“Imagine how much he would cost if he could cross the ball” – Gary Lineker on the £53 million transfer of Kyle Walker to Manchester City, before describing the valuation as “mental”.
Current player valuations and wages are the highest the footballing world has ever seen, and the increase in player economics this season goes far beyond normal inflation. When Kyle Walker, who wasn’t even the first choice right back for Tottenham towards the end of last season, is going for £53 million, the market truly is “mental”. At the same time that transfer fees have hit jaw-dropping highs, we have seen a number of massive clubs having problems getting deals over the line. Clubs are standing firm when it comes to selling their top players: Liverpool with Philippe Coutinho; RB Leipzig with Naby Keita; and Southampton with Virgil Van Dyke, just to name a few. In each of these cases, the clubs refused to sell top talent even after seeing offers of £100+ million, £80 million, and £70 million, historically astronomical transfer fees.
This leads us to some important questions regarding the current state of the transfer market: Why has the transfer market gone mad? What goes on in these protracted negotiations? What is required to get a deal done in this new-age transfer climate?
Why Has The Transfer Market Gone Mad?
Arguably the main reason behind the sharp spike in player economics in the Premier League is the increased revenue generated and profit available in the Premier League. The Premier League is currently the richest league in the world, valued at £4.6 billion. This increased valuation is largely due to the recent record-breaking £5.14 billion domestic broadcast, which represents a 72% increase from the 2008/09 to 2012/13 seasons. Clubs across the Premier League are receiving a windfall of financial benefit for just being in the Premier League.
The next three graphics highlight some startling financial facts about clubs in the Premier Leagues. Operating profits are up, before tax profits are up, the revenue to wage gap is widening for clubs, and projections for the next two years will see those numbers increase by another 40%.
With all this money floating around the Premier League, player valuations and player salaries were always going to rise. Agents are seeing dollar signs and players are expecting massive wages. This also impacts other leagues across Europe, as players are tempted by the higher wages available in the Premier League and non-Premier League clubs are slapping massive price tags on Premier League targets knowing that the clubs have extra money in hand.
Despite what seems to be the new normal with respect to transfer fees and player wages, economic analysis suggests that, as the spikes in revenue and profit level-off, so will the transfer fees and wages.
How Do Negotiations Work And How Do Deals Get Done?
With that all that in mind, how do you get a deal done in this market? In any transfer, there are often several negotiations taking place concurrently: the buying club must negotiate with the selling club regarding a purchase price for the player; the buying club and the player’s agent must negotiate personal terms; and the buying club and the player’s agent must negotiate a commission for the agent.
In accordance with Article 18(3) of the FIFA Regulations on the Status and Transfer of Players, any would-be selling club must first give permission to the would-be buying club to speak to the player regarding his potential move.
However, in practice, we are aware that buying clubs (often via agents) sometimes gauge the interest of a target player before any formal approach to the selling club is made (see Virgil van Dijk this summer and what is called “tapping up”).
A selling club will only give permission to the buying club to directly contact a player once the parameters of a transfer deal are agreed to between the clubs.
If we recall the drawn-out transfer sagas of Cristiano Ronaldo, Gareth Bale, and the ‘failed’ David de Gea transfer, the selling club is usually in the driver’s seat in these initial negotiations. If the selling club is not interested in selling one of its contracted players, they cannot be compelled to sell, even if the player puts in a transfer request (see the current Philippe Coutinho saga). For the unfamiliar, a transfer request is a request made directly by a player to its current club asking to be sold. However, this process can be simplified by including a release price in a player’s contract with the current club, which establishes a price at which the selling club must sell the player.
We then need to turn to how clubs calculate transfer fees. Calculating a transfer fee is not an exact science and, as we are currently seeing, is often influenced by market forces. However, we have listed below certain criteria that a buying club might consider when making an offer:
- The age of the player – careers typically peak in the mid-twenties and finish in the early thirties.
- The time remaining on the player’s contract – the closer the player is to his final contract year, at which state he will be a free agent, the lower the transfer fee.
- Playing position – a striker will normally command a higher fee than a defender, for example.
- International status – there is a premium paid for national team players, especially English players (largely due to the fact that there are roster minimums in the Premier League for home grown players).
- Commercial value – is this the next David Beckham, Neymar or Cristiano Ronaldo, whose off-pitch value to the club may boost the club’s commercial revenue?
The current player valuation bubble has stalled the market for many reasons. Clubs are concerned about over-spending because it is possible that the market will level off at some point, meaning that a £53 million Kyle Walker this summer could be a £20 million deal next summer. Player valuations are through the roof. Player wage expectations in this market are much higher. Add to that the fact that clubs don’t need to sell players because of increased revenue in leagues around the world, and you have a perfect storm of factors pushing transfers out of the realm of possibility or justifiability for many clubs.
We have seen this before in other industries. The housing bubble of 2008, the Dot.com bubble of 2001, just to name a couple. The market is bound to reset itself or at least level off at some point. That is likely why many clubs are taking a very cautious approach to these crazy player valuations and wage demands, rather than plunking down £53 million on a second-choice right back. However, if this economic reality remains consistent and these new prices and wages are here to stay, a team unwilling to splash the cash and come to grips with that reality could be left in the dust. The real question facing Premier League clubs is how to balance on-field ambitions with the business side of the equation knowing that there is a possible pullback in the economics on the horizon.