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Football and Finance: Funding the Transfer Market
By the early 1990s, football had evolved into all the glitz and glory it is today. By 1995, football was embezzled with sponsorship deals and television rights. Player deals inflated from £100 to £197 million nominally.
28 April, 2023

The glamorous football transfer market is built upon some key events. These events led to structural shifts within the market and governed the shifts in bargaining power between the two main agents – clubs and players. The transfer market is most bustling during July-August (Summer) and January (Winter) transfer windows. The system has developed significantly since the first formal payment for a player in 1893 for Scottish footballer Willie Groves from West Bromwich Albion F.C. to Aston Villa F.C. for £100 (around £13,200 today). Ever since, there has been a tug-of-war between clubs and players for bargaining power. The most prominent example is the European transfer market, where record transfers have drastically changed the expectations of transfer fees for talented players.

By the 1990s, football evolved becoming and glitz and glory it is today. By 1995, football was embezzled with sponsorship deals and television rights. Player deals inflated from £100 to £197 million transfer deals nominally. The Brazilian star Neymar Jr.’s transfer was fundamental to the changes to the transfer marker. Out of the 100 most expensive transfers in football history, 74 took place after 2017 which is the year Neymar moved from Barcelona F.C. to Paris Saint Germain (PSG) for €222 million (£197 million).

The Backstory

Prior to Willie Groves’ move in 1893, players used to hold extensive bargaining power and flexibility as they could easily hop between clubs with few repercussions. The Football Association (FA) stepped in in 1885 to add more formality to the transfer market by making it obligatory for players to be registered by the FA if they sought to transfer to a new club. Any transfers now meant the new club needed approval from the FA and the club owning the player. This was known as the “retain and transfer” system. Clubs owning players could “retain” player registration with their clubs indefinitely. Transfers only occurred if the two clubs agreed upon a transfer fee. This shifted the bargaining power from players to clubs. Smaller clubs benefitted the most, because they could now receive hefty compensations if their best players were sold out.

The second turning point came in George Eastham’s court case against Newcastle in 1963 and the overruling of the “retain and transfer” system.  Eastham requested a transfer from Newcastle in 1959 and after the club refused the proposition, did not extend his contract, and achieved a move to Arsenal in 1960 after a publicity war, an 8-month strike, and appealing to court. Although Eastham achieved his transfer in 1960, his legal action of condemning the “retain and transfer system” as a hindrance to what should have been a free movement of the player from Newcastle to Arsenal was only concluded three years later. The court’s verdict was in Eastham’s favour and ultimately led to the abolition of FA’s “retain and transfer” system.

Eastham’s fight revolutionised players’ contracts. Football authorities had to re-shift the system so that players could leave on a free transfer at the end of their contract if the club failed to offer an enticing contract. Clubs still held a majority of the power in the market, but players now could be paid lucrative amounts to transfer. Additionally, through the introduction of Freedom of Contract in 1977, a player was free to make the best deal with any club offering terms even if their contract had not come to an end; but the new club must pay a compensation fee (transfer fee) to the player’s former club.

These regulations were initially only entitled to the UK football transfer market. Foreign players still faced issues originating from the “retain and transfer” system. But in 1990, foreign players, especially those in the EU gained significant freedom after the Bosman Ruling – this decision banned restrictions on foreign EU players within national leagues and allowed players in the EU to move to another club at the end of their contract without a transfer fee. The ruling was from the case of Jean-Marc Bosman who wanted to move from Belgium club RFC Liège to French club Dunkerque but faced significant challenges regarding hefty transfer fees even after the end of his contract.

With the Bosman Ruling, we arrive at the transfer market we see today. As the player bargaining power increased, neither home nor foreign players were not held hostage by registration or buy-out fees. This allowed for longer-term contracts (3/4/5 years) and the transfer fees that we refer to today are paid to buy players out of their current contract rather than paying “registration fees”.

As bargaining power now rests comfortably with players, most of them hire experienced agents who were better at negotiating contract terms for them. One of the many reasons why we see such inflated values for transfer fees for footballers today.

The Turning Point: The Neymar Deal

Neymar’s transfer from Barcelona to Paris Saint-Germain (PSG) in 2017 was one of the most expensive in football history, and it reflects some of the key historical events that have shaped the transfer market.

Firstly, the transfer fee that PSG paid to Barcelona for Neymar was a record-breaking €222 million, which was more than double the previous transfer record. This fee highlighted the growing financial power of clubs and the willingness of clubs to spend large sums of money to secure top players.

Secondly, Neymar’s transfer also demonstrated how player power has shifted in the football market. His desire to leave Barcelona for PSG was driven by his personal will and ambition. Neymar could individually force a transfer out of Barcelona because he is a highly sought-after player. This contrasts with the past when clubs had more control over player transfers. Moreover, the rise of the use of agents has increased player’s bargaining power further.

Overall, Neymar’s transfer to PSG represents a pivotal moment in the history of the football transfer market, where the financial power of clubs and the negotiating power of players have both been greatly increased. Such record-breaking transfer fees creates a chain effect as other agents serving other players can now use the €222 million as a reference point when negotiating player contracts and transfer fees.

How are Players Valued?

There are several factors that go into pricing football players and what makes them expensive. One of the main factors is the player’s skill level and potential for success on the pitch. This includes not just their technical abilities but also their physical attributes and mental strength. Top players are in high demand because they can make a significant impact on a team’s performance, which in turn can translate into revenue and success for the club.

English players often have a higher value in the English Premier League than players from other countries. This is due to a combination of factors, including the fact that English players often have a strong connection with local fans and a familiarity with the league and British culture.

Additionally, the Premier League has rules around the number of non-English players (17 out of 25) that can be on a team, which can make English players more valuable in terms of meeting team requirements. Hence while nationality can play a role in a player’s market value, it is just one of many factors that go into determining their worth in the transfer market. Ultimately, it is the player’s skill and performance that will decide on their long-term value to their team and the league.

As demand for top players increases, so does the price that clubs are willing to pay to secure their services. This is often driven by the competition between clubs, as they look to outbid each other for the best talent available. In addition, the present value of short sales, ticket sales, and broadcast licenses can also contribute to a player’s value, as clubs seek to maximize their revenue streams.

Investors globally often see football clubs as a valuable investment opportunity. Owning a football club can provide several benefits, including prestige, access to global audiences and markets including the potential for significant financial returns. As such, these investors may be willing to pay large sums of money to acquire top players, even if their skill level alone may not justify the price tag.

Ultimately, the price of football players is driven by a complex set of factors, including supply and demand dynamics, revenue potential, and investor motivations. While the high cost of players may seem excessive, it reflects the value that football clubs and investors place on the game, its players, and its potential for success.

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