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1. INTRODUCTION 2. THE CONCEPT 3. BUYING LEAGUE V SELLING LEAGUE 4. RECRUITMENT OF PLAYERS 5. NEW TRENDS / SOLUTIONS 6. BENCHMARKING / MEASURING EFFICIENCY 7. WINNERS & LOSERS 8. CONCLUSION
INTRODUCTION
Although some wishful thinkers may beg to differ football is the same as any other industry. Football is not immune from the same economic repercussions impacting multinationals and local businesses. Yet some things remain the same, seemingly not even a pandemic can bring the 24/7 news cycle of transfer rumours to a halt. Last summer, clubs in Europe’s top five leagues completed 1,932 transfer deals to the tune of approximately £5.3bn (The Independent). With Transfermarkt reducing the market values of players globally by 20%, (or 10% respectively for players born in 1998 or later) such figures are unlikely to repeat this summer. As clubs in the lower echelons scurry to control operating costs, maintain what little cash flow they already had and secure their short term futures, many of Europe’s elite are using this time to strengthen. Chelsea have matched Timo Werner’s release clause while PSG have taken the option to make Mauro Icardi’s residency in Paris permanent. However are such expensive recruits outliers in this summer’s market or can we expect others to follow suit? How in fact may clubs approach this summer’s market and future windows with all the uncertainty caused by loss of matchday and commercial revenues? After all, the concept of transfer fees was conceived to rebalance the playing field and give clubs fair compensation for developing and training players. Will the current economic climate level the playing field once and for all or is will it only seek to strengthen the hand of the elite?
THE CONCEPT
The concept of recruitment can be likened to building a portfolio in investment terms. Each team will have a collection of players (assets) which vary in profile and will comprise of different values. What asset class and profile of player clubs have is subject to each club’s environment, motive for business and future aspirations. Clubs may have different motives for operating within the market. Some may look to the market to engineer a title challenge, others may look to prey upon market inefficiencies, buying short and selling long. Bayern Munich in their pursuit of all conquering success are likely to hold more established and proven players at their peak rather than a club such as Watford who operate akin to a venture capitalist in how they regularly take successful risks on players in the hopes of realizing their potential before selling at a high price.
There are different formulas suggested too when apportioning one’s transfer budget. Szymanski & Wilkinson of Soccereconomics suggest distributing 70% of it among your three best players. Others may look to improve upon the weakest link in the squad. Generally the higher up the food chain you go the supply of players to satisfy your demands dwindle. Consequently this drives the price of said players up and gives the seller leverage in transfer negotiations. If pursued, such deals can have massive inflationary effects on the industry as a whole. Moreover with the surge of globalization, the inflationary effects can be felt domestically and abroad. One may look no further than to Neymar’s PSG transfer in 2017. A deal to bring in Phillippe Coutinho to Barcelona as Neymar’s replacement broke down when Liverpool requested extra money to complete the deal. The Spanish giants turned their advances towards Ousmane Dembele and signed the French winger for £112.5 million. After the winger struggled to make an initial impact Barcelona re-entered the market to acquire Coutinho from Liverpool for £130.5 million. Both players have since failed to replicate their earlier form which seen them secure moves to Barcelona and as suitors are put off by their market values Barcelona are still paying the price for both costly investments.
Therefore it is safe to assume not all moves are successful and that clubs operate in a very inefficient market. If it were more efficient said club could just enter and pay above market value continuously driving competitors out of arms reach. Thankfully Financial Fair Play regulates this and clubs are incentivized to think smarter as regards recruitment. In an effort to combat market inefficiencies and FFP the proliferation of data and operating models within clubs has helped garner some success. Liverpool most notably have received plaudits for the outstanding work of their data department led by Michael Edwards and Ian Graham. Indeed Liverpool did not just wilfully waste their Coutinho money replacing the Brazilian with a player who could contribute a similar effect. Rather the club took the opposite direction and looked at recruiting for the medium to long term. A Champions League and Premiership title later and the results speak for themselves. The club had effectively traded instant gratification for results in the medium term.
