Feb
01

85 million questions…

By

‘Ecky thump – the world’s gone bonkers!

Did anyone see that coming?  I have to confess, I certainly did not!

Yesterday the Premier League was lucky enough to boast one of the seven most expensive strikers of all time, in the form of a certain Mr Carlos Tevez.

Well, I assume that was the case.  For the purposes of this piece, let’s assume Manchester City paid more than £31 million to secure the Argentine’s services.

Historically there has been marginally less shenanigans accompanying each of Carlos Tevez’s transfers than you would expect to find in the Sky Sports studio on a cold winter’s Monday night.  For all we know, he might actually have cost Man City more than Ronaldo cost Real Madrid.

However, as the dust settles on one of the most eventful days in UK football history, the Premier League now not only boasts the most expensive striker to EVER play the game, but also three of the top seven.

And all this came about despite the only arrivals from foreign shores being Liverpool’s £22.5 million capture of Luis Suárez and the loan return of the “evergreen” Obafemi Martins at Birmingham.

It seems that Frank Lampard Junior’s hernia problems had an even bigger impact on UK football than even Jamie Redknapp probably would have dared to suggest…

 

Can anyone say “bubble”?!

More than a little irked by Chelsea’s patchy form in recent months, Roman clearly decided that being “cash generative” was marginally less exciting than sitting on his yacht counting his roubles.

As a result, we have seen assets which cannot have been valued on balance sheet at more than circa £15 million being revalued to a staggering £85 million – however, only an additional £50 million was injected into the cumulative Premier League coffers.

Rather than carrying out a living autopsy on UK football, I thought it would probably be more enjoyable to have a calm, unbiased, rational look at today’s events.

Let’s be honest, your average football fan is far from the most rational of beasts.  That said, neither is your average football club manager, owner or “director of football” based on the events of the last 24 hours…  And let’s not even get started on the players!

The positive side of this is that football never fails to invoke passion in almost everyone it touches.  That is what makes it the beautiful game so beautiful.

Everyone has an opinion – and of course so they are entitled.  However, although most hate to admit it, the majority struggle to keep our preconceptions and prejudices to one side and we too often allow them to cloud our judgement.

So, as the ink dries on Fernando Jose Torres Sanz and Andrew Thomas Carroll’s multi-million pound contracts, the question on everybody’s lips is “who got the best deal?”.

 

Known unknowns

Although that will likely not be determined for a number of years, what we can do is compare these transactions with those of years gone by and see exactly how they stack up.

Let’s put both deals under the microscope and inspect for possible chinks/cracks/vacuous black holes in the two clubs’ rationales.

For those not familiar with my background, when I am not giving out free betting tips or ranting about football, I (sadly) spend my days enduring the world of Corporate Finance.

Some guys even gave me a certificate once that implies I can add up straight.

Combining the two I guess loosely qualifies me to analyse such finance deals and spout off about it on the interwebs.

Before I do, a few points of note:

 

The caveats & assumptions

Ah, yes.  Always need to get your caveats in up front.  That is how us corporate financiers work you know!

 

Capex vs. Costs

Firstly, the following analysis ONLY considers the initial investment being made by the clubs in terms of the upfront transfer fee to acquire the players.

Clearly, as assets, footballers come with some significant maintenance costs – called wages!

In the most basic accounting terms, the initial transfer fee shelled out by a club is capitalised on the club’s balance sheet as an asset.  It is no different to when you buy a new TV.  Spending £500 on a new plasma is very different to spending £500 getting plastered.

You have something to show for your money a week later.  And as such that gets recognised.

However, like going out boozing on a Friday night, footballers’ wages are a cost not an investment – and therefore in accounting terms are absorbed into the club’s Profit & Loss statement (P&L) and not retained on the balance sheet.

The impact of players’ wages should not be underestimated.  Over the course of a five year contract a player earning £30,000 will gross £7.8 million.  Not too shabby it has to be said.  However, a player earning £160,000 a week will gross £41.6 million over the comparable period.

That is an additional cash outlay which is a severe drain on the club’s resources.

Simply swapping player A for player B has absorbed enough cash to pay for a Nemanja Vidic, a Patrice Evra AND a Samir Nasri over that five year period.  Quite scary when you look at it that way isn’t it?!

As I said, this piece does not consider that side of the bargain, simply the initial outlay made by the clubs.

I don’t have the time or the information available to me to do so sadly.

If there are any club executives out there reading this that would like to pay me to do such analysis for their respective club on a full time basis, please do get in touch through the contact me page.  I might be the most cost effective signing you will ever make.

 

Depreciation/Amortisation vs. Appreciation

Once any business has assets sitting on its balance sheet, they are then regularly revalued – basically to ensure that the businesses account paint a true and fair reflection of the financial state of the company.  Not surprisingly, there are an endless number of accounting standards to determine how the bean counters should do this.

From a football club’s perspective it is both confusing and simple in equal measures.  I don’t plan to go into great detail here.

In the most basic of instances though, when a player is signed, the transfer value paid for him is depreciated on an annual basis over the length of his contract.  This makes intuitive sense after all as, post-Bosman, an out of contract player is worthless to a club.

So in the instance of Fernando Torres, he was initially signed to a 5 year deal for £20 million.  His value would have then been amortised at £4 million per annum in line with his expected tenure with the club.

However, at the end of the 2008/09 season, FT signed a new four year contract to remain at Anfield and a new, reduced amortisation schedule would then have been put in place.

In the instance a player is subsequently sold by a club, the profit or loss recorded in the books is equal to the transfer fee received from the purchaser, less the balance remaining on the balance sheet at that date.

Simples.  Ish.

 

Other matters

This post also doesn’t consider a whole host of other matters which you would need to look at to fully and accurately assess the potential value of the given deals to the clubs in questions, such as marginal cost, individual squad needs and deficiencies

Ultimately, the value of any deal is determined by the production and contribution subsequently made by the player on the pitch.

On paper Michael Owen and Owen Hargreaves probably both looked like great investments.  But at the end of the day the game isn’t played on paper.  It is played on knees and with the assistance on groins and hamstrings.

More on those hamstrings later…

Anyway, that is more than enough chatter for now.  Is anybody still awake out there?!

 

A look back at historic transfers

The table below shows the five most expensive strikers in football history, whose deals have already completed – that is they have subsequently been sold, released or have retired.

Reflex memory quiz – I am guessing that Zlatan, Robinho and even Shevchenko are fresh in the minds of most, and that some have managed to pull Crespo from their grey matter.

The fifth?  Big Christian Vieri!

For context, I have also included Zinedine Zidane’s former world record £45 million deal.  For no particularly reason – just because he is a legend and it makes for an interesting comparison.

 

The 5 most expensive strikers in history – completed deals (avec ZiZou)

£m

Fee

Year

Age

Fee (CPI)

Fee (Out)

Year

Age

Net  cost

Annual net cost

Zlatan Ibrahimovic

56.5

2009

27

56.5

20.0

2010

28

36.5

36.5

Andriy Shevchenko

30.8

2006

29

32.5

0.0

2008

31

32.5

16.3

Zinedine Zidane

45.0

2001

29

54.6

0.0

2006

34

54.6

10.9

Hernan Crespo

35.5

2000

25

43.8

29.6

2002

27

14.2

7.1

Robinho

32.5

2008

24

32.5

15.0

2010

26

17.5

8.8

Christian Vieri

32.0

1999

26

40.8

0.0

2005

32

40.8

6.8

 

Blimey.  Where do I start.

Well, first things first, a quick canter through what you are looking at.  The table shows the transfer fees paid (and recouped where applicable) for each of the deals, the years in which the transactions took place and the players age at that time.

The first column of note is the “Fee (CPI)” column.  To allow us to accurately compare transactions across different years, it is important to adjust the transfer fees for inflation.

This isn’t a perfect comparison, as really you should adjust the transfer fees using some other form of index to reflect the specific growth in the football sector, however as the oldest transactions we will consider throughout this piece are from 2000 and 2001 I don’t think it is a destructive omission.

