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This article was written in 2018 but remains as important today as it did then. This article would go on to be the on the front cover of 'Equilibrium' the major economics journal at the University of York and was the first to achieve this in the field of Sports Economics.
It’s the same old cliché with different figures every summer, the idea that the money in football is getting ridiculous. In the last 10 years transfer fees and wages within the global game have increased exponentially. With fast pace comes confused fans trying to comprehend why their favourite clubs have just spent £50 million on a backup. The debate is discussed on all forms of media every transfer window and most particularly in England as the increase in transfer fees has been most notable in the ever-lucrative Premier League. The quote within the title of this article will often be thrown around by pundits, journalists and the average member of the public because they do not understand the economics behind it all. This article hopes to shed light on this issue both where we saw most significant changes in this issue and what the future holds for the world’s most played sport.
Since 2000 the world record transfer fee has been broken 6 times but more pressingly Luis Figo’s transfer from Barcelona to Real Madrid for £37 million, the world record transfer in 2000, is now the 29th all time. Now does this mean that football is better than in 2000? In fact, many would argue the complete opposite. We can use this idea to ask the question of why has this taken place if not everyone in football can agree whether the quality has improved as suggested by increased fees? The top 6 transfers of all time have all taken place in the last 2 years and they make 12 of the top 20. It can be argued that the most recent changes in transfer fee growth can be accounted for by two main factors. Firstly, Neymar’s world record transfer fee to Paris Saint German in 2017 for £197 million blew open the conceivable values paid for football players. Secondly, is the increase in value of TV rights deals across football but most particularly in the English Premier League allowing for a greater level of spending and especially from clubs that fans don’t naturally think of when talking about the footballing elite.
Neymar’s transfer from Barcelona to Paris Saint Germain in August 2017 shook the football world with his record-breaking fee of £197 million. This more than doubled the previous record and with that caused a major shift in what was previously considered reasonable payment for one of the sport’s most coveted individuals. The doubling in value of transfer fees that the world had seen left a huge level of possibility for clubs looking to sell their players for increased profit as the perceived value of players had completely changed. No longer could clubs be confident on the apparent value of their players now that they have seen that one of the world’s best players was now going for twice that of another world-renowned player in the form of Paul Pogba with his move from Juventus to Manchester United for £89 million the season before. With uncertainty comes perceived misevaluations and inflation. For example, if the British economy saw this level of shift in values it’s the same as having an inflation rate of more than 100%, assuming Pogba is considered as good as Neymar. This example of sudden inflation would almost certainly collapse an economy. Yet football carried on.
A second notable reason for this extreme level of inflation is the increased impact of the commercialisation of football. Examples of this has been seen worldwide but none more so than in the English Premier League. Major media corporations such as Sky, BT and the BBC, as well as international firms, are paying ever more for exclusive coverage of the most talked about sports league in the world. It has been argued the reason the Premier League is so large is because they were the first league to allow commercialisation to this extent when it was formed in 1992. From the diagram below, it is clear to see the astronomical rise in value of the Premier League TV rights deals. Revenue is split in accordance with where the club end up in the Premier League table from the previous season. The more successful the club is, the greater proportion of revenue they receive. This does not mean those at the bottom do not receive any benefits from the TV rights deal. This also did not mean that the clubs coming up from the Championship, England’s 2nd division, do not benefit from the TV income.
The prospect of promotion to the ever more lucrative Premier League has caused a positive shift in spending from clubs in the Championship both from domestic and foreign investors. The success that has come from this is varied as we see success stories of clubs such as Wolverhampton Wanderers from last season as well as the failure of clubs such as Queens Park Rangers both looking to achieve the same goal.
More money in the league can lead to obvious cases of inflated transfer fees. N’Golo Kante’s transfer from Leicester City to Chelsea in 2016 for £30 million compared to Danny Drinkwater’s same move a year later for £35 million seems overvalued given that Kante won the League’s best player award the year of Drinkwater’s move suggesting prices have inflated significantly in just 12 months.
Although pumping more money into the Premier League could be viewed as inflationary it can also be argued that another basic economic tool is more prominent, the Multiplier Effect. Another football phrase heard on television sets and in pubs across the nation is that “the Premier League is the best league in the world.” Inflation implies that media companies are paying more each deal for the same goods. I would dispute that it is better viewed as receiving more investment allows better quality players to join the league and with that the overall quality of the league improves. This is both with the major teams and lower end Premier League clubs who can now afford some of the big names which were viewed as unattainable not that long ago. A notable example of this is Felipe Anderson when he moved from Lazio to West Ham United for £36 million in 2018. Anderson is the type of player who less than 5 years ago would’ve only been a signing for clubs such as Manchester United or Chelsea. Instances of this can be seen across the league as well trickling into the Championship as discussed previously. More money in the league should not be a dangerous prospect but rather as a sign of lowering barriers to trade in the domestic game and improving the spectacle for fans.
In conclusion, although price rises in the English transfer market are abnormally high it’s simply a caricature of a much wider and intriguing market that is simply catching up with all other industries of similar value to football. Football clubs are run as businesses and yet have lacked the sense of basic economic and business principles in the past. The money pumped into virgin territory will lead to waste in its infancy but eventually will correct itself. The emergence of extensive data analytics within football has led to increased confidence in player acquisition. The reasons for ‘bust’ signings will no longer be as a result of poor due diligence and a lack of hard facts. However, this is not to argue failing signings for big money won’t continue to happen. Measuring psychological factors and their impact on the game should be considered in much more detail than it has been, but I argue that the transfer market is turning a corner with silly money of yesteryear being considered a bargain very soon.
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