For years uncomfortable conversations regarding succession planning at clubs were put on hold like trips to the dentist. However Edwards’ and others rise to prominence in the field has validated the importance of strategic thinking and minimized the sort of transfer misgivings by autocratic of the past. On further inspection such principles are not only applied by Liverpool but by a scattergun of clubs all throughout Europe. Typically these are clubs who are not afforded the luxury of partaking with millions for a player and cannot play Europe’s establishment at their own game. Recruitment principles and having joined up thinking are just the tip of the iceburg when navigating the treacherous waters of a volatile market. Many of these clubs at the height of football’s boom years offered valuable insights as to how to succeed within the Pandora’s Box of football. Yet what lessons can we decipher from these shrewd operators as to how they think and execute? Furthermore how will the current instability effect their aspirations this summer and how in fact may they respond to these challenges?
BUYER’S LEAGUE V SELLER’S LEAGUE
Jean-Michel Aulas, Lyon CEO ; “buying and selling players is not an activity for improving the football performance. It’s a trading activity in which we produce gross margin”.
As oligarchs and Fortune 500 owners of clubs polish off their chequebooks to splurge on the latest Generation Z talent, there are some clubs who will apprehensively (more than ever) be approaching this summer’s market. As Europe’s elite look to surge ahead of the competition there are a wide range of clubs who will retreating from buyer’s advances in anticipation of brighter days ahead. The uncertainty generated by the current climate will not be lost upon many boardrooms this summer. Some clubs higher up will feel more validated than ever in their pursuit of top stars, in the Premier League that maybe account for the top six clubs. Outside of this perhaps there is a starker reality emerging. For many years Premier League survival was more or less a keep-up-with the Jones’ strategy where a significant net spend was not too dissimilar to next season’s entry fee. To a lesser extent mid table clubs in Italy, Germany and Spain have adopted this approach albeit on a smaller scale with little marginal gains on offer when compared to the lucrative finances of their Premier League counterparts. Such leagues could be referred to as “buyer’s leagues” where imports exceed exports. When viewing the chart above, it is only Ligue 1 of France who breaks this trend. Such leagues which have positive net spend can be categorised as a “seller’s league”. Although as with everything else in football circles nothing appears as it seems on the surface. Upon further inspection one can see those net spend figures are grossly inflated by the elite clubs. Using data from Transfermarkt then viewing net spend figures per leagues alone in 19/20, Barcelona account for 37% of La Liga’s total net spend while rivals Real Madrid account for 68%. In the Bundesliga, Bayern Munich accounted for 33% of the league’s total net spend. Even in Ligue 1, PSG had a net spend of €810m over the past decade. This was 11 times that of the next nearest club, Olympique Marseille. (21st Club)
STRATEGIES
Viewing net spend figures (via Transfermarkt) between 15/16 & 19/20 we can begin to notice some trends which are starting to emerge.
TOP NET SPEND (15/16 – 19/20)
When we filter Transfermarkt data for the top net spenders for our time range it should come as no surprise to learn of which clubs lie at the top of the chart for net spend. Pursuing a strategy of significant outlays is usually reserved for clubs of an elite bracket. These clubs who have enjoyed unprecedented domestic success are quite risk averse when it comes to transfers. As discussed they are “restricted” to a certain quality of player. Although no transfer in football can be classified as a “sure thing” these clubs will be attracted to players at or approaching their peak, invariably sparing little expense. The data here tells it’s own story with clubs such as Everton and Brighton & Hove Albion ranking above Real Madrid (12th) in the pecking order. Indeed the financial clout of the Premier League is evident with five of their clubs place in the top 10. Man City, PSG, Barcelona and Juventus who have enjoyed unprecedented domestic success in recent years see such high net spend figures as non-negotiable in their pursuits of silverware. There are other clubs like Manchester United, Arsenal, AC Milan and Inter Milan who in an effort to bridge the gaps in their respective leagues sought few other alternatives than departing with significant funds.
Once we begin to understand who are behind these vast sums of money we can begin to learn how are they so high. As discussed there is a specific bracket of player the vast majority of these clubs are enticed by. Furthermore in the age of commercialization the club’s product invariably is not confided to solely on the pitch matters. Marketing worth, image rights and sponsorship deals are all part of the modern day transfer fee. Generally these players’ life cycles are short to medium term to fuel demands for success. Should these transfers fail clubs will look to the market to recoup some of the value they have lost on their assets. More often than not these players will be shelved to clubs of similar wealth as without exception they are the only others clubs who can afford the player. The cycle is self-perpetuating and keeps the elite clubs out of arm’s reach. Furthermore clubs like Manchester City, Barcelona and PSG have increasingly looked outside their respective borders to strengthen. Prior to the internationalisation of transfers, this huge net spend would have redistributed revenues to other clubs within their respective leagues, helping to maintain competition (one of the main aims of a transfer market). This absence results in an unequal distribution of wealth.