The penultimate column of the table, you can see the total net cost of the players tenure at the club (excluding wages).  I am not calling this a “loss” for the specific reason that this article is not assessing the players contribution in that time.  Which in some individuals’ cases is a very good thing!

The final column shows a pro rated annual net cost – i.e. taking the net cost to the club and splitting it evenly over his entire tenure with the club.

 

Observations

Not surprisingly, owning the most expensive strikers in world football doesn’t come cheap.  Note how I used “most expensive” and not “best” there…

Christian Vieiri’s deal at Inter comes in the cheapest at £6.8 million per annum even though he eventually left on a free.  That doesn’t bode well for the rest of this gang does it?

Hernan Crespo and Robinho’s brief stints in sky blue cost their respective clubs £7 million and £9 million per annum respectively.  Certainly not cheap, but at this stage it isn’t making my eyes water.

With respect to the relatively high cost of Zinedine’s Zidane’s tenure in Madrid, I would note the fact that they signed him relatively late on in his career and as such they did no recoup any of their world record fee due to his retirement.  No doubt each and every Madrid fan will tell you he was still worth every penny!

Speaking of not recouping value, Andriy Shevchenko’s Chelsea career was as much of a car crash on paper as it was on the pitch.  After his loan spell at AC Milan, the Blues eventually wrote off the entire balance of his fee, meaning that two seasons and nine Premier League goals cost them £32.5 million.  Ouch.

However, the worst deal of all time, which I feel has somewhat flown under the radar due to the quite remarkable footballing product produced by his former teammates, Zlatan Ibrahimovic’s one year stay at the Nou Camp was one of the most expensive experiments in football history.

The enigmatic Swede is now back in Milan and lighting up Serie A once more, however I doubt too many Barcelona executives set their Sky Plus boxes to record the Football Italia highlights!

 

So, with a number of benchmarks established from the historic mega-deals, let’s have a look at some of comparable existing deals yet to be fully unwound in the market place:

 

Comparable current strikers – existing deals

£m

Fee

Year

Age

Fee (CPI)

Fee (Out)

Year

Age

Net  cost

Annual net cost

Cristiano Ronaldo

80.0

2009

24

80.0

0.0

2017

32

80.0

10.0

David Villa

34.0

2009

28

34.0

0.0

2014

33

34.0

6.8

Dimitar Berbatov

30.8

2008

27

30.8

0.0

2013

32

30.8

6.2

Carlos Tevez

35.0

2009

24

35.0

16.0

2013

28

19.0

4.8

Didier Drogba

24.0

2004

26

27.0

0.0

2012

34

27.0

3.4

Wayne Rooney

25.6

2004

18

28.8

0.0

2016

30

28.8

2.4

 

The table above contains the transfer fees of a number of world football’s most high profile strikers of recent years along with an indicative forecast of how long these players are likely to run through their deals.

It is key to note that they are all my own rough estimation to allow for comparative analysis.

Players such as David Villa, Dimitar Berbatov and Didier Drogba are reasonably easy to forecast due to their age – it is unlikely any of them will still be in their current roles in three year’s time.

However, it is a more subjective decision in relation to the young guns.

To be conservative, I am working on the basis that Ronaldo continues on at full speed to age 32 and given his body type I have Rooney finishing up at a Cantonaesque 30.  As you may have already guessed, I am not a fan of racy management forecasts!

As for Mr Tevez?  How long is a piece of string? Or should that be how much will you pay to play with my sting?

I have him disappearing off back to Argentina in two years time for a sum of £16 million.  Seemed as good as any.

The first thing I would note here would be how, on the whole, this group of players project to have been much cheaper for their respective teams on a net cost per annum basis.

The second thing I think is becoming clear here is the positive impact of signing young players – the benefits of which are twofold.   If that player is a success and is a top level contributor you can continue to utilise them without a further outlay of capital.

And if they don’t quite make the grade, they are young enough to recoup at least some funds.

Obviously signing young players for high sums is a high-risk, high-reward strategy – and I am certainly not suggesting all cases turn out like Messrs Rooney and Ronaldo!

However, in the instances of Villa and Berbatov, the club is almost certain to crystallize a loss on the player at some point on any future sale and will incur a meaty amortisation whilst they remain at the club.

 

A decent framework – are you reading this Gary Cook?

At this point I feel we have really established a good framework on which we can compare the current spate of deals.

I think anyone would agree Rooney is likely to end up as a good value signing – £2.4 million per annum looks to be the low end of this elite spectrum.

Equally, Berbatov and Villa were “win now” additions, the big money signing that could be the difference between the winning and losing of domestic titles and Champions League trophies.

David Villa certainly seems to be proving his worth at Barcelona, and after a couple of mediocre years even Berbatov is proving his worth this season at Old Trafford.

So given these two frameworks I would suggest that the region of £3.5 – 7 million per annum is the excusable rate for elite striking talent across the major European leagues, and anything north of that is likely a bum deal unless reserved for the absolute all time greats.

Let’s see how the current bunch project.

 

The deadline day madness & other recent additions

£m

Fee

Year

Age

Fee (CPI)

Fee (Out)

Year

Age

Net  cost

Annual net cost

Fernando Torres

50.0

2011

26

50.0

10.0

2016

31

40.0

8.0

Edin Dzeko

27.0

2011

24

27.0

10.0

2015

28

17.0

4.3

Darren Bent

18.0

2011

26

18.0

4.0

2015

30

14.0

3.5

Luis Suarez

22.5

2011

24

22.5

10.0

2015

28

12.5

3.1

Chicharito

12.6

2010

22

12.6

7.0

2016

28

5.6

0.9

 

The table above shows the likely “average case scenario’s” that I assume/believe/hope that the big clubs are working off when they analyse potential signings.

In the case of Man City’s latest £20 million + recruit, Edin Dzeko, and Luis Suárez they project to be middle of the road £3-4 million per annum contributors.

That is based on the fact that they retain resale values of around £10 million in four years time.  Clearly they may not be sold and in such instances they will drive this per annum cost down.  Equally they could be complete busts, however given their international pedigrees I don’t forsee that happening.

But I guess Chelsea didn’t see Mateja Kezman being a complete bust either.  Or Chris Sutton for that matter.  Hang on a minute…

Interestingly, at this point I would also note that Darren Bent’s £18 million deal doesn’t look too bad.  He has no track record of injuries, is a consistent performer in the league already and is unlikely to suffer from personal issues as a result of a move he wanted to make.  I expect him to retain value of £ 4 million at a minimum aged thirty and therefore projects to cost only £3.5 per annum.

The same cannot be said for Chelsea’s new saviour Fernando Torres.  The phrase “Once you see the bandwagon…” springs to mind.

A player the wrong side of 25 can never be worth £50 million in my eyes.  Especially not one with chronic hamstring problems.  Just ask Michael Owen.

I can only see his resale value at thirty being a move back to Athletico Madrid and equally I don’t expect him to rattle off six injury free years of Premier League football.  As a result he projects to be a circa £10 million per annum player for CFC going forward.

More on El Nino in a moment.

Before that, let’s have a gander at “The Andy Carroll situation”

 

The Andy Carroll situation

Well as most of the world have come to the conclusion that, either:

a) the world has gone mad;

b) the yanks have no idea what they are doing; and/or

c) they had misinterpreted the meaning of this term “moneyball”

I have actually come to a slightly different conclusion.

Before I get into this, a few more caveats if I may.  If I was part of the executive team at LFC (one day I hope to be – please somebody make that happen) I would have been voicing serious concerns with respect to Andy Carroll’s mental makeup and ability to handle both a move of this magnitude or a 10 year career as a top level athlete.

I don’t want to slate someone I know nothing about, however there have obviously been enough incidents noted in the media to give cause for concern.

Second to these, I would also have been questioning the merits of spending £35 million on an unproven yet highly talented player at this stage in the season.

Liverpool are not going to make the Champions League this year.  Neither are Newcastle.

And therefore, I can see little downside to waiting until the summer to make this move, and therefore probably saving yourself circa £15 million, which would then buy a much needed world class centre half.

