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No quick end to transfer fees


Last month Wenger envisaged the end of transfer fees based on the ever-loosening grip that clubs have on player contracts. The hazards of taking the 'Webster` clause to litigation and testing contract law are enough to prevent players from this path but it gives enough negotiating strength for players to bite into money that might go into transfers. As players take a bigger slice of club revenues the money that would previously have been passed onto other clubs now goes out of the game into mansions, Bentleys, Rolex watches and other bling. At least transfer fees have the benefit of money staying in the game feeding the next transfer.

It`s hard to see why any club would commit to spending large sums on transfers when contract conditions undermine the value of their purchase. It might make sense for players to keep their contracts short and negotiate on the best terms but fortunes change quickly and short contracts or running them down suits relatively few players. Adebayor and Flamini have seen themselves become 'big` money signings in the space of a year as Deco, Ronaldinho, Eto,o and others dropped in value. As a club commits itself to higher wages to retain players they reduce their transfer value. Any club taking them on has to commit to paying mega wages for a 4-year or longer agreement reducing the sensible amount that it can pay in transfers. You can see this as the 'Henry` effect. Dein claims to have rejected 2 offers of £50m prior to Henry agreeing his last contract with Arsenal. An indifferent season later, and having now to top a wage of some £6m a year, the fee that Barca were prepared to pay became a relatively modest £16.5m. With the usual add-ons and the recognition a 30 years old player has little residual value at its end the cost of the contract amounts to more than £42m, the greater part of which goes to the player.

Yet with this background we hear stories of potential record transfers £60/80m. Ronaldo to Madrid, Kaka or Robinho to Chelsea. Does it ever make sense for anyone to pay those sums for any player? Before considering the question it`s worth noting the trend for record breaking transfers has declined recently. Of the top ten transfers in world football, on Euro valuations, 80% - eight took place in 3 years between 2000 and 2002 including the transfers of Veron and Ferdinand to ManU and Zidane, Figo and Ronaldo to Real Madrid. Vieiri`s transfer from Lazio to Inter took place in 1999 and more recently the transfer of Shevchenko to Chelsea in 2006. So prices went sky high at the beginning of the decade but have tended to be more realistic as players wage demands have soared.

Looking at the list you would concede the Madrid Galactico experiment was not a sporting success. You would acknowledge the transfers of Veron, Mendieta, Crespo and Shevchenko, 40%, were sporting flops. Why then would any club spend huge sums on transfers with little evidence that it achieves the sporting objective?

With the protected period threatened, Wengers logical assessment is that it should bring an end to transfer fees. But when did logic dictate the functions of the footballing market. There are 3 factors undermining his prediction.

Firstly - desperate times mean desperate measures. An accountant once told me of a client who after a bad years trading bought himself a Rolls Royce. When the paradox was pointed out his client claimed 'You don`t want customers and suppliers to see that`. That may not be the precise thinking of Milan but there is a strong element of window dressing in seeking to make a big money purchase. Of Milan trying to spend to create an impression that a club being petitioned by it`s fans to change it`s owners while facing the end of individual TV rights bargaining and projecting a financial deficit over the next season is healthier than it is.

Secondly - commercial opportunity. In Real Madrid`s case they are marching to a different drum. The biggest single component of their revenues, world footballs largest, is commercial revenue, shirt sales, sponsorship etc. The last Deloitte figures for 2007 show they generated €136m from commercial activities dwarfing the €95m of Barcelona way ahead of the €86.4m earned by the PL`s most commercially successful club Manchester United. Beckham is reported to have earned enough to cover his transfer fee for Real in shirt sales alone. Understanding the impact on Reals revenue raising potential, just in Latin regions, is the key to them justifying outlaying mega money for a Latin player who could generate a lot of commercial revenue. Transferring that commercial justification to another club isn`t so easy. Quite simply, at present, Real can generate much more revenue from Ronaldo than United can. As for a club like Arsenal, still developing its commercial activities, such an outlay would make no commercial sense at all. Arsenals buys are for sporting reasons and its commercial tack based on the broad appeal of the team, the attractiveness of it`s playing style and it`s international nature. Fans asking why we can`t or don`t do what Real do have to appreciate that commercial reality.