However if one looks hard enough there are outliers within the market who achieve apposite levels of success despite adopting a different strategy. Due to financial constraints, product placement and a disparity in broadcasting revenues compared to their Premiership counterparts, teams on the continent are forced to be quite efficient when it comes to recruitment. There are teams outside these very elite brackets that seem to generate relative success from very little if even net spend. So what are these clubs doing differently? Why do they do it? More importantly can we integrate any of these principles to achieve success in this summer’s market and beyond?
TOP NET PROFIT FROM TRANSFERS (15/16 – 19/20)
Looking at the transfer market monetarily and not as a tool these teams are by far the most successful. They are the titans of the industry. Many of these clubs hampered by relatively small sums of broadcasting and commercial revenue are forced to innovate and find another way to compete. Failure to adapt or rubbing shoulders with the elite both bring equally catastrophic effects. It could be inferred that these clubs use the market as a tool to redress the balance in their respective economies. By proxy they have become the default wholesalers supplying the elite. These clubs are regularly asset stripped and are not only active participants in the process but openly encourage it too. As shown above the very elite or those with significant net spend figures will only depart from their money for signings of proven quality. Yet in recent years we have seen these clubs shift their attention towards younger talents. This in fact has had an inflationary effect on the price of young players and as producers of young talent accounts for most clubs inclusion here in the top 10. Each club in the top 10 and even further afar would prove wonderful case studies. It is telling that only three British clubs appear in the top 50; Swansea City, Brentford and Hull City. You have to go down to 66th place before finding a Premiership club; Norwich City, who are the only current Premier League team in the top 100. This offers remarkable insight into Premier League recruitment policies, where in most instances net spend is almost akin to an entry fee. Overall there are only nine British teams are in the top 100.
WHY THEY DO IT?
The answer is twofold. Most of these clubs are already constrained heavily by the local economy in which they are situated. This will resonate especially with the Portuguese clubs, who are by in large displaced giants of the European game. With domestic revenues heavily dependent on their leagues European coefficient, dwindling attendances, fluctuating broadcasting revenues and insufficient sponsorship revenues, the transfer market is a call to arms for these clubs. They simply need the market to survive and operate. Effectively the market redistributes the wealth of the big five leagues across Europe’s tertiary markets. Counterintuitively there can be adverse effects and lasting damage from clubs success in the transfer market. Ajax (Netherlands), RB Salzburg (Austria) and Shakhtar Donetsk (Ukraine) can effectively dominate domestically on account of receiving such significant sums. The millions generated by player sales can create forceful barriers to entry for their competition. Secondly the answer is in the how they do it. Investigating the most successful five clubs we can generate some insights which support some of our earlier beliefs. Scanning through Transfermarkt data we can notice some trends which begin to emerge from their transfer dealings between 2015/16 and 2019/20. We can see exactly how clubs are beating the market by filtering down to transfer fees received for players of eight figure sums (£10m +) from teams in the big five leagues.
HOW DO THEY DO IT?
COMPOSITION OF PLAYERS
From the above market analysis we can see how each of the five clubs have generated significant mark-ups on players sold between 15/16 to 19/20. The data fits directly in line with our earlier assumption of how the proliferation of younger talent has seen an inflationary impact on younger player’s values as the elite look to purchase younger and younger. Delving further into the above data and familiar patterns emerge as to how clubs beat the market with four main categories emerging. We can see how players who generate the most significant resale value figures are any combination of academy produced, under 25, forward specific and are sold to clubs within a top five league.
ACADEMY GENERATED
All five clubs are leading producers of top class talent in their own respective regions. As per the above, players who generate the most substantial mark-ups are by in large academy products. Kylian Mbappe, Joao Felix, Anthony Martial & Goncalo Guedes are all cases in point. Clear developmental pathways and proven track records in the market play a significant role in encouraging players to join each club’s respective academy. Clubs such as Benfica will use the money to regenerate their academy and improve existing infrastructure thus ensuring the cycle of producing world class talent continues. Clubs like Benfica and Ajax benefit from being small market leaders: they are in a strong position to recruit their country’s best talent. Furthermore players who join Ajax, Red Bull Salzburg and AS Monaco at varying stages of their career, all largely fit a specific recruitment profile. This joined up thinking from the boardroom to the pitch enables these clubs to be agile in the market, targeting inefficiencies, buying short and selling long. As you can see each club is largely well versed and has been quite astute in this regard in previous years.