Maybe the Liverpool hierarchy are placing significant value on the time their new striker force will get to play together over the next 4 months to allow them to hit the ground running in 2011/12 to try to get back into the Champions League.

Maybe they determined that a “shock and awe” strategy was the only way to get their man.

Maybe they determined that Spurs would likely chuck £25 million + at Newcastle in the summer anyway so the incremental cost is only £10 million.

Who knows.  And we are unlikely to find out so let’s not worry about it, but instead look at some scenarios.

 

The Andy Carroll situation – possible outcomes

£m

Fee

Year

Age

Fee (CPI)

Fee (Out)

Year

Age

Net  cost

Annual net cost

The delinquent

35.0

2011

22

35.0

6.0

2014

25

29.0

9.7

Peter Crouch II

35.0

2011

22

35.0

10.0

2014

25

25.0

8.3

Les Ferdinand II

35.0

2011

22

35.0

15.0

2015

26

20.0

5.0

Ian Wright II

35.0

2011

22

35.0

2.0

2021

32

33.0

3.3

 

It’s safe to say we currently have no idea how this deal will work out, and only time will tell.

Andy Carroll could end up being a terrible value purchase.

We aren’t even sure he wants to be leaving Newcastle and have no idea how he will adapt to leaving his home town.

And from a footballing perspective we don’t know yet how good he is going to be.

However, we do know he has the raw tools to be a big success in the Premier League and is likely to strike fear into defenders in Europe whom will not be used to dealing with such a combination of pace, power and physical presence.

I have thrown three comparative names out there, two of which would make the signing good value, and one of which wouldn’t.

I’m not going to over indulge in pontificating about the ifs, buts and maybes, but I will be honest and I say I know where I would place my bets if I was forced.

And I don’t think anyone at Anfield ends up with egg on their face over this deal in the long run.

 

Just to finish off, check out the back end of a couple of the transfers discussed earlier, along with one of the best ever value transfers.  I promise you won’t find Redknapp Junior hanging out of them.

 

The accountants dream – Buy low, sell high

£m

Fee

Year

Age

Fee (CPI)

Fee (Out)

Year

Age

Net  cost

Annual net cost

Cristiano Ronaldo

12.2

2003

18

14.2

80.0

2009

24

-65.8

-11.0

Thierry Henry

11.0

1999

22

15.0

18.0

2007

30

-3.0

-0.4

Fernando Torres (LFC)

20.0

2007

23

21.0

50.0

2011

27

-29.0

-7.3

 

For all those Liverpool fans burning shirts last night.  Your team got better yesterday – be happy.

And then when he pulls his hamstring in 8 weeks time you can toast the Russian’s Roubles with a few celebratory vodkas.

The numbers speak for themselves here really so I won’t linger on it.  Ultimately, Arsenal were paid a nominal sum to endure Thierry Henry’s services for eight years.  It’s a hard life.

And for those asking why the United fans sang “Viva Ronaldo” for 15 minutes solid at St Mary’s on Sunday, there is your answer.

Cristiano Ronaldo made Man United almost £66 million on his fee alone in his time at Old Trafford.  And he didn’t punt off to London to pay for our rivals.

He went home.  To a land where the sun shines, the women are beautiful and he is near to his family in comfortable surroundings.  If I was a multi millionaire living in Madrid, I would do exactly the same thing.

In his final season alone he bought us a certain Javier Herdandez.  Who is proving more than useful thank you very much.

So, as a Man United fan myself, I can safely say… “Viva Ronaldo!”

 

Conclusions

Not surprisingly I think the media may have over reacted just a touch on a number of the deals this month.  Most of them can be rationalised in some way shape or form in the current environment.

The Torres deal is the most expensive and has a reduced upside with a high risk off  regression or injury.  But then Roman is playing with monopoly money so, like the New York Yankees so often do in the US, Chelsea can absorb the loss if the worst comes to the worst and just bring in someone else.  It isn’t a level playing field.

The same can be said for Manchester City, however on paper almost all of their recent deals look capable of providing pretty decent value, unlike a few of the previous regimes short-sighted purchases.

The only major issue I have with their current business model is the obscene wages they have decided to pay to buy people in.  That is wholly unsustainable and I don’t see why they have inflated them so high in a market of one.

The Andy Carroll deal, mental issues aside, is not as risky as parts of the media will try to have us believe – and with a bit of luck could even come in as a par transaction for a Champions League team.

The Darren Bent deal is probably an even better deal given that is addresses the specific needs of the club at the current time.  His signing was probably the biggest first XI upgrade of the lot given he has replaced an aging an ineffective Emile Heskey and fits perfectly into a 4-3-3 system supported by Ashley Young, Gabby Agbonlahor, Marc Albrighton and Stewart Downing.

But the overriding conclusion to this piece can only be one thing.  There are only two of the “big” clubs in the UK being run efficiently and professionally across the footballing operations.

Sir Alex Ferguson, despite the odd unavoidable blemish, has a fantastic record of getting value out of big name signings and as a result has managed to maintain United’s presence at the top of the game for almost 20 years.  The parts are interchangeable, but the end results so often the same – and he must take a huge amount of credit for that.

However, when it comes to player development, talent identification, buying low, selling high and extracting every drop of value out of his resources nobody comes close to Arsene Wenger.

Have a look at the Frenchman’s track record one day bearing in mind the economics I have been through above.  It is quite staggering what he has achieved.

When Mark Hughes came a knocking with his £41 million and asked for 28 year old Kolo Toure and the maverick that is Emmanuel Adebayor, I bet he couldn’t believe his luck.  And hopefully, when a 20 year old Alex Chamberlain is tearing up and down the Emirates wing, the Arsenal fans truly appreciate theirs as well.

 

That’s all folks.  A crazy crazy day.  I should get to bed… “work” in a couple of hours.

 

Oh, there is one more thing – everybody out there that said the transfer window should be scrapped…  Can you honestly say that didn’t enjoy that?!

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Comments

  1. Poll says:

    Absolutely cracking piece Blez. Such a shame that the majority of journos out there can’t see the tree for the branches, let alone the wood for the trees.
    Comoli are you reading this?! Get this lad snapped up.
    From a Liverpool point of view it is also worth pointing out that they have swapped an injury prone 26 year old for a complete strike force who are 24 and 22. Carroll’s character is a worry, but hoping he will look up at the legends at the club and learn from them.
    My other thoughts are that Suarez had them by the balls and wasn’t going to sign if they didn’t replace Torres, therefore forcing them to go out and spend big on someone. Fingers crossed it works for Liverpool.
    Here’s hoping Torres pulls a hammy, can’t face the sight of him in a blue shirt…

  2. saul says:

    really interesting article, enjoyed it. just one question though: when calculating net cost to a club, is there a reason you’ve left out wage bills? is it just to counterbalance the intangible benefit of the player selling shirts, scoring goals, etc., or am I missing something?

  3. Phil says:

    Really good piece, cheers for that.

  4. Blez says:

    Hi Saul,

    Glad you enjoyed the article and hopefully you enjoy the site in general and choose to stick around.

    There are a couple of reasons why I left out the cost of wages in this piece:

    a) Time – it’s tough knocking something like this up of an evening; and

    b) Lack of publicly available info – any decision on a players wage packets would have involved a bit of guess work and in the end could even have detracted from the analysis in my eyes.

    As wider points, I would expect 80% of the players on this list to have been on comparable market leading salaries for that time – for the majority of their main contracts.

    The points at which that gets distorted somewhat are, as I referenced, the arrival of Manchester City into the market place and as you referenced the marquee players such as Ronaldo and Rooney who contribute so greatly to off the field revenues that the are rewarded appropriately.

    Wages would indeed enable value swings of c. £3 million per year (80k vs 140k) but for the purposes of the analysis I think the same principles shine through with respect to the overall market.

    The importance of buying young, appreciating assets is absolutely paramount to building a profitable football club and mega deals for players the wrong side of 25 are always going to struggle to provide great value to their clubs.

