Although different European countries are still struggling to recover from the mode of financial crisis, the football economy is different and hence is characterized by a ‘spending spree’. Competent football players are still in high demand. According to FIFA (2013), total income from 5,204 transfers worldwide was $928.8 mio. (£612 mio). Despite the fact that the amount of transfers fell by 2% in the first six months of 2013, the total financial value increased by 39% compared to 2012 (BBC, 2013).
So what are some explanations related to this development? First of all, it makes sense to emphasize that the football economy is very emotional or irrational. Football is a sport, which touches massive amounts of people worldwide and the best European clubs hold a strong position in this equation. In general, the football economy (as it refers to the biggest clubs in Europe and their revenues) has shown the tendency to be very resistant to the ‘environment of financial crisis’, which has influenced other parts of the European economy. In that regard, it can be concluded that the football economy finds itself surrounded by other conditions than other parts of the economy. Football is all about ‘marketable entertainment’. Looking at the business models in the football economy, I must highlight the vital role of the players. In professional football, the players account for a big part of the product and the clubs and their stakeholders know that!
Due to the Bosman ruling, football became the players’ market. From a simplistic supply/demand perspective, clubs willing to pay a high price will often have a great chance of signing good players (although other factors such as a club’s legacy, coach, the probability for playing time etc. may have an influence as well). Balotelli may be an example of this ‘mix of influencers’ when he left Manchester City’s excessive pool of offensive players to go back to Milan and Italy – this time to play for AC Milan for reportedly £19 mio in transfer fee. The English Premier League, which is the richest league in the world, leads in terms of ‘transfer spending’. Recently, we have seen Tottenham Hotspurs pay a large amount (£17 mio) to acquire Paulinho and Manchester City purchased Fernandinho from Shakhtar Donetsk for supposedly £300 mio. Brazil leads in terms of sending players abroad. Lucas Moura is a great example when he signed with French powerhouse Paris Saint-Germain for €45 mio. and recently the new Brazilian super star Neymar signed with FC Barcelona for £49 mio. The latter is an astronomic amount compared to the transfer fees linked to people with ordinary jobs but it actually seems to be cheap when you take his performances in the recent Confederations Cup into account. FC Barcelona signed him before Confederations Cup and I assume that his value increased considerably due to his performances in that tournament. When all comes to all, these signings show evidence that the good players receive a substantial share of clubs’ revenues. In general, Brazil has been very competent in developing players with good individual football skills and this is an export product, which attracts interest from European football clubs
Clubs are aware that football fans is a vital stakeholder group. Fans are eyeballs and that enhances the interest from media, sponsors, and other key stakeholder groups, which play a part in the business model of a football club. So all these stakeholder groups linked to fan interest identify highly with the best players, which underscores the fact that star players are huge commercial assets for clubs in relation to generating revenues. Among others, broadcasting, match-day, merchandise, and sponsorship revenues are results of commercial negotiations. Star players are huge assets in this process.
The study from FIFA indicates that rich clubs pay huge amounts in transfer fees. That is linked to improved revenue streams in the best leagues and clubs in Europe but also to the influx of new ownership. Rich owners are pumping large sums of money into clubs. Abramovic in Chelsea but also Qatar-based and Russian-based ownership in French clubs Paris Saint-Germain and AS Monaco (all three clubs have been very active on the transfer market this year) are examples of this trend. This trend portrays a reality where common business logic (as it is seen in other industries) is not an adequate explanation for the capital injections from these owners. These owners have accumulated excessive wealth from other business activities and tend to use football as a fun playground or to buy themselves access to certain spheres. Profit maximization and dividends to shareholders is another ball game in the business of football than in other industries where this seems to be a much higher priority.
Based on FIFA’s study and the current climate in international football, I project that the spending spree will not slow down in 2013. We have already seen huge deals in this summer’s transfer window. Clubs have continued to break barriers in terms of generating revenues and we still see new rich owners entering the football economy and these owners and clubs have shown that ‘money talks’. Manchester City won the English Premier League in 2011/2012 and Chelsea won the UEFA Champions League the same season and these clubs are examples of the fact that money has the capacity to buy international pride and glory in football. Paris Saint-Germain also did relatively well in this year’s UEFA Champions League although the club had not shined on that scene for years but money from Qatar seems to help. In that regard and with UEFA Financial Fair Play in mind, the German clubs Bayern Munich and Borussia Dortmund, which played in this year’s UEFA Champions League are fine examples of the fact that ‘sound sporting strategies still have a saying’. On the other hand, German clubs are prevented from ending in the hands of foreign billionaires due to the 50+1 rule but despite this fact, the German Bundesliga and these two German clubs have also been very competent in terms of commercializing on their assets and thus generating revenues to take part in the transfer circus. The transfer market is a busy circus, which adds to the spending spirals. New markets such as Russia (and perhaps China) enhance the competition and prices for the best players. The Chinese Super League did attract star players such as Nicolas Anelka and Didier Drogba and star coach Marcelo Lippi and recently the league signed an expensive deal with David Beckham to make him the ambassador for the league so although Chinese football is not reflecting the highest playing standards, this development means something in studies like FIFA’s recent study, which measures international transfers.
Check out this link from the Guardian.
Keep in mind that new and bigger transfers mean that the list as described in the video above is outdated!