AVERAGE AGE
There is a clear trend regarding the profile of player departing these clubs. We see how there is a concerted push by these selling clubs to dispose of players a certain age. In a buyer’s market not only does this appeal to the investment thesis of the “bigger” clubs, furthermore it ensures the selling clubs are getting reimbursed appropriately for their star youngsters. Few clubs are lucky to be agile enough to reposition themselves in line with market demands. Nonetheless these clubs have been ahead of the curve for quite some time and are industry leaders in this regard. For instance we have seen in 19/20, after their run to the Champions League semi final Ajax sold eight players in the 19-23 year old bracket for seven figure plus sums. The oversight shown by technical director; Marc Overmars to move on players such as De Ligt & De Jong at the height of the market after an opportune moment cannot be understated. Moreover it is crucial to give weight towards your respective region. In a less competitive league like Austria it maybe okay for RB Salzburg to sell players of a younger age. However for a secondary league where there is healthy competition such as Liga NOS (Portugal) we see how Benfica and Sporting Lisbon sell players of an elder age to insure their clubs are still succeeding domestically.
POSITION SPECIFIC
Although maybe not quite ground breaking insight, the data shows how attacking players come at a premium. The old adage of goals wins games holds even for today’s market. Recruitment departments of certain clubs can even generate insights now into just how many points a new signing can contribute over the course of a season. Upon further inspection one can see how some clubs i.e Benfica and AS Monaco sell forward players regularly for large mark-ups. Usually the secondary leagues in which these clubs operate are the perfect marketing stunt providing the platform for these young, up and coming attackers to succeed against relatively weaker competition. Erling Haaland is one such player who has benefitted from plying his trade in Austria. Although success from one league does not directly translate to another (Joao Felix), thanks to most player’s younger age the purchaser is confident that over the life cycle of the player the full scale of their investment will be realized. This in turn may factor into the thought process of selling clubs when accounting for resale value and sell on fees in transfer negotiations.
KNOW YOUR MARKET; UPSELL LEAGUES
Through research it was interesting of note how the majority of each club’s business was conducted with clubs from the big five leagues. Through well established connections and intermediaries, deals with clubs of such leagues are advocated heavily. The “Premier League premium” is of special attraction to the selling clubs here. These clubs know their markets and this significantly strengthens their leverage when negotiating. Moreover at a time where club’s ability to purchase on credit will be tested more than ever, these elite clubs are ideal bidders. Some clubs will deliberately deploy this effective tactic to generate substantial profits. It is by in large the most effective means of redistributing wealth from the top leagues down to secondary leagues. There are very rare instances in which these clubs will sell players to clubs in the same league i.e Mbappe; Monaco – PSG and when they do so there is usually an astronomical sum involved. One interesting detail from examining these clubs outgoings was their relative lack of dealings with clubs from Asia specifically China. Over the past few years we have seen how they have recklessly spent money on players within the European game. Their absence from the data implies that these clubs have a more concerted focus towards acquiring players at or towards their peak. Going forward it will be interesting to see what impact if any can Asian clubs have on disrupting the destination of young European players.
RECRUITMENT OF PLAYERS
AVAILABILITY HEURISTIC
Usually one of the biggest pitfalls for any club entering the summer market has been acquiring players off the back of enjoying a good international tournament. Although clubs will avoid that type of recency bias there maybe a surprising knock on effect which the intermittent restarts of European leagues could have combined with the now 24/7 cycle coverage of live football. This probably leads to surplus value being put on recent performance and too low a value being put on players who haven’t played recently or don’t have an established reputation. We have seen how closed stadiums has effected home advantage in the Bundesliga. This undoubtedly will effect some player’s values more than others. Other leagues which remained open during lockdown such as those in Eastern Europe and North Africa will probably have received more attraction then they would usually expect. Most clubs prerogative when signing a player is to know whether they are getting a good deal or not. Data may iron out biases such as age, experience, position, performance and inflation however clubs may still unexpectedly tumble under this age old problem.
