactly 100% of turnover.

The figure I used for West Ham is £46.2m.

This is far from a precise exercise. I expect like everything in the Premier League, the numbers have to betaken with a truckful of salt. I was more interested in making the argument that looking at nominal transfer fees is great for newspaper headlines but doesn't get at the scale of business decisions made by clubs.

Reply
Tom Ward link
8/8/2013 07:01:47 am

I think this just shows how hard these comparisons are. In the year to June 2011 Southampton were in League One, while the Echo article seems to read that revenue was £33m for just the first 6 months of the 2012/13 season.

Also, with the new TV deal, each club is expected to earn an additional £25m in the coming season, which will reduce the transfer/turnover percentage for smaller clubs much more than larger ones.

The only fair comparison will be to compare the transfer spending this window with the actual recorded revenues for the entire 2013/14 season. Until then the assumptions you've made seem reasonable. Maybe you can revisit the post in 2015?!

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