    Anyway, hope that helps.

    Cheers

  5. Cockers says:

    Blez,

    Great article really enjoyed this piece.

    I should know more about this working as an accountant for a firm who is heavily involved in football finance. So the cost of a player actually gets capitalised on the balance sheet then? I would have thought that the club cannot exert sufficient control over these ‘assets’ to enable capitalisation, in the same way that other companies are prevented from recognising valuable key personel on the balance sheet. Also would have thought that the future benefit cannot be reliably measured further preventing recognition, meaning that transfer fees are just written off to the PL as well. No idea about this really, never looked at a set of football club accounts, just my bumbling/boring thoughts.

    Any thoughts on tonights/weekday fixtures mate?

    Cheers

    Cockers

  6. James says:

    Great article. Really interesting, thorough analysis – must have taken you ages.

    I must draw issue with the idea of Torres being worth £10m at age 31 – strikers that rely on pace rarely will achieve that, but there’s so much subjectivity in that call that it’s worth the debate this article brings up.

    One interesting thing seems to be the role Italy plays in all of your initial table’s transfer dealings – involved in every one in fact!

  7. Mweni says:

    Fascinating article keep it up really enjoyed your piece

  8. Ad says:

    I’m an accountant too, so enjoyed this very much. I heard so many comments about David Villa costing the same, but kept thinking that people were missing the age factor.

    Conclusions I draw, which were more or less what I held before reading this, were that swapping Torres for Carroll was a good bit of business. Though on further reflection, this is purely because Torres was so massively over-priced.

    If Torres had stayed, he would have left for free in 3-4 years probably when his contract expired, so by selling now, Liverpool make c. £12.5m a year compared to what could, and probably would have been. His injury record, lack of form, and sky high wages add further to this. So Liverpool appear to have done brilliantly in selling him – the decision yesterday arguably proved more profitable than the Cristiano Ronaldo deal. On the same basis, surely Chelsea were fools to spend so much on him?

    With regards Andy Carroll, the biggest issue is that his price was heavily inflated by the timing of the deal. If he could have been signed in the summer for £25m, still a huge figure that most would question, that would have saved £10m for Liverpool in 6 months. That equates to a ‘cost’ per your analysis above, of £20m, making him a worse signing than Shevchenko! Since Liverpool are very unlikely to qualify for the Champions League now, and out of the cups, why bother buying now rather than the summer? Simple answer is to appease the fans, but at what cost?

    All of which serves to highlight that the transfers were crazy yesterday, that free transfers are great, and why wages have gone so high when, in the Bosman-free era, clubs are willing to make such huge losses when it comes to transfer fees. £5m a year wages don’t seem so ridiculous when placed alongside £4-7m ‘standard’ annual losses on transfer fees for top players…

  9. Blez says:

    James,

    Great to have you on the site mate.

    I agree that £10 million for Torres at 31 might be over-egging it a touch. But I do see him resigning with Athletico at some point – and it will be for a fee if Chelsea have any sense around his contract.

    Maybe it would be £6-7 million, maybe it would be a year earlier at 30.

    But a very valid challenge.

    Re: the Italian clubs – they are involved in a lot of those big deals, but often as a seller too – Zlatan, Shevchenko, Zidane.

    I would note the initial purchaser on those six deal – two Spanish, two English and two Italian!

  10. Roshan says:

    Nice article.

  11. Poll says:

    Why is no one else suspicious of the timing of Suarez’s actually signing. It was only put up on the Liverpool site after the announcement of the fee being agreed for Torres and Carroll.
    He could have easily signed the day before or early that day having completed his medical. One challenge would be that they didn’t have time to finalise his contract because they were spending their time on the other two, but that wouldn’t explain the speed with which it went up on the site after the other two.
    Clearly he agreed to sign before Torres put in his request, as soon as he heard this Suarez would have gone to the club and said either you keep Torres or replace him with someone I deem good enough, otherwise I walk away from this.
    Therefore, with time very much against them, Liverpool had to go into the market to buy a player at a massively over valued amount. No matter how much NESV and Comoli believe in value investing, they couldn’t very well sit back and play the rest of the season with no one to play up front. Equally they could not turn down £50m for Torres.

  12. Ad says:

    Further thought on the above analysis.

    Arguably, the view expressed above, and mine earlier too, reflect how businessmen might want to run football clubs. The article deals purely with costs, but largely neglects returns, which, for a football club, are usually measured by results. So whilst a deal makes great business sense, it has to be put into context of how much a player contributes to the success of his club on the pitch.

    If Darren Bent’s deal is to be considered a good one, we have to assume he is as good as the players he is beign compared to. £3.5m a year annual investment may be ‘low’ by the standards set above, but is he really in the same class as Drogba, Rooney, Villa and Ronaldo?

    Since there appears to be an exponential scale on cost vs quality, it is only when you factor in the benefits provided to the club by the player that a deal can truly be measured. And that is why Zidane for £11m a year is still a far better deal in my eyes than, for example, Bent at £3.5m a year.

  13. Poll says:

    My other point would be that this is a speculative market bubble much like that seen in the bull market and more recently the housing market. If people would like to understand how this happens I would recommend Irrational Exuberance by Robert J Schiller http://www.irrationalexuberance.com/.
    The prices that clubs are paying for players (assets) is way beyond their underlying value. This is not just the price they are paying for the initial investment in these players, but also the wages they are paying them. It seems Fifa are trying to do something about this in trying to get the clubs to be turning a profit, but we wait to see whether it will be achieved.
    At some point in the future owning sports clubs will not be so fashionable for the uber wealthy and they will pull the money. That is when people will see the benefit of having Arsene Wenger at the helm. Hopefully NESV will prove their worth over the long term as well.

  14. Blez says:

    @Ad – fantastic first contributions to the site – please stick around it sounds like you will enjoy the stuff that goes on here.

    Your points are spot on and you have hit the mail on the head.

    Just so everyone realises, I was not attempting or claiming this piece to be a valuation of each of these deals – merely providing a framework to allow comparison.

    I could probably write you a 20,000 word piece to determine which of these deal were +EV deals and how costly those that were not turned out to be.

    Hopefully someone, someday, at a UK football club will take note and employ me to do so!

    It all comes down to the players marginal contribution to his teams results – both individually and through his impact on others.

    There are an almost infinite number of things to consider – time on the field, team style, quality of alternatives within the squad just to name a few… the list is longer than one of Andy Carroll’s legs!

    I believe 100% that someone will revolutionise football using advances statistical analysis just as the sabermetric revolution has in baseball in the US.

    And I believe I know how to do it.

    Sadly I just need someone in the industry that is prepared to listen to me!

    However, the fact that elite clubs like Chelsea, with one of the best scouting and front office structures in football still choose/are forced into making such moves and following their current model means that such a market may yet be a few years away!

    I will do a follow up piece if there is appetite for it to look at the “value” extracted from such deals at a very high level if people would like to read it.

    Cheers

  15. TomE says:

    Great article – been looking for an intelligent response on this for a while and saw your post on the BBC site.

    How I see the Carroll purchase in simple terms, Liverpool have traded a player with potential injuries who doesn’t want to be at the club with a younger player with no serious injury history and £15m. Disregard the £35m price tag, the deal is actually very good.

    Add into that if LFC were to wait until the summer, Newcastle may have pushed the price up (which LFC would not have liked) and/or a rival club* will make the right offer and Liverpool lose the player. Also, maybe Suarez would only join if he knew Liverpool weren’t just getting rid of Torres and buying a cheaper player to make some money.

    *LFC will want to get to Europa competition this year, and Champions League next year – they would not want a decent UK-based player leaving a mid-table club to join a potential top 7 team such as Spurs or Man City. I feel this is why Chelsea bought Shaun Wright-Phillips for such a large amount as Arsenal also expressed interest in him – a case of buying aplayer just so their rivals can’t have him.

    In any case – great article. Wish the wage figures were available, and you had more time on your hands so we could see more analysis.