OPPORTUNITY COST
Rarely ever before has a transfer window brought so much uncertainty. Historically clubs in the fear of missing out on top talent have departed with significant funds to get that “missing piece of the jigsaw” Up until recent years there was little need to quell this type of thinking and no original thoughts as to how those funds may be alternatively distributed. Clubs who have been fortunate enough financially have in recent years gravitated towards creative solutions. More and more are we seeing the rise of multi-club models and the purchase of feeder clubs throughout Europe and afar. MRKT Insights even recently did a piece on how a £20million signing with an annual salary of £5million could be better spent on acquiring a club in Ligue 2 such as Sochaux. A club which has a history of youth development and produced players in recent years such as Ibrahima Konate and Marcus Thuram could generate significant funds in the medium-long term and prove self financing. Similarly would clubs be open to replacing the salary saved by one squad player with that of a few data scientists?
Unfortunately not all clubs are in the position to leverage the benefits of differential thinking. Should clubs take the bait and enter uncharted territory this summer, they must be aware of the significant impact it could have on their club’s short to medium term future. Lower down the football pyramid the picture is all too stark and in many cases will lead to existential concerns. Meanwhile for clubs at the top investing in personnel this summer may greatly reduce their ability to improve in other departments such as academy and critical infrastructure. Clubs will be keen to avoid the kind of protracted fallout which has occurred at FC Barcelona. The situation remains precarious as the club still remains deadlocked in talks with it’s players to negotiate a second pay reduction. Should the players yield in their stance, expect many to exit the Camp Nou as the club looks to recoup €70million this summer. Throw into the mix the Catalans pursuit of Argentinian; Lauturo Martinez and there maybe a further three squad players to offset factoring in FFP concerns. Although not on the same scale, conversations are happening in boardrooms all throughout Europe as clubs look to balance the risk and reward of a distraught market. What level of risk are clubs willing to accept towards achieving their on the pitch goals?
STRATEGY
Although individual players will determine whether or not you win games, ultimately how you build a squad will determine your success over the course of a season. Recruitment departments will need to be more clear than ever if they are to mitigate risks this summer. As shown by our case studies, clubs can succeed by not necessarily outspending their rivals on the market but by outsmarting them. From our top five clubs in the net profit table, each club have established academies and regularly produce homegrown talents. They have won many deserved plaudits as to how they successfully offload players. However these clubs are as equally adept when it comes to recruiting players. Teams in the top 10 such as Benfica, Sporting Lisbon, Borussia Dortmund and Lyon all view themselves as finishing schools for elite talent. In despite of their age these clubs are willing to accept risk and give minutes to young players, providing them a stage to flourish and a chance to increase their market value. This process is in itself becoming a specific niche within the market with these clubs becoming increasingly akin to feeder clubs of the elite.
Clubs in primary markets can also successfully hone similar approaches to great effect. Atalanta, Getafe, Sevilla and Watford are all great examples in recent years of relative success without little deviation from their framework. Atalanta and Getafe especially have derived great value from signing players from secondary leagues. This combined with retaining key talents has provided some continuity amidst the chaos. Furthermore Watford and Sevilla are similarly savvy in how they operate within a clear framework. There is a clear succession plan in operation for players, pay rises are avoided and players are sold just at the right time. Indeed this effect can be multiplied when you gather all these clubs under an umbrella such as is the multi-ownership model deployed by both Red Bull & City Football Group in recent years. No matter the plan there is a specific strategy geared to each club’s makeup and attributes to benefit them going forward. The clubs who will be successful going forward will be those who can determine their competition, adapt themselves towards these market trends and establish a niche for themselves within it. What steps may clubs be willing to take adapt to the market? 21st Club have laid out some practical questions and guidelines below for clubs who may be wondering as to where they should position themselves within the market.
SCOUTING
With no access to matches across top leagues, and travel becoming increasingly difficult to those games where spectators are still allowed, can clubs properly scout the players they need to improve their squads? There has been an unprecedented surge in the number of clubs turning towards data and artificial intelligence in recent years. Liverpool’s scouting department led by Michael Edwards and former physicist Ian Graham have won many plaudits for their terrific work in acquiring players. During the past few months Barcelona and Arsenal are among some of the big clubs who have culled both their scouting departments. The past three months will surely have offered club’s glimpses as to how working practices may look going forward. Many clubs have been grateful for cost saving technology such as that offered by Wyscout and Instat at a time where live scouting was not available. The current economic climate brings added pressure for lower league clubs to become pragmatic and innovative in how they approach recruitment. Will this stop questionable transfers? Thanks to pressure, some clubs hands may be forced in the upcoming market(s) and the usual due diligence maybe forgone in an effort to expedite arrivals. Brexit complications will serve only to cause further disruption with a probable decrease in the influx of non-British players in the forthcoming windows. Usual signings from abroad will have to be weighed up more carefully from now on.
