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Governance in football when it comes to player valuations, transfer market activities and contract negotiations

Given the rapid commercialization and globalization in the football economy in the wake of the Bosman ruling, professional football clubs have had an intensified focus on investments across national borders to influence the national and international competitiveness.

This development has produced some problem areas that football’s international governing bodies FIFA and UEFA (and the national football associations) have emphasized by first articulating the matter and later implementing different tools and/or regulations like the FIFA Transfer Matching System (TMS), UEFA’s Financial Fair Play regulations or intervention regarding ‘third party ownership’. These governance issues are striving to provide better transparency concerning the economic transactions (regarding player transfers and contract negotiations), which in the end is thought to minimize the opportunities for illegal and unethical business practices in the football economy.

Unfortunately, the football economy is still affected by a huge lack of transparency, which may fuel ‘unhealthy’ practices in the interplay between clubs, players, agents and third-party investors. In that sense, the football economy is still marked by conditions similar to prostitution in the sense that players that do experience poor advice and representation will end up in a situation in which they do not obtain optimal economic or sporting return on their competencies as a footballer. The above-mentioned tools and regulations act as true evidence that football’s leading governing bodies perceive it as a vital focal point to challenge and minimize abuse of players, e.g. players from third world countries, which may take place in relation to the transfer window and new contract signings. In this regard, it is central that football’s leading governing bodies aim to do (even) more to protect young players and seek to create a greater level of transparency in the future, e.g. in the form of solidary payment or another form of well-thought harmonization of the circumstances troubling young players from third world countries. Recently, the football world has witnessed that even clubs at the highest international level, e.g. FC Barcelona, Real Madrid, and Atletico Madrid, have been sanctioned or is under investigation because of the way in which they have handled recruitment of young players.

In Denmark, the current leaders of the Danish Super League, FC Midtjylland has been a hunted media target today due to the club’s treatment of some of its African players. According to the Danish newspaper BT, FC Midtjylland is accused of manipulating the players to sign contracts implying discount salaries. According to BT, agents that supposedly represent the club more than the players represent these young African players. Moreover, the same source states that some of the club’s established African star players are underpaid compared to their market value and their European teammates. Whether or not something illegal has happened is without my reach – I do not know the specific details in these player contracts, nor the advice from the agents and nor do I know the detailed performance history of these players, which may be the basis for these contracts – but if this case is characterized by a lack of objectivity concerning the representation of the individual players and thus the consideration of the player’s interests then there is a problem area. This problem area does not suit the players and may hurt FC Midtjylland’s image if the club finds itself in huge negative media storm. Worst case scenario is that it may influence the club’s future options in relation to recruitment of players. I am already aware that the club had a case in 2007, in which FIFPro (World Players’ Union) placed a complaint about FC Midtjylland’s recruitment of young players according to FIFA regulations (Play the Game, 2007). However, this is Denmark in 2015 and I do not WANT to imagine that the players in some of the Super League clubs face conditions that are too hard and disadvantageous (in that regard, Denmark and the Danish labor market is hopefully too infused by good governance and taxonomy) and when all comes to all there are several parties in this matter.

Looking at this from a varied perspective, it is essential to highlight the importance of timing and ‘speed to market’ in the business of sports when analyzing player valuations. Clubs have an interest in signing players on contracts, which has a length and a price that make the club capable of seeing an economic and sporting yield due to the fact that the players have not reached their peak performance level at the time of contract formation. For instance, if a football club signs a contract with a player who is 18, 19, or 20 years old and who has not seen his major breakthrough yet but who is likely to break through in the next couple of years, then it will be good business. In contrast, the nuances of this case must be that the player may have an expectation that his agent represents that player and attempts to maximize the economic yield that matches the player’s footballing competencies (from my perspective, this also includes the commercial potential tied to the postmodern business of sports); if the player only receives half of his value in the transfer market or a salary that is far away from meeting his current and future value then the player would most likely not be satisfied with his agent. Moreover, this valuation also has to do with the over-supply of football players that characterizes the football economy; the financial recession proved the situation that the overall market situation regarding average players moved in favor of the clubs (that is different for the market for global super stars, e.g. Lional Messi and Christiano Ronaldo). Fundamentally, the ideal world is one in which every part is served to the fullest but that is not reality and the transfer market and the football economy is very dynamic and interesting from that angle. For instance, a player may be transferred to another club based on a good performance but suddenly it all falls apart because the player for some reason cannot perform in the new environment and in these cases a high salary is not enough. In theory, a player’s salary may be approached on the foundation of the projected future performance derived from the player’s statistics from the previous and the current season and the ‘super star effect’, which altogether may predict a strong ROI for the club and the player. This is especially relevant in the European football economy compared to the US and the Major League Soccer (MLS). In the European model, the league structure seems to be more decentralized in the way that the clubs have more freedom to differentiate themselves on salary structure and hence personnel mix, i.e. compared to the American model with its salary cap and other means to secure competitive balance. In a football market distinguished by over-supply influencing parts of the market, a ceteris paribus reflection would say that this market situation leads to lower salaries, shorter contracts and even players moving down the career ladder or being without a professional contract; this may affect the different geographic segments on the market, i.e. Brazilian players may find it easier than African players to meet these challenges given the reputation of Brazilian football*. However, these dynamics and nuances account for a portion of the charm linked to following the business of football at a time in which Denmark has experienced the transformation from association/club to business and thus higher levels of professionalization.

*Not to say that these market mechanism are making the football economy any better.

Sources:

BT.

Play the Game.

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