Stories | June 30, 2016

Priced to win – why football transfer costs are sky-high

Ever wondered how footballer transfer estimates work? There can be method to the madness.

Many marvel at the cost of getting star footballers to change clubs. Transfer market prices can seem not to reflect reality – especially at tournaments like Euro 2016, when expensive teams from Spain, Italy and England can be beaten by lower-ranking teams from Croatia, Ireland and Iceland, respectively.

But the market for top-flight footballers can illustrate how we make decisions every day, whether spending, saving or investing – and many factors can come into play.

Last one on offer – buy now!
Football players may only switch teams within two “transfer window” periods each year. This creates artificial scarcity, like in a sale where if you don’t “buy now” you will miss out. As this eZonomics poll showed , it can be easy to buy extra items you just don’t need.

Football agents, like the rest of us, are prey to common thinking traps such as present bias, which may encourage spending on whoever is available, rather than waiting for a better investment.

Don’t believe your eyes – check the prices
Any exceptional performance is almost by definition difficult to repeat. An amazing result can be a misleading outlier – giving a false impression of what might happen in future.

As in investing, it is easy to fall behind the curve and spend too late, after an impressive result. Both businesses and athletes tend to do well in cycles – but audiences, agents and investors can continue to be carried along by simple momentum.

Who can see the future?
Often nobody really knows when a player (or investment) is on the way down, or if he or she could make a dazzling comeback next season. A star may play well in one team, and less well with a different assortment of individuals.

At the same time, agents may become reluctant to give up on sunk costs. Even if an investment fails, the money spent can be a psychological barrier to cutting losses and moving on.

Sports journalist Simon Kuper points out the worst time to buy a player can be right after he or she does well at a big tournament. “Everyone in the transfer market has seen how good the player is, but he is probably exhausted and possibly sated with success,” says Kuper. “It’s like buying a stock just when its price has peaked.”

Value is a “best guess”
Making predictions is difficult and individual situations are complex. Pena.lt/y/ sports blogger Martin Eastwood has devised ways to analyse player performances and expected goals with statistics. But the maths can’t account for every factor in a goal.

“In the real world we don't have that level of detail, just a bunch of data scraped off the internet. We have no idea of the ball's momentum, whether it’s spinning, what the position of the defenders are, how well the goalkeeper is positioned, whether the attacking player is off balance, the direction of the wind, whether the attacking player is nursing an injury, how good the attacking player is at shooting, and so on,” Eastwood explains.

“Because I’m worth it”
Star footballers themselves can also fall prey to natural biases, simply assuming that they’re “worth it”. And we are all naturally averse to loss. Generally speaking, if a new job offers a lower wage, people are much more likely to turn the offer down – even if the pay is still high.

Players’ reference point for pay – and therefore their expectations – can go on increasing even if performance does not improve. Bidding wars that push up the going rate can be one result.

Sports professionals, like all of us, need to guard against overconfidence and unaffordable risk. Although there are practical ways to guess the results and work out the right prices for football transfers, there are so many factors to consider. In sport, as in investing, the unexpected can always happen.

eZonomics team
.(JavaScript must be enabled to view this email address)

InvestingBiasBehaviour

Have your say

Should banks incentivise you more to boost your savings?