NEW TRENDS / SOLUTIONS
This summer’s window will see a lot of change to the structure of deals and fees themselves. For clubs in the lower divisions one could envisage the relaxation of rules relating to the loan market to combat some of the carnage to be caused by the impact of free agency. Further up the pyramid there is expected to be a massive change to the structure of mega deals between clubs. Compromise is the key theme of this summer for Europe’s elite with swap deals looking seriously in vogue. Such moves last summer as Antoine Griezmann’s to Barcelona could be the last of their kind. With clubs heavily reluctant to trade on credit, the seller’s ability to drive a hard bargain maybe reduced as clubs become more heavily reliant on cash flow. Are clubs prepared to hold out for a rebound in future transfer markets before realizing their asset’s full value? What does this mean for transfer deals for the coveted Lauturo Martinez, Jadon Sancho and Kai Havertz over the coming months? Prior to the pandemic all three were touted to have gone for in excess of nine figures. Furthermore there is the small issue of image rights and agents fees to be factored in. With all this being said what kind of creative solutions do clubs have with coping for this? Like our earlier case studies what methods can clubs adopt to beat the market going forward in the short, medium and long term?
SHORT TERM
SWAP DEALS
The very nature of transfer deals especially in Europe are expected to look vastly different to before. Clubs instead of driving a hard bargain will now search for mutually beneficial deals, maybe causing some unlikely alliances to occur. Juventus are expected to be a big player in this summer’s market. Despite their undisputed domestic success the club has had rather significant outlays the past few years in their pursuit of a Champions League. The “Bianconeri” have the unenviable task of decreasing their wage bill while retaining their strength to compete on all fronts. There have been murmurings of Juventus and Roma conspiring with one another come this summer. Juventus as usual are enveloped with searching for the missing piece of their jigsaw while Roma are looking for players of high calibre experience that can provide an instant impact. Another such club who are expectant to be very active this summer are FC Barcelona. Thanks in no small part to a perilous financial situation the club cannot strengthen anywhere without first removing some of the “deadwood” in the squad. High earners such as Philippe Coutinho, Ivan Rakitic, Arthur and Nelson Semedo are all rumoured to be on the shop window. Should any combination of these players prove prohibitively expensive to move, the prospect of a trade deal may satisfy both buyer and seller. Mutually beneficial deals as such may serve also to reduce the financial impact of wages and signing on fees when factoring in amortisation and further FFP regulations.
LOAN MARKET
In recent years this market was used as a tool by the elite to circumnavigate the complexities surrounding FFP and to drive player’s values north before moving on for a profit. One such club who has benefitted from this approach was Chelsea who have taken more of a private equity approach to the transfer market, executing a longer hold of players. Club’s motives this summer maybe less ulterior however the market remains as relevant. Undoubtedly many clubs especially in the lower leagues will be availing of the loan market for the forthcoming campaign. For clubs who are struggling financially it will be fundamental to keep net spend to a minimum. The proposition of attracting young talent from top clubs for minimal costs remains as attractive as ever. There may even be longer term loan deals as clubs enable their talent to incubate while allowing for market prices to return to some sort of normalcy. Loan regulations themselves are expected to be eased amid concerns over squad sizes in the lower leagues. This move would be hugely welcomed by clubs all over especially those who are unable to guarantee contracts to players past the June 30th deadline.