  16. Sam says:

    An enjoyable read, I take it you read Swiss Ramble too? Both blogs have ‘inspired’ me to study an accountancy course, so for that I thank you.

    • Blez says:

      Hi Sam,

      Hope you enjoy the site and join the community.

      I do indeed read Swiss Ramble. He is by far and away the leader in the field of football economics – http://swissramble.blogspot.com/ – for those that don’t already folllow this guy, he is an absolute must follow.

      One day I hope to be to the football betting world what SR is too football economics!

      I only moonlight on the topic of football economics!
      :-)

  17. Ad says:

    Cheers Blez.

    I agree with your thoughts that an analytical approach to assessing the value of football transfers would be more than possible, and a fantastic reference point for decision making. I wish you luck with your future career developing such a model. Please pass it on to Nottingham Forest first when you do…

    It is probably inevitable that a manager’s judgement will still be required to assess a player’s potential quality, since whilst a very good estimate of costs can be produced in terms of any given transfer/contract decision, return on investment can only really be measured in hindsight, and even then with a degree of opinion on the player’s overall contribution to a club.

    Still, with the football world dominated by the Man Citys and Chelseas of this world (and much further down the leagues, the Crawleys!), surely any club with aspirations of competing whilst maintaining financial stability must take an approach based along these lines? With financial fair play on the horizon, such an approach will become even more important.

  18. Japiers says:

    Hi Blez – great article

    ‘I believe 100% that someone will revolutionise football using advances statistical analysis just as the sabermetric revolution has in baseball in the US.’

    Whilst I believe statistical analysis will play a large role in football in the future I don’t think it can ever have the same revolutionary impact as it had in baseball. It is much more difficult to isolate the contribution made by an individual in football than it is in baseball.

    This Slate article touches on why the same impact hasn’t, yet, materialised in soccer.

    http://www.slate.com/id/2282752/

  19. AnotherAdam says:

    First of all, really enjoyed the article, it’s great to see a medium term view compared to the reactionary media circus that is currently ‘informing’ the public.

    A speculative question: do you think that we may see football clubs using a different form of depreciation/amortisation to comply with financial fair play ie reducing balance, or maybe even something more outlandish. I have no idea how football club accounting works, but presume there must be some set of accounting principles that clubs have to adhere to make financial fair play comparisions a realistic prospect.

    I think the new period we are entering could see clubs become a lot more crafty and creative with their accounting, and considering the magnitude of the sums of transfer fees and wages, this is certainly an area I would be seeking to make FFP-efficient.

    Thanks, Adam.

  20. Andy P says:

    Great article, certainly thought-provoking. As you have agreed, there are opportunities to extend this analysis by accounting for salary and contribution, but these would require greater freedom of information and complicated (but by no means overly so) statistical analysis respectively. It already does it’s job of highlighting that the majority of our traditional media are compared the Villa and Carroll transfers in a very naive way.

    I’ve been particularly thinking about the costs of amortising player transfer fees. As others have highlighted, clubs are making vast losses through this practice (and as mentioned, this is possibly obscuring the high cost of player salaries). Player values have to be depreciated to £0, as you’ve highlighted, because this is how much you get for a player when they leave on a Bosman. I’ve been thinking of two extra considerations clubs should be making:

    1. The Webster ruling – we have been waiting for some time for a high-profile Webster case to really kick things off with regards to contract protection periods. If and when this happens, clubs need to consider that contracts are only protected for 3 years for players under 28 or 2 years for players over (ages at the date of signing a contract). So for example Andy Carroll has 3 years of protected contract, and 2.5 years of unprotected contract, on the new deal he signed yesterday evening.
    This essentially means that Andy Carroll’s transfer fee in 3 years’ time will be the value of the remainder of his contract. If reports of £80,000 per week are correct (by no means certain), this puts it at £10,400,000. So shouldn’t the Carroll asset on Liverpool’s books depreciate from £35,000,000 to £10,400,000 over the next three years and then in line with his salary from then? This obviously precludes his signing a new contract in a few years’ time which at any rate would change valuations.

    2. The trend in global transfer fees is very interesting given the high costs of amortisation (and the high cost of transfer fees in general). To a certain extent, we are moving the same money around on a regular basis (Chelsea-style injections create movement throughout the system in a similar manner to the Torres deal triggering the Carroll move yesterday), but nonetheless you would expect the Bosman ruling to have driven transfer fees down, whereas they continue to trend upward (or at least, national and world records are still broken regularly.)
    What other effects, then, are impacting on transfer prices? I would suggest there is a very high degree of short-termism, driven not just by massive outside investment in football clubs, but also by a desire to win now, rather than later. The chase for trophies drives clubs to throw massive amounts of money at players. (And, of course, the prospect of Financial Fair Play rules is also driving clubs to spend now rather than later – the one aspect of this whole dynamic which the mainstream press seem to have spotted.)
    Controversially, are we as fans contributing to this effect? We are impatient and unlike in US sports we do not often consider the possibility of a “rebuilding season” in which the focus is on acquiring and training a high quantity of young talent at once to create a future championship contender.

    As a Newcastle fan, I thought about that last point and corrected myself: a rebuilding process is exactly what I see Newcastle as doing at the moment and why the Carroll departure hurts even given the massive fee received. Then I realised, I am happy with rebuilding only as long as it means progress, particularly avoiding relegation this year. The costs of dropping out of the Premier League are massive and is contributing to high transfer fees. Similarly, the other “bump” in marginal income from position to position in the Premier League is from 5th to 4th place, due to the television revenues from Champions League participation.

    So, this strikes me as another argument for greater parity in incomes, or even the dirty word (amongst the top European clubs happy with the status quo, at least) “revenue sharing”. If the costs (or opportunity costs) of dropping out of the Champions League or Premier League were not so great, the marginal benefit of finishing 17th vs 18th or 4th vs 5th would be less pronounced. As bad as it sounded on paper, is the idea of “Premier League II” actually a decent one? Of course it would have its own relegation “income speedbump” unless we introduce a more equitable distribution of income throughout the whole English system.

    As I have said, this has definitely provoked thought! I’m not sure about all the answers but clearly there is some thought and analysis that could go behind the “Look at silly football spending all that money and ignoring the recession!” headlines in the papers today and actually get to the cause of this whole interesting spiral of transfer fees and wages.

  21. Japiers says:

    Just one tit-bit from that article that might interest you Blez,

    “In 1999, baseball analyst Voros McCracken changed the game by introducing the concept of defense-independent pitching statistics in a public Usenet newsgroup. Now, he works as an analyst in European soccer—but what he’s doing, or for whom, is a secret.”

  22. Kariuki says:

    Like TomE above, saw your post on the BBC site and had to read your analysis.

    With a lot of what goes on in football nowadays there is too much emotion (read passion) and little rational and logic applied in judgement of transfers and related matters.

    The winter transfer window, as has been said elsewhere, has on the whole favoured those on the supply-side and has to be looked at from the angle of the unique dynamics that come with it.

    I think, given the timing 35m was the only figure that would have made the Carroll deal go through, and at 22 (and Suarez 24) should the talent be nurtured this could still be a great piece of business when looked at in 2017 or so. Even though as a LFC fan I say so with my fingers very crossed.

    I look forward to the sobriety of the summer transfer market.

    All in all, great article and I look forward to more in future.

  23. Japiers says:

    Any P – Am I right in thinking that the Webster ruling means a player can by himself out of his contract for the price of his remaining contract rather than being transferred for it?

    This is a significant distinction. If a player buys himself out of his contract, which would presumably be done on the assumption that the club he plans to sign for will pay him back that money, he will be taxed on the money he receives from the buying club as if that money was income. Therefore, for Andy Carroll, the buying club would have to pay him approx £15m to him to cover the £10m he paid to his former club with £5m going out in tax (roughly).

    Obviously this has no impact on what the selling club gets but it may contribute to the reluctance of clubs to encourage players they want to sign to buy themselves out of their contracts. Whilst football clubs seldom seem to think collectively, money going out of the game and straight to the taxman isn’t to the benefit of any of them.

