The ten factors that drive transfer fees in football

How much a team pays for a player is always the subject of debate between fans. Have they paid over the odds? Does the latest foreign recruit seem like exceptional value for money? And, a favourite for fans and the subject of a previous article on Hit Row Z, do clubs really pay a premium for British players?

The reality is that there is limited transparency around transfer fees. Yes they are widely reported in the press, but full details on what is actually paid, how the fee is structured and what each team’s rationale for offering and accepting the final figure was are rarely known with certainty.

That last point is often the most important decision a club makes when recruiting and selling players. The transfer fee that is agreed is always the product of a negotiation between the two clubs involved. Each club will approach the negotiation with an indicative figure in mind, and should be clear about what compromises they are willing to make.

In this article we set out a ten-point framework of the key considerations that will inform the price that clubs are willing to buy and sell players at.

1. Quality of player

Undoubtedly the prime determinant of the fee a club will pay for a player is his perceived quality. Premier League teams invest heavily in scouting networks which seek to source new talent and assess current and projected capabilities. They do this in an attempt to corroborate and inform their perception – is he really as good as they think he is? As a general rule of thumb, the better the player, the more a club may be willing to pay for that player, and the more clubs that are likely to be interested in signing him – both key factors in driving up the eventual fee agreed. But this is only a starting point, used by clubs to estimate the rough ballpark for how much any given player is likely to cost. From this, a number of factors then become effective and serve to add premiums or discounts to this initial figure.

2. Age

A player’s age is often used by clubs to determine whether or not the player has fully developed and is close to reaching potential, and to estimate what the possible sell-on value might be. With regard to the former, clubs tend to pay a premium for players who are either fully-developed or who are highly-rated young prospects. Players who are fully-developed are seen to be lower risk, which generally provides comfort to clubs around their performance levels. Investing in highly-rated young prospects is not without risk, but where their development profile is exceedingly positive, clubs appear more willing to pay a premium. A good recent example of this is Manchester United’s recent signing of Luke Shaw, or PSG’s of Marquinhos in 2013.

Sell-on value is an important down-side consideration for clubs – if things go wrong or the player declines, how much of our outlay do we think we can recover? It is for this reason that we generally see a decline in the number of top clubs signing players over 31. Exceptions occur where the individual player has something additional to offer the buying club. Rio Ferdinand’s vast experience, for instance, makes him a perfect addition to a QPR side returning to the Premier League.

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3. Relevant experience

All transfers involve some degree of risk. To try and minimise this risk, as well as signing quality players at the right age, teams also consider the track record and level of relevant experience a player has. Be this playing in top flight football in a European league, playing in teams that challenge for honours and have a winning mentality, or, more simply, having sampled – and coped with – the rough and tumble of the Premier League, the relevant experience of all potential recruits is built into the transfer fee calculations. Given this, and given that top English players overwhelmingly tend to play in the Premier League, one wonders whether or not what is often described in a lazy shorthand as ‘an English premium’ is actually more of a premium for the relevant experience those top English players have, rather than because of their ‘Englishness’ per se.

4. Value to selling club

Where a transfer target is an important first team player or a highly-rated youth prospect the selling club is likely to demand a premium to cover the loss and the risk associated with finding a replacement. Already this summer we have seen this principle in action, as Southampton made Liverpool and Arsenal pay handsomely for Adam Lallana and Calum Chambers for precisely these reasons. It is worth noting that the value of players to selling clubs tends to increase as transfer deadlines loom, such is the risk associated with not being able to source an adequate replacement in time.

5. Value to buying club

When a selling club senses that a buying club is desperate to sign a player, possibly because they have sold their star player in that position or perhaps because they need to cover a long term injury, then the negotiation swings in favour of that club. Hull City have demonstrated this masterfully in their recent sale of Shane Long. Bought for £7 million during the January transfer window (a price possibly inflated given Hull’s desperate need for goals) they have now made a tidy £5 million profit over the course of just six months, as Southampton are sorely in need of new recruits.

6. Player specific factors

These include a players injury record, disciplinary history, and interactions with team mates and management off-the-field. Where each of these are negative, the buying club is likely to negotiate a discount to reflect the risk that the player, whatever his quality, is likely to miss a number of games and have only a partial contribution to the team’s on-the-field performances. Sometimes this can mean clubs pick-up real bargains – Newcastle’s signings of Demba Ba and Hatem Ben Arfa exemplify this, both being great value signings for the Geordies and probably signed for fees less than their intrinsic value because of injury and disciplinary records. It is somewhat ironic that, despite all of his talent, if Ben Arfa is to leave Newcastle this summer it is likely to be for a discount because of his recent fall-out with Alan Pardew.

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7. Term remaining on contract

Following the Bosman ruling in 1995 players are now able to transfer to other clubs for free at the end of their contract. With every month and year that contracts wind down, the risk to clubs that this will happen increases. For players under contract, the strength of a selling club’s negotiating position and the fee they can charge tends to be proportional to the term remaining. A classic example of this factor in play was Robin van Persie’s departure from Arsenal to arch-rivals Manchester United for £24 million. Given the player’s quality – his goals were the main reason the Red Devils won the league that year – if he had three years left on his contract he could have sold for much more than he did.

8. Commercial potential

As football clubs becomes ever more global in their reach and appeal the commercial potential of players is a growing factor in the commercial decision around how much to invest in a player. Through selling shirts and other club merchandise teams can quickly begin to recoup some of their outlay. As well as global superstars Cristiano Ronaldo, Neymar Junior and Gareth Bale, the commercial potential offered by other talented players such as Shinji Kagawa – and the scope his signing offers for penetrating the Asian market – is also increasingly a consideration when working out what size transfer fee clubs are prepared to pay.

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9. Size of transfer kitty

Almost all Premier League managers and owners are coy over the size of their transfer kitty, and for good reason – if the club you are trying to buy from does not know your budget then it may make them think twice about trying to negotiate the price up too high. However, while being coy can be helpful, sometimes big hints are unavoidable. Take Liverpool for example, when they sold Fernando Torres to Chelsea for a British record of £50 million in January 2011, it was clear to all that they had a huge sum of money burning a hole in their pocket. Newcastle United skilfully used this knowledge to their advantage, managing to persuade the Scouse club to part with a staggering £35 million for Andy Carroll.

10. Financial conditions at selling club

Where the selling club is experiencing financial difficulties, be it through paying hefty wages to big-name players following relegation or where creditors need to be repaid, as happened at Valencia who, despite finishing third in La Liga were forced to sell David Villa (Barcelona), David Silva (Manchester City), and the experienced Carlos Marchena (Villarreal) for approximately £60 million to reduce their large debts (Juan Mata, the fourth of their 2010 World Cup winners) was sold to Chelsea the following year). While such circumstances are not pleasant for football fans, for clubs as businesses they do represent good sources for bargains.

It is worth mentioning that there are occasions when, aside from pushing for a knock-down price, the buying club can seek to structure the fee for a player in a way which may be more advantageous to the selling club. Newcastle’s recent acquisitions of Rob Darlow and James Lascelles from Nottingham Forest are one such example. In this transaction, it was reported that what clinched the deal for Newcastle was its ability and willingness to pay the full fee upfront, rather than spreading it across a number of years. For a cash-strapped Forest who had targets of their own, this additional cash flow was an appealing aspect of the deal.

 

Transfer fees will continue to be debated as the transfer window nears its close. It is hoped that the above framework shows that determining a transfer fee is more an art than a science, and will always be the product of a negotiation, with both clubs involved seeking to protect their interests as best possible, but always constrained by the strength of the cards in their hand.

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