Thirdly - big boy`s toys. Abramovich is doing what Jack Walker, Ridsdale and others had done before but on a massively different scale. He has put more than £600m over 5 years into Chelsea. If the reputed £80m bid for Kaka were true and successful along with current losses it would push the investment towards £800m. An incredible amount of money over such a short period, destroying any notion of Chelsea breaking even by 2010. No club anywhere has had such largesse lavished upon them, and it is unsustainable. Just like every other football plaything or passion in the past at some point it will end.

Unless legislation forces a change, for transfer fees to end as Wengers economic reality predicts, three things need to happen. Abramovich has to become bored playing billionaires poker, the commercial pull of Real has to be matched by other clubs and desperate folk window dressing an uncomfortable situation would have to change their ways. The first is inevitable at some point but someone will always look to build an empire. The second, a much slower process, will come about when others clubs commercial opportunities equalise. The third will never happen completely, as desperate folk will always seek desperate solutions hoping someone will bale them out sometime.

Wenger is logically correct but waiting for logic to draw its conclusion means his prediction of an end to transfer fees won`t come true just yet. Eventually reality will prevail as transfer fees between clubs become secondary to fees paid to players. In the future clubs wage bills and not their transfer budgets will tell you which are investing most in player resources.



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The Journalist

Writer: Amos Mail feedback, articles or suggestions

Date:Monday July 21 2008

Time: 10:32AM

Your Comments

Another excellent meditation on the current climate as it were. An example that really ratifies all of this is that of Denilson (not our one, he of stepover showpony fame). After an impressive 98 World Cup, Betis bought him for £22m and put a prohibitive buy out clause in his contract. So when he turned out to be a flash in the pan, nobody could afford his buy out clause and he ended up sitting in the reserves, unable to move and unhappy, Betis were unhappy and couldn't move him on.
Little Dutch
Something that perfectly illustrates the Milan window dressing comment from F365s mediawatch today, 'Milan sold 10,000 season tickets in the 48 hours after his signing,' says The Times of Ronaldinho, repeating a claim made in several newspapers and, of course, by the rossoneri. Forgive us our scepticism (and perhaps our maths) but that works out to us as around one ticket every 17 seconds, for 48 hours straight. Does anyone else think Milan perhaps had a large number of season tickets already waiting, and just clicked 'confirm' to make their big (in every sense of the word) summer signing look extra popular?
Little Dutch
It's a nice round number and remarkably consistent with the 10,000+ signatures on the 'get Berlusconi out' petition.
Amos.
Good thinking there Amos! On the commercial clout note, ManU are closing the gap on Real, especially after winning trophies again these two years and all those countless friendly trips to Asia, the Middle East and Africa. It might take a bit less time than we think to match Real, especially if they don't sell Ronaldo to strengthen Real's marketing position at their own expense.
Lou the Gunneress
... while Real abolished their galacticos strategy since they sold Figo, Ronaldo, Beckham, Carlos, with Zidane retired and Raul aging and playing less. When I went there in May, their biggest star seemed to be home-grown Casillas but fans were wearing all kinds of shirts, a lot of them generic Real shirts with no name at the back. I just suspect they're now selling nowhere near the crazy amount of shirts as before (around 2003-05), ironically when they went through a trophy drought.
Lou the Gunneress
There are something like 400 million Spanish speaking 'natives' around the world. ManU will close the gap on total revenues and probably this year exceed Real's total revenues by virtue of matchday and broadcasting income - but not yet commercial revenue.
Amos.
Reals 2007 commercial revenues were 50% up on 2005's. It is a tremendously succesful billboard of a club.
Amos.
Talkin about Vend it like Beckham. I was walking around a shopping centre and saw no less than 5 Beckham L.A Galaxy shirts. Im sure he could sell bags of hosre cr*p with his name on it