    This is based on assumptions taken from Sid Lowe’s recent article on buy out clauses in Spain but I assume similar tax principles would still apply.

  24. Cockers says:

    …..unless they structure payments through an image right company potentially enabling a fall out of a charge to tax.

  25. Andy P says:

    Japiers – you’re right, I hadn’t considered that: it is indeed the player who breaks the contract and owes the other party (his former club). He would be compensated in his signing-on fee for a new club, and this would no doubt be classed as income by the taxman and is probably a contributor to the fact there have been very few examples of the Webster ruling being exercised. I think also, as you imply, clubs in general do not appreciate this ruling and as a collective probably do not want to “break ranks” and incentivise players of another club to break their contract.

  26. Poll says:

    One piece of analysis I would be very interested to see, which isn’t particularly tricky to do, would be a real transfer value (inflation corrected) uptrend (presuming there is one) over the entire history of the game. One for the record being broken, one for largest fee paid in a year and one for the average amount paid.
    As you mention Blez, to get a full picture you would have to have some sort of consideration for the uptick in the football market in general as opposed to the CPI. Perhaps the average ticket price at premier league grounds could be used instead of the CPI…

  27. Tom says:

    Fascinating article – thank you. I’m a keen football fan and amateur manager, and an economist/mathematical modeller by trade – I read Moneyball a few years ago and couldn’t help but think that a lot more statistical modelling and financial economics needs to be brought to football transfer strategies (and indeed playing tactics). It will be interesting to see what the Fenway Group do with Liverpool in this regard over the next couple of years.

    Just a very quick comment (apologies!) – it would surely be more accurate to put the transfer sales in present value as well, not just the upfront transfer fees. For example, Crespo’s out fee of £25m is probably more like £34m in today’s prices – and this is the comparison of interest – then he cost around £5-6m per year, not the £10m you suggest. Also, it would be more accurate to discount using an interest rate not an inflation rate – e.g. using an estimated WACC for top end football clubs (does such thing exist?). The point you make very well still remains though – I’m just being picky.

    I wonder if it would be worth developing the simple analysis you put forward into a more all-encompassing model of football transfer strategy. For example, you could introduce interest rates/discount factors, risk of success or failure (and how that varies by age), and wages as you mentioned. It would be interesting to know, for example, what the evidence says about the risk of buying younger or older players – what has history told us about who is more risky between a Carroll-type and a Torres?

    Thanks,
    Tom

  28. Blez says:

    Poll

    You would love this then:

    http://www.amazon.co.uk/Pay-As-You-Play-Success/dp/0955925339

    And by famous LFC writer Paul Tomkins to boot.

    http://www.paultomkins.com/books.html

    Cheers

  29. Blez says:

    All – I will get back to everyone in detail tonight on your points. Thank you all so much for the comments and the insightful points.

    Tom – great point re: Crespo’s transfer fee. Given the other two are recent transfers that one slipped through the net. I will adjust the analysis later to reflect that point.

    Serves to make the truly “bad” deals of recent years to stand out even more.

  30. mark russell says:

    Interesting article – but I believe it has two fatal flaws, which perhaps reflect your Man United bias.

    Firstly the CPI – to suggest that transfer fees in football have increased so little (and certainly at the very highest level) over the past 10 years is for me not reasonable, you are comparing different time periods! Wayne Rooney and Didier Drogba were bought 7 years ago, since then I would suggest fees have gone up by 50 to 75%. This I believe is wholly justified by the clubs on a purely business basis. The income fom TV, Champions League, global sales means that a successful team will have probably increased revenue by at least 50% in the last 7 years and there is no reason to suggest that wont continue – expansion in India, China and the Far East as well as the increasing interest of the world’s billionaires. Put in basic terms, the extra money generated from Rooney/Drogba first 7 years is likely to be significantly less than Carrol would generate (if a similar success) from his first 7 years at Liverpool.
    This inflation also makes your re-sale values look sinificantly flawed – you suggest Andy Carrol in 4 years time, after Les Ferdinand-like success with Liverpool, at 26, would be worth 10million – that’s 14 million less than Bent was just sold for and over 20million less than Berbatov went for at 27 after one successful Premiership season at Spurs !!! More realistic if the current transfer inflation continues would be 30 to 35 million. This hugely alters your equation -net cost would be zero.

    Secondly, when clubs renew a players contract, as was done with Rooney this year, the fact the clubs dont need to pay a transfer fee is built into the negotiations. Manchester United would have allowed this into the equation and would have paid him more than if they had just signed him for 30 million. (this was evident when Terry and Lampard signed new contracts and were able to negotiate significantly higher wages than big money signings) In the case of Rooney for example, I would guess his wages are at least 50k per week higher than Berbatov who was signed for 5million more. This means effectively his contract renewal is the equivalent of 2.5 million per year till 30 is 12.5 million.(and I believe this wasn’t his first wage hike)

    Put these figures int you equation and things look very different
    £m
    Fee +CPI (50%) Resign fee Fee (Out) Net cost Annual net
    Rooney 25.6 38.4 12.5 0.0 50.9 4.24
    Carrol (Ferdinand )35 0 0 30 5 1.25

    There you have it Rooney costing 4.24 million per year over 12 years and Carrol 1.25 per year for 4 years , suddenly Ferguson looks like Paris Hilton and Dalglish is Bill Gates.

    Lies, damned lies and statistics. They can show what you want them to, ask any accountant.

    • Blez says:

      Thanks for the comment Mark – you raise many valid points – although maybe they are somewhat spoilt by implying that any deficiencies in what was only one step removed from a fag packet piece of analysis are attributable to my “Man United bias”!

      In my defence, I stated many times that this considers only one small element of what is a very complex financial model – and I hope it didn’t come across I was trying to imply otherwise.

      Your points around the CPI are perfectly valid – but again, I did point this out in the piece. I do not know the exact percentage increases of revenues etc over the last 5-6 years – my gut instinct that most of the growth was in 2000 – 2005 so was slightly less of an issue that you are suggesting, but that was only an assumption.

      I guess we could do with the Swiss Ramble helping us out on that one.

      Your points around the future sale values however is totally valid – again given that this was only a though provoking piece to introduce people with no financial qualifications to a subject which they may have never considered, they were more placeholders to enable discussion and for the piece to be complete.

      I wasn’t trying to draw any conclusions on Andy Carroll’s potential worth – either currently or his future value profile to LFC – hence choosing what I thought were a handful of light hearted / banterous English forwards from years gone by as comparatives!

      The only conclusions I was ever wanting people to make from this were that the well accepted model of buying and developing young talent and subsequently selling high is the most sustainable football model – and that Arsenal and Arsene Wenger were by far the UK’s shining example of this model.

      Anyway, hope you enjoyed some bits of the piece anyway, even if it was only my stupid northern humour.

      p.s. I don’t need to ask an accountant regarding your final point – Unfortunately as a maths graduate and a practising CA, I am all too aware of the hazardous odours emitted by the vast majority of statistics and their subjective application…

  31. HZ says:

    Bent’s deal could end up costing £24 million, and the initial fee I think was £19 million (if I recall rightly, Sunderland rejected an initial bid of £18 million). Even so, your point on the value of the deal remains valid; it was good business.

    One thing I would point out for both the Ronaldo and Henry deals. As well as the fact that both gave their clubs 6 superb years, where they broke all sorts of club records, it’s worth considering who they “replaced”. Ferguson got £25 million for Beckham, and bought Ronaldo with half of that, while Wenger got £22.3 million for Anelka and bought Henry with half of that. Both managers sold key players and went on to replace them with even better ones for fractions of the cost.

    Amazing.

    Like you, I fancy Carroll will end up being a decent signing for Liverpool. Whilst I wouldn’t have wanted my own club (Arsenal) to have signed him, that’s because of the fact that up front is one of the few areas of our team where I feel we’re as strong as we need to be (our issues are at the other end). If, and it’s a big if, his head is right, Carroll has the talent to be a very good player, and Dalgish is one of the few managers (along with Ferguson and Wenger) to have the experience needed to sort out his off-field issues. The raw materials are all there, and there is immense potential in a Suarez-Carroll-Kuyt front three.

