transfer fees

Are transfer fees really more expensive? Not really.

/ παρακοιμώμενος / Leave a comment

While nominal spending is getting higher and higher, clubs are actually getting players cheaper than ever

The voice of sanity

“Transfer fees have gone crazy”, according to those eternal barometers of sanity, TalkSport listeners, as they react to the transfers this summer of Morgan Rogers (£117m to Chelsea), Elliot Anderson (£116m to Man City) and even Sandro Tonali (up to £100m to Tottenham), not to mention Izak and Wirtz to Liverpool last summer. And in a sense, fees do seem to have picked up, given that the record was not broken for 7 seasons between the signing of Paul Pogba by Man Utd in 2016, and the arrival of Enzo Fernandez to Chelsea in 2023. Since then, transfer fees of over £100m have come thick and fast, leading to charges of inflation and insanity.

However people should remember that transfer fee inflation has been a fact of life since the beginning of football. Moreover, football inflation is not the same as CPI, ie the price of a pint of milk; rather it reflects the increasing amount of money coming into the game. To that end, I am updating my proprietary transfer fee inflator index, last written about almost a decade ago. As the data demonstrates, transfer fees today still pale in comparison to some of the biggest deals signed in the past.

There are a few other calculators floating around – for instance here, here and here – but none of them are satisfactory for me. For a start most do not seem to start earlier than 2000, which leaves out a lot of Premier League inflation. Secondly the Kieran Maguire index, which seems to produce reasonable results, rebases to 2019 cost of money and also there are no details that I can find on the calculation.

A recap on my methodology: since inflation is a function of supply and demand, I have based my inflator on the total Premier League TV rights money each year. The biggest change since my last post on this subject is the inclusion of overseas rights into the calculation, the value of which overtook UK domestic rights for the first time in 2023 (for those sad enough to be interested, I include a complete set of data in the appendices). Using the growth of the TV rights money as base line inflation, I then adjust transfer fees accordingly to reflect what their true cost was compared to TV income of the day. It is not perfect, but it is as good a proxy as I can think of to find a measure of ‘football inflation’ rather than normal consumer inflation.

Note: Shading reflects recency

The results speak for themselves. The most expensive transfers in Premier League history, have far outstripped recent deals in ‘today’s money’. Alan Shearer’s £15m transfer to Newcastle in 1995 is about £176m in modern terms, substantially higher than any of the sums being paid this year. Likewise the transfers of Veron in 2001 and most amusingly, Fernando Torres in 2011, which come in close behind. Incidentally Alan Shearer’s first transfer, from Southampton to Blackburn in 1992, falls just out of scope but probably comes in at around the £100m mark too. At these prices, Elliott Anderson or Tonali look cheap as chips by historical standards.

Furthermore, the reverse is also true. The £100m player of today is actually the £25m player of 2010, or the £10m player of 1998, the dates between which I suspect the formative views on transfer fees for many readers (and TalkSport listeners) was set. Certainly these historical numbers account for the reluctance of Daniel Levy or Arsène Wenger, and other ‘old men’ of football, to reject the pricing they saw in the market later on in their careers. They had become antiquated, with the only response that the market was “madness”.

How then, one might ask, do English clubs compare to their European counterparts? It is difficult to make an apples-to-apples comparison, since European TV money has not matched that of the Premier League for a couple of decades now; additionally their earning streams (particularly for Real Madrid and Barcelona) are not structured in the same way as English clubs. For the sake of a completeness, I have calculated what European transfer fees look like in today’s money based on English football inflation, in the appendix. However I do not believe this is an accurate way of looking at it.

A better way to understand what top European transfer fees have been is simply to compare transfer records in Europe vs England to the closest possible point in time. Using this method, we can see that in general, European clubs have committed to much higher headline prices than English clubs typically have – albeit these are driven by only a few clubs.

Note: Euro-sterling exchange rate using average of June-July in each relevant year; where possible, same year transfers have been used but where not, the English transfer used is one year preceding

Gianluigi Lentini’s move from Torino to Capello’s AC Milan in 1992, for instance, was truly a shock to the world in 1992, at almost £13m. It was 3.6 times the highest amount paid in England at that time, which was Alan Shearer’s transfer to Blackburn. Shearer’s next move, to Newcastle, was the closest England has had to a record, benchmarking close to Ronaldo’s record jump from Barcelona to Inter a year later. By the time the next headline was being made in England, with Veron’s purchase by Man Utd in 2002, Zidane was shuffling over to Real for close on twice the amount of money – indeed the Veron fee weighed in at less than that of Figo the year before (£38m), and Christian Vieri three years earlier (£32m).