paul_ownz
Amos I'm not exactly sure how they define "commercial revenues" - that defo includes sponsorships, but not TV money right?
Lou the Gunneress
Deloitte uses 3 revenue components, Broadcasting (TV Rights- websites etc), Matchday (Tickets, food & drink, program sales etc.) and Commercial (Shirt and merchandise sales, sponsorships, advertising, naming & image rights and the like)
Amos.
... cos I'm just curious whether Real enjoyed more commercial revenue when they had all those galacticos but much less sporting success (roughly 2003-05, with presumably more shirts sold?) or when they won domestic trophies without the galacticos (2006-08) and kind of became popular in Spain and yes those Spanish-speaking countries again for a different and more sporting reason.
Lou the Gunneress
Commecial revenue is a lagging indicator of success. Real's name and international recognition has been built up over many years. It is durable enough not to need success every year to build commercial revenues provided that it's image around the world (more specifically Spanish speaking communities) can be maintained. High profile players and big purchases can be part of that and not solely dependant on sporting success though a level has to be maintained of course. Chelsea can be a more successfull club in sporting terms than Real over 3 or 4 years but it will take 20/25 years or more of sustained success to build up anything like the brand awareness and therefore commercial revenue generation potential that Real has without ever really having the right image to benefit from the same markets to the same extent.
Amos.
Yeah I know exactly what you mean - the image of 9 European Cups put side by side in their club museum springs immediately to my mind. That's the power of history we're talking about. A huge financial legacy too. You also have to say they're truly experts in promoting themselves all over the world, only Milan and ManU come close to having that marketing acumen. Can't be jealous..
Lou the Gunneress
Milan are pants commercially - Arsenal raise 40% more commercial revenue than they do. Their big money spinner is broadcasting. The Italian League are planning to end individual tv rights in 2010. That's going to hit them quite hard I suspect.
Amos.
If only Africa was a wealthy continent then we would bring in lots of revenue from there i would imagine. I remember seeing images of war and famine on the news and someone would have an Arsenal shirt. Im sure mostly fakes
paul_ownz
Apparently Milan sell tons of shirts - I think it's the sponsorships (across the board in Italy) that aren't as strong as those deals in England. What I was saying about Milan though is that purely marketing acumen, not necessarily revenue just yet - they really know what they're doing when it comes to cultivating a classy image, manipulating the press and building a brand. Well you can't be cr@p in branding if you have an owner that dominates the media and advertising markets in Italy. That, coupled with their European credentials, gives them a lot of residual value in the brand despite the calciopoli thingy. It'll be interesting to see how much of a "Ronnie effect" they'll enjoy, I'm actually sceptical. That's also one of the big reasons why I'd go as far as to say that finally winning the CL would make up for missing out on the league.
Lou the Gunneress
... for us I mean.
Lou the Gunneress
"Real can generate much more revenue from Ronaldo than United can” - excellent statement that sums it all up. High-stakes transfer fees are calculated but they are not gambles. The only time Real would get bitten in the rear is if their ‘customers’ didn’t buy merchandise, but it’s hard to see that happening with their brand so strong. If looks like they will be able to afford to pay over the odds (as well as make duff purchases) for quite a while. Because this is what they call a free market, the only way obscene transfer fees will stop is if there was a financial crisis that forced fans to spend less on the game. In the meantime, we can console ourselves that independent of how rich a club is they can only field 11 players!
Andy-bayor
Good article, a lot of interesting points. Of course the end conclusion is that football will be dominated by a handful of rich clubs even more than it is now.
monkeyg
If transfers disappear the wages will go up. Football at the highest level has gone mad.
Dean1
 

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