    It’s also really good to see someone buck the trend. Torres to Chelsea is being unanimously talked up as good business, and Chelsea finally showing everyone who’s boss (rather than being a panic-buy by an owner renowned for making a big marquee signing just for the heck of it), while Carroll to Liverpool is called a risk, as if paying £50 million for an injury prone 27 year old (nearly) isn’t.

    Ironically enough in all this talk of Carroll and Torres, Chelsea’s one piece of very good business, acquiring David Luiz, has hardly been talked about.

  32. culets says:

    Thierry Henry signed for Arsenal in 1999, not 2001 … age 22.

    So this should read:

    Ultimately, Arsenal were paid a nominal sum to endure Thierry Henry’s services for eight years. It’s a hard life.

  33. time tough says:

    Very interesting read Blez, not really my field, so rather than comment on something I’m not fully au fait with I’ll just sit back and appreciate the time and thought you’ve put into this piece.

    Lies, damned lies and statistics. Not sure who first uttered those words but I prefer the Aaron Levenstein quote, “Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital”.

    Finally, nice to see so many new faces, hope you guys stick around and contribute to future articles.

  34. Chris Cox says:

    A really interesting analysis, i too saw this through a link from the BBC and will be looking round the rest of the site in due course:

    One note – I think the Darren Bent deal only looks good by comparison to the over priced Torres and Carrol deals. In the real world of transfer fees (outside of Man City and Chelsea) this is a huge outlay for a 26 year old who has only comparatively recently hit the sort of goal scoring form people expect year in year out for this money. The very short top flight careers of some footballers mean there is a massive difference between a 22 and 26 year old – not every player is a Teddy Sherringham (Michael Owen anyone). A four year contract which Bent may or may not extend can not justify any expected resale value making £6m per annum on top of +£4m per annum wages (reputedly) a lot of outlay for a mid wealth premiership club.

    I do think wages need to be modelled here. On this basis if Bent scores an average 20 goals a season for Villa then each goal will have cost £500,000 (-any contribution to general play defending as well as assists). Is £1/2m per goal a good rate? It gets worse when you consider that in replacing Emile Heskey’s awful average rate of 4-5 goals a season for Villa the marginal increase in goals (+15) makes each of Darren Bent’s extra goals cost £750K. – how long before we are talking about each goal being worth +£million, surely even Premier League income is not that high that this can be consisdered good value in the “Optomistic scenario”?

    PS “Lies, Damned Lies and Statistics” is generally attributed to Benjamin Disraeli (British PM in the mid-late 19th Century)

  35. saul says:

    Blez, really appreciate the quick and informative reply. I don’t have time for a long post, just wanted to say thanks and express my like for the site!

  36. JM says:

    A thoroughly interesting read. What though do people want from their football club – one making a healthy year on year profit or one winning trophies? Doing both seems almost impossible.

  37. tone says:

    One scenario missed (ignored?) on the Andy Carroll analysis is that he’s a success and sold on at age 25/26 (whether Liverpool would wish to sell under those circumstances . If so it wouldn’t be unreasonable to consider his sale value being similar or even greater than Liverpool paid for him – with Bent and Torres’ moves in this window being used as examples of this happening.

    Good article and interesting analysis.

  38. tone says:

    Poll – wasn’t the delay with announcing Suarez due to him needing international clearance and a work permit?

  39. Aidan says:

    I haven’t had a chance to read through everything, and I appreciate the analysis, but the Dzeko/ Suarez estimated sell on fees look very wrong. Assuming those 10 million figures they’d be about as good a buy at 28 (an arguable peak), for 3 years as they are now. In fact the implcation is that at 28 theyd be stepping down a tier or two – theyd be affordable for an Everton at that price, which would imply they were, if not a bust, then certainly a disappointment.

    I’d argue that if the player was a success then even at 28 we can expect a significant price bump, if he performs as expected then the value would be similar to the purchase price (when the guarantee of performance could be offset against the minimal sell on) and anything else is on whatever sliding scale.

  40. Austin says:

    Sadly, whilst a vaguely interesting read, it was clearly a case of you having a view, and trying to make the numbers fit that view, rather than a case of looking at the data, and trying to extrapolate a view from that data.

    For every example you used in your tables a different example could have been used to tell a different story, and at the end you fully admitted you’d drifted into the realms of guesses.

    Worst case scenario for Carroll?

    He becomes Liverpool’s answer to Aston Villa’s Stan Collymore, in which case he leaves after two years, having done nothing, except cause turmoil, on a free transfer back to Newcastle, at an annual cost of 17.5. Which, Ibrahimovic aside, would make him the most expensive of your examples, which is a world away from your worst case scenario, of leaving after 3 years (assumed productive, if he stayed for 3 years), for 6.0.

    The same game can be played with Torres, you have him leaving in 5 years, for 10 million, I have to say I don’t see that.

    If he has a blinding season and a half, heads off to the the Euro Championships, wins the Golden Boot, with a hat trick in the final, scores 30 goals in the following season, then he’s going to be the same age as Zidane was, when he moved to Madrid, and could possibly command a world record transfer fee, which depending on the football market, which is completely detached from inflation, could be in excess of 100 million.

    At which point, having turned a 50 million profit, over 2 and a half years, it would make for incredibly good business.

    Will that happen?

    Who knows, I’m not saying it will, I’m not saying it won’t, but it’s just as possible your scenario, where he leaves for 10 million.

    In other words the statistics don’t answer the question, you answered the question, with your opinion, and then presented the statistics to fit that opinion.

    I must also say I find irony in the fact that you can say “A player the wrong side of 25 can never be worth £50 million in my eyes.” in the same article where you point out the following, concerning Zidane, a player you view as a “legend”.

    “No doubt each and every Madrid fan will tell you he was still worth every penny!”

    And you know the biggest word in that sentence?

    “Was”

    Because hindsight is 20-20

    After the event everyone’s wise to whether it was a good purchase, or not.

    I remember in 1999, when people were questioning whether Arsenal were crazy, or not, investing close on 11 million, which was a lot of money at the time, in a 20-something winger, who had struggled at Juventus, and been largely ineffective against the Serie A defensive discipline.

    Remember at this point in history the most any English club had ever spent to buy a player was 15 million, so that was a lot of money on a guy who was getting bad reviews in the Italian press at the time.

    In hindsight it was a fantastic transfer, but that’s the beauty of hindsight.

    If a player succeeds, then it’s good business, if he fails it’s bad business, and that’s why Madrid paid so much for Figo, Zidane, and Kaka, and why Chelsea paid so much for Torres, and indeed why they paid so much for Shevchenko, and Man City paid so much for Robinho.

    Even though some of those deals didn’t work out they were all for players who were established, and therefore there was less of a risk involved.

    It’s why the Torres deal is in fact the lower risk deal.

    Even out of form at Liverpool, even accused of sulking, and suffering with injury, he’s bagged 9 goals in 23 appearances this season.

    He’s 26 years old, and hasn’t really had a failed season yet, which would leave any club, and any manager fairly confident that his inclusion in the team would be beneficial, and generate far more income than was lost via his transfer fee, and wages.

    On the other hand Carroll has had one half of a good season in the Premier League, one reasonable season in the football league, and nothing else besides.

    Let’s not forget, 18 months ago, Carroll was warming the bench, for the England under 21′s, below Everton’s James Vaughan in the pecking order.

    Don’t get me wrong, the guy looks like a fantastic prospect, and I was saying that before it became fashionable, but there is no doubt it’s a high risk transfer, just as there is no doubt, had Torres not left on deadline day, the transfer would never have happened.

    The clock was ticking down, Liverpool had to buy someone, and at deadline hour there are not many options on the table, and reasonable price is out of the question.

    Carroll was available, Carroll was bought, but if Torres had stayed they wouldn’t have bought Carroll yesterday, and possibly never, but if ever, probably at a lesser price, and at the end of the day, the circumstances dictate how we view it, and if we are to be honest, it is a risk, one that may end up paying off, but a risk none the less.