Since that time, English clubs have actually spent conspicuously less at the top end of fees, even as they have powered to more overall spending. Nobody has come close to matching Neymar’s almost £200m move to PSG for instance, way back from the pre-Covid years. It seems unlikely they will do so any time soon. As a side note, the history of transfer records stands as a real testimony to the shifting fortunes of financial leadership in European football. In the 1990s, records were all set by Serie A; by the 2000s, this was now being set by the two Spanish giants; and in the years before Covid, PSG alone set records – not only the €222m for Neymar but also the €180m spent on Mbappe.

Note: exchange rate same as above; all transfer records have been included

In summary, while headline numbers continue to increase, in the context of club TV money the transfer fees of today are actually quite modest. £100m is the new normal for key players and this is less than was paid for many stars in the last three decades – fees are higher but they aren’t more expensive. English clubs have still never hit the astronomical heights that European counterparts have, either. So lament crazy prices by all means – but we have not really seen anything crazy, unless you want to make the case that Elliot Anderson is not as good a midfielder as Juan Sebastian Veron.

Appendices

1. Comprehensive transfer fee inflation model

Note: multiple and discount factor are derived from each new TV deal, announced in nominal terms, interpolated between the relevant years; Premier League domestic TV money peaked with the 2017-2020 deal, but still grew factoring in foreign rights. To use the table, take any historical transfer fee and its year, and multiply it in order to see the price in today’s money. Or in reverse, take a transfer fee of today, to see what its equivalent number was back when you were young.

2. Evolution of the European transfer record since 1992 (nominal top, re-based to Premier League inflation bottom)

Why Barcelona are still not learning their lesson

/ παρακοιμώμενος / Leave a comment

Messi sad

Ousmane Dembele has just arrived at Barcelona for a “club record fee” of €105m plus add-ons which could take the total paid to around €140m, far eclipsing even the official updated €86m paid for Neymar that the club had to admit to two years afterwards (although the real cost may still be somewhat higher, and we may never know). Whether Dembele can emulate his predecessor in footballing terms is anyone’s guess; but more intriguing is the fact that he may emulate the superstar as a future exit – curiously, Barcelona seem not to have learned their lesson and set a buyout clause of only €400m.

€400m may seem a lot, but this summer has shown that numbers we could barely believe have a habit of becoming reality; if TV revenues increase, the figure will not seem excessive. But in any case, and more importantly, it is already not very high in the world of preventative buyout clauses. If any proof be needed that Real Madrid are better run than Barça at the moment, it can be seen in the buyout clauses currently in place. Not only is Dembele’s price, their newest signing, still way below the sums set by their arch-rivals, but so are all the rest of the squad – by some distance, too. Eight of Real’s stars have clauses higher than Lionel Messi, the best player in the world. Suarez and Busquets look at snip at just €200m.

Real Barca transfers

Source: Gab Marcotti via ESPNFC.com, updated for Asensio, Isco and Dembele

Why have Barça been so remiss and what explains this imbalance? Well first, to be fair, the Barça squad is just that much worse than Real’s. Other than the MSN, most of the others have passed their Pique (lol) and their clauses were signed in another era. Having said that, Cristiano Ronaldo’s €1bn clause was set as long ago as 2015, a full year before Neymar (Barcelona’s youngest and most marketable star) was set at only €200m rising to €250m over three years. Is it perhaps that Barcelona do not have the pull to get players to agree to prohibitive buyout numbers? Or is the board still arrogant enough to believe that players go to Barcelona for its “philosophy”? Either way, it is a failing of their fiduciary duties which would be prosecutable under UK company law.

Furthermore, Barcelona really have encountered a perfect storm. The inflation in this year’s transfer window has hit them just as an irreplaceable star has gone. To be clear, buyout clauses work very differently from normal transfer fees in terms of distorting the market. This is because a normal fee is, these days, usually paid out over a number of years; so that a transfer fee of €222m might only be about €55m per year. The rest of the market (though not the idiot fans) will “know” that the extra money available to the club who has just sold their star asset is only €55m at that point. But with a buyout, the money arrives instantly, meaning that the market is aware of both an entire €222m overhang, as well as the necessity to frantically spend most of it on a replacement. Furthermore, buyout clauses are by their very nature “supernormal”, higher than market valuations. This means that in turn they are causing inflation above normal market values when the money is spent in turn. In other words, it is not just usual “football inflation” (see my previous) but a buyout-driven super inflation. Barcelona this summer have become a footballing version of Mansa Musa I.

