Pricing a Footballer: An Understanding of how players are valued in the transfer market

The 2016 Summer transfer window especially will be remembered as it witnessed Manchester United bringing back an old friend and in the process making Paul Pogba the most expensive player in the world. Paying close to 105 million euros to Juventus, the Red Devils geared up for what looks to be the most exciting season in the Premier League. But as this purchase and a few others like the elongated saga of John Stones deal came to an end, fans and football pundits began to contemplate if the players were indeed worth such money.

Often times we have noticed some players who we considered a lot better than the others tend to move for a transfer fee that is lesser than some others. But does that make him being a better player? Here are some parameters which the Football industry uses to value players in a transfer market. Now although these methods give somewhat of a clear picture on how a value is fixed on these players, they are never employed in solitude and always work complementing each other with a host of other qualitative influences.

The economic laws of demand and supply are omnipresent when a market is involved. Much like the services of a plumber or a lawyer, football players offer their playing skills as service to clubs. The forces of demand drive up the value of the player, hence putting a price tag for his skills. Usually this valuation is also dependent on the opportunity cost (the next best alternative) of a player.

Contract Conditions

Many teams, in order to prevent their star players from leaving the club, usually include a release clause in their contract. These release clauses can be anywhere between a fairly calculated number to the price of the moon. However, some clubs that are desperate to bring one particular player to their stadium often pay so that the club losing the player are at least left with their pockets stuffed with cash. The recent 90-million transfer of Gonzalo Higuaín to Juventus is a good example of Napoli stuffing their pockets.

This is used predominantly among smaller clubs that are selling their home-grown players. Academy graduates who have entered the first team but haven’t played a game have no record to back their reputation. Usually in these circumstances, clubs charge a development fee and add a transfer premium that they feel is sufficient to compensate them for his loss or what they believe is his worth in the market. Usually this type of pricing is heavily influenced by demand and supply and has no other logic behind it. Usually these players are sent to a smaller club on loans and then sold at a price agreed in the buyback clause that is predetermined in the contract.

Although the above methods have remained more or less the same, it still doesn’t explain the sudden steep rise in the value of football players. Zinedine Zidane and Luis Figo, who are considered greats even today, were purchased at prices of about 35-45 million, a price tag the likes of Andy Carroll and Raheem Sterling demand in today's world. Of course you could argue that factoring inflation, you could get a higher transfer value of close to 70-80 million in current rates. However, when you compare the prices of players who are as valuable to a team like Hazard, Suarez and Lewandowski, the asking prices are quite nasty to the wallet. In today’s world, players in the Premier League who have no proven track record or just one brilliant season demand transfer values close to 35 million Euros.

Arsene Wenger was recently heard commenting that in the transfer market, players had two price tags. One for the Premier League and one for the rest of the world. While this might be considered a sheepish excuse for being miserly in spending the club's money, there is a fair bit of truth in the statement. Clubs often tend to charge a higher fee when dealing with a richer club as they look to use the opportunity to squeeze out as much as possible from the bigger player. Not that it isn’t a motive all the time, but the chances of coming away with more from a club for whom a million isn’t a big deal is easier than asking a club smaller club that is worried that any overspending might force them into bankruptcy. With even recently promoted Premier League clubs earning ‘zillions’ through the TV rights, they are able to afford players like Payet and Negredo who would otherwise be playing for a top team in another league.

As teams obtain more and more money, they are able to outbid and over-pay not only transfer fees, but player wages as well. When other teams are forced to pay 10-12 million for a particular player, the cash-rich Premier League sides offer to pay 15-20 million for the player's signature in order to prevent a bidding war or a possible hijack. This, in turn, has a cyclical impact on players who plan to leave the club. After having earned a fat pay check in the Premier League, clubs selling a player want to recover as much money as they can for having paid wages to the player for the past years. This in turn drives up the player’s asking price.