    As for good business, and good business models, it’s not about the price you pay, or the age of the player, or even their resale value, it’s about what they do on the pitch.

    If you buy a 98 year old, for 80 million, and he wins you three Champions leagues in a row, and generates hundreds of millions for your club, then he was a better buy than the 21 year old that you bought for 1 million, but never really got off the bench.

    Just as the 17 year old, that you bought for 5 million, and who blossomed into the worlds greatest player, was so much a better buy than 29 year old that you ended up loaning back to Milan, because he couldn’t hit a barn door with a banjo.

    As many have said above lies, damned lies and statistics. They can show you whatever you want them to.

  41. Joescouse says:

    Great piece

    Another factor which could be considered is that many players when re-signing a contract demand a ‘signing on fee’.The player is basically selling himself back to the club as an asset.

    It would be interesting to see this cost amortised against some recent contract extensions, Gerrard, Carragher, Rooney, Lampard and Terry. The older you are when you sign the extension the more impact that signing on fee will have.

  42. Austin says:

    BTW. On the issue of sabermetrics, seeing as it’s the buzz word of the moment.

    A) Variations already exist in football, and have done for a while.

    &

    B) It’s not a science with a 100% success rate.

    Just as there are teams who have employed “sabermetrics”, and have gone on to improve, both on the pitch, and with their bank balances, equally there are sides who have gone on to decline on the pitch, and turn very destructive losses.

    Football, baseball, any other sport, is not determined by statistics, and every time some sporting alchemist tries to find “THE” statistical formula that lesson is always eventually learned, and sometimes painfully.

  43. jitty says:

    On the issue of CPI – the best set of figures I have seen are Paul Tompkins / Pay as You Play.

    For instance, according to him, you have to double Drogba’s fee to get it into 2010 money. That changes your calulations significantly.

    Props for the great blog – looking forward to reading it in detail

  44. Mark says:

    Great article.

    I was reading some of the comments above and there were repercussions to buying players this window.

    Buying fees are amortized over the length of the contract and so Chelsea has to account for 50 mil/5.5 years every year until the contract is renewed or he is sold. Teams can’t just buy like crazy this January because the buying fees greatly affect the FFP rules in future years. The mainstream press has this completely wrong! I think that we will see longer contracts for the best players because of this and we will see more renegotiations soon to spread out the length of contracts and decrease the annual amortization amounts.

    Also, selling fees are accounted for immediately (2010-2011 for this January). It made sense from an FFP point of view to sell Torres in the summer as this would count for 2011-2012 and this gain would offset player amortization and other expenditures during this time. the FFP profit is the selling fee minus the remaining amortization for the player.

    The only thing the mainstream press focuses on is that teams are incentivized to buy in this Jan window, but that is completely wrong.

    Paul Tompkins, who Blez references above, has some great articles, but he gets this completely wrong as well. The Swiss Ramble gets this right.

    I do think this article is great, and I think that Liverpool probably did a great piece of business, just not from an FFP standpoint. they probably would not have gotten as much in the summer if Torres continued to play like he has. Except for the Chelsea game and the goal against Blackpool, he has not really played well. He has scored 3 goals in the last four games, but two were tap ins that my grandmother would have scored.

  45. Rosalino says:

    One thing I’ve never quite got to grips with is do football accounts treat footballers purely as a capexed asset. I.e. you buy the player at x million and spread his costs across the term of his 5 year contract. If two years into his contract he signs a new 5 year contract, are you able to re-evaluate his value and spread it accordingly. I know in normal accounting terms this should not happen, but in the case of a footballer who may have a fluctuating value I wondered whether he could be treated differently.

  46. Excellent post.

    A few points. It would be interesting to add salaries to the amortized purchase figures to get a total cost for a player over their lifetime at a club. For instance, Torres is on 165k a week, apparently, so his amortized cost over his 5 year contract (by which time he will be 31) is 18.5M pounds per year.

    For Andy Carroll, he has apparently signed a 80k a week contract, for 5.5 years. Andy Carroll comes to costing 10.5M pounds per year, and he will only be 27 at the end of his contract – at which point he could be worth 15-25M (taking into account inflation).

    So the cost of footballers has increased, but what is more difficult to measure is the value they bring back to the club in terms of revenue. This has a few components:

    * Merchandising sales (shirts, tours, etc.)
    * Commercial arrangements and image rights
    * Local league revenues based on finishing position
    * European revenue based on prize money and television revenue

    All of these figures, net, have increased over the past 3 years. Television rights income has almost doubled. If Andy Carroll can score 19 goals a season for 5 years, and contribute to Liverpool attaining an extra 15 points per year, and a few extra rounds in Europe, then his 10.5M pounds per year is net profitable. The difference in finishing 7th and 4th is worth 50M+ per year, so Liverpool could afford to sign five more Carroll’s and justify the expense as being a net positive.

    The value that Torres would bring to a club that is already at the top is different. It is possible that they could gain an extra round or two in Europe, but they are effectively replacing a 10M a year player with an 18.5M a year player, with what (if things go well) will likely be a 5-10% performance improvement on the pitch leading to a marginal income improvement. Chelsea can not afford to do that a few more times (not without remaining in the red)

    Part of the Carroll value is that he can play in Europe for Liverpool starting this season. Suarez is ineligible, so Liverpool would be left without a leading striker if they didn’t bring Carroll in this window. Going up some of the strong continental teams, this would likely mean elimitation and missing out on 4-5 large televised home games and potential UEFA cup prize money.

    It would be interesting to re-do your spreadsheets as a full P&L for each player with revenue growth and upside taken into account (forecast) – so that we can measure the ‘true’ value a player brings to a club in terms of financials.

    I fully expected that the standard striker in this window would be 25M+ because of how much more television and commercial money there now is in the clubs. Suarez is probably the bargain of the season. I would say Dzeko as well but he is on 250k a week (13M a year just in wages).

    (ps. if you want to work on these numbers together, email me)

  47. To add, Suarez with wages comes to 7.3M pounds per year over the lifetime of his contract. If he scores 15 a year he could be at the same value level as Hernandez for ManU.

  48. geoff says:

    Blez,
    great post as usual and even better for the fact it has sparked of a whole round of comments which are just as interesting.

    Looking forward to your views on what the transfers will do to the Prem league outright betting- I’ve put mine in a post at
    http://www.fulltimebettingblog.com/2011/02/02/our-sources-tell-us/ along with my own views on “the window” and I’ve also namechecked your blog which I hope you are ok with.

    Cheers.

  49. Blez says:

    Guys – I would just like to say a quick thank you to everyone that has contributed to this piece over the last 24 hours. There are some fantastic and insightful additions being made.

    The day job is currently preventing me from engaging in the discussion, but I fulyl intent to reply to every single comment in due course.

    i get the feeling a more detailed piece will be required at some point to cover a number of the great points raised.

    Please stick around on the site and try to check out a few of my older articles above – particularly those on the theory tab and the EPL preview.

    It will give you more of a flavour of what BOTW is about and the stuff I do on a week to week basis.

    Hopefully you will find more things you enjoy.

    Cheers

    Blez

  50. JohnW says:

    Great article – not an accountant, so it’s opened my eyes to how all this transfer stuff is sorted out.

    Got to ask, you’re a Man Utd fan so I guess your motivation for wanting to part of the LFC executive team is not entirely without self-interest ? You want to take us down ?!?1

    ;–)

    John W

  51. Poll says:

    Tone – do you not think it is a little convenient that all his clearances came in so quickly after the other deals were announced. It is all just a bit too convenient for me. I don’t believe that NESV would spend that much money on someone so untested if that weren’t the case.

  52. munya says:

    As a long suffering and always hopeful liverpool supporter I find this very interesting. And as much as I try to look at all the postives, I cannot help but think that for “RIGHT NOW”, chelsea got much better than us, but at least the future does not look too dim
    would love to continue getting more of these, how do I subscribe

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