Of course in today’s world, only a few clubs are true “buyers”: Real Madrid, who do so from their own resources, and then PSG and Man City, who do not. Barcelona have ultimately been left on the heap as just another “selling club”, the dreadful epithet that even Man Utd had to understand when they lost Ronaldo to Real all those years ago. Barça just have not learned their lesson.

Are transfer fees really exploding?

/ παρακοιμώμενος / 1 Comment

camp_nou_coreografia_mes_que_un_club

With Neymar’s transfer to PSG, the football media has moved from just excitable to the swooning and fainting associated with young Victorian debutantes laying eyes on returning officers of the Household Cavalry. The “world record” (we will get to this in a moment) has seen the football experts go into overdrive in trying to explain how it is that so much has been paid, and how it can be justified.

Among the more interesting commentators were the crew on last week’s Guardian Football podcast, specifically award-winning Jonathan Wilson who made a couple of insightful points. The first was the likening of the football transfer market not to the clichéd and overused Dutch tulipmania of the 17th century, but to a more subtle historical event that I had not heard of before, the Indian horse market of the same period. Although Wilson does not spell it out, the point here is not that best-in-class assets become expensive (Neymar for €222m is comprehensible); it is rather what Mourinho has been warning about, that mediocre asset prices get dragged up too and that is where things become unsustainable. In other words, the Man Utd’s of this world will always spend top dollar; the real danger is when Middlesbrough are doing the same.

The second intriguing point surrounds the role of Qatar in the Neymar move. Barcelona have for many years irritated a majority of neutral fans with their holier-than-thou attitude about all matters football. It does not take a hard-core royalist like myself to be sickened by the constant nonsense about being “mes que un club”, or the self-indulgent refusal to have a shirt sponsor for so many years. But recently, the club have taken to criticizing Qatar over the forthcoming World Cup – the very people they finally took their blood money from when the caved into for money. Was this criticism a result of failing to agree a new sponsorship deal? Was PSG’s bid for Neymar driven by a Qatari government keen to demonstrate they still had retaliatory power? Both, it seems, may be a firm “yes”. Well, it couldn’t have happened to nicer people …

But really, how big a transfer fee is Neymar, anyway? Clearly a direct comparison of nominal fees is useless; so is a basic use of inflation to recalculate them. Only one analysis I have seen attempts to bring fees into historical perspective, the excellent Paul Tomkins’ blog. For the purposes of analyzing which transfers have had what impact, Tomkins and his team have used a form of “football inflation” based on average transfer prices from year to year, and inflating the nominal figures this way. Since football inflation has far outstripped CPI, this produces a top ten looking something like this:

Tomkins table

Source: https://tomkinstimes.com/2017/07/shock-transfers-now-cost-more-plus-top-100-signings-after-inflation/

Now, I like this approach. It has much to recommend it. However I believe it understates the impact of TV money on the psyche of football clubs – Tomkins’ analysis looks at correlation between the two but does not integrate them. I believe that – for the Premier League at least – another interesting way of looking at transfer prices is rebasing nominal transfer fees against the growth in TV deals. In my model, “inflation” is based entirely on the growth of TV deals struck over time (which have grown at an impressive 17.2% CAGR since 1992). In particular, I think this better reflects the thinking behind those headline-grabbing, record transfer deals as opposed to the median ones. The thesis being, that record transfers experience inflation different to normal transfers.

When this principle is applied – the Pang Index – the following numbers are generated:

Transfer records re-based to Premier League TV deal sizes

Football transfers

The blue bars represent record transfer fees paid by English clubs since the Premier League came into effect in today’s money. The grey bars were record transfers out of England (as it happens, all to Real Madrid). In this context, I have thrown in the Neymar transfer for fun. Of course this is not a perfect comparison – European clubs have very different TV deal structures and have not earned as much as English clubs have anyway; moreover the likes of PSG are barely “commercial” clubs at all these days, throwing the numbers out. Nonetheless, it makes some sense: Neymar’s fee is probably the same as a proportion of the kinds of TV money sloshing around as Veron’s transfer to Man Utd was all those years ago. No-one old enough to remember, can really be in doubt that Shearer’s £15m fee shocked us rather more than Neymar’s (let’s perhaps forget Stan Collymore for a moment).

The basic lesson is: money is here to stay; it is growing at a pace; but it makes surprises more and more difficult. Already this summer, there have been several moves rumoured to be in the same ballpark (£131m for a 31-year old Ronaldo, for instance). Actually, for the bigger clubs, it seems superstars are getting cheaper, not more expensive.