FREE AGENCY
This summer’s free agent market is one of the most keenly anticipated in recent years however expect it to contain little of the same glamour of the “Miami three” in 2010. Many clubs have taken difficult decisions in recent months to release players or refuse to extend contracts ahead of the June 30th deadline even with the UK government’s furlough scheme for players expected to cover them until the end of July. Although no clubs from the footballing pyramid are spared from this, the circumstances will vary drastically. We have seen how Lyle Taylor’s dispute with Charlton has thrown the Addicks season into jeopardy as they look to avoid the drop. Similarly Bournemouth have left Ryan Fraser out of their squad for both of their June matchdays as they look to avoid the drop. The end of Burnley’s season has been thrown into disarray with four players set to depart on June 30th. In other instances players such as David Silva, Willian, Pedro and Adam Lallana have agreed short term deals to see out the end of the campaign before departing. Meanwhile for players on the continent, most notably Thomas Meunier and Malang Sarr, they are free to negotiate their futures elsewhere. One player who has taken that such option has been PSG starlet Tanguy Kouassi who has agreed a switch to Bayern Munich. However in the lower leagues there are options for clubs to find hidden value in the market. One such approach for clubs maybe filtering their shortlist for relatively young players who have moved to teams at a higher level in recent years only for the said player to receive limited first team action. This coupled with an effective medium term strategy such as employing a coach invested in player development is an example of some long term strategic thinking clubs could employ.
TRANSFER FEES
One of the biggest impacts in the short term will be that on transfer fees themselves. Although clubs of a higher stature will still hold significant buying power in the market and may still be able to complete a certain volume of deals it is quite reasonable to suggest that transfer spend won’t reach the heights of the past two seasons. Moreover as discussed earlier it is telling that Transfermarkt have reduced the market values globally by 20%, or 10% for players born in 1998 or later. For the deals that do happen this summer, selling clubs maybe able to recoup some capital with the installation of clauses for future sell on fees, however when or if at all the market will rebound is uncertain. Players with high price tags maybe convinced to stay at their clubs for another year before clubs can realize their investment. Chelsea who have strengthened early this summer with the acquisitions of Hakim Ziyech and Timo Werner, maybe one of few unique clubs who both believe there is value hidden in the market and who are best primed to take advantage of it. Meanwhile, we have already seen how loan to buy deals have been effected with Inter Milan losing €20million plus on their earlier agreement with PSG for striker, Mauro Icardi. Unless one huge transfer happens this summer one can expect such deflationary measures to impact spending before any clubs may reap the benefits from which the domino effect of one such move may have.
MEDIUM TO LONG TERM
For clubs able to look past the vultures, there are several strategies which could be initiated in the present which could gear them up for success in the medium to long term.
MANAGERS – TALENT DEMAND & INVESTMENT IN ACADEMY FOOTBALL
One of the very few positives the pandemic will have on the industry is that on younger players throughout the game. More than ever clubs are less and less enchanted by the prospect of departing with significant funds for players approaching the Autumn of their careers. Prior to the current climate we had already seen how top young talents were moving at more and more of a premium. As football becomes faster and more technical each season there is added necessity for clubs to produce players who subscribe to that thinking and can transfer their skillsets across multiple regions. As previously considered we have already seen how huge the financial upside can be when developing your talent in house. Clubs such as Benfica and Ajax are quite formulaic when it comes to producing talent and invest significantly in coaching education, infrastructure and development networks. Thanks to domestic and continental success these clubs are continuously able to hoover up the best talents underage throughout their regions. Academy staff are largely unheralded figures and can contribute significant added value when working in tandem with the club’s leading figureheads.
The combination of having your first team coach and academy manager operating from the same wavelength can help yield exceptional results. The partnership of Maurcio Pochettino and John McDermott at Tottenham Hotspur underlines this. Tottenham leveraged Pochettino’s reputation as a talent developer once they realized they could not go toe to toe with their domestic rivals in the market. Curtailed by the costs of moving into a new stadium the club was forced to shift their focus from acquiring peak age players who could provide instant results to players who could be developed in the medium to long term under their new boss. Thanks to effective talent identification the club purchased players such as Kieran Trippier, Dele Alli and Toby Alderweireld for relatively small sums compared to the market average. Under McDermott’s guise the academy continued to produce players primed for first team football. The effect which both had on the development of internationals such as Harry Kane and Harry Winks cannot be underscored. Pochettino’s reliance on homegrown stars throughout his tenure ensured McDermott’s kids had tangible evidence of pathways to the first team. Academy prospects had avenues available to them at Tottenham which simply just weren’t available to kids at other top six clubs where they often fell besieged to the continuous import of foreign stars. Although the repercussions of this approach effectively took it’s toll on manager and players later on, it’s overall success cannot be downplayed. Even though such marriages in football are hard to find and never last forever, pursuing such a strategy helps offer clubs the most assurance in uncertain times.
EXPANSION OF NETWORK
An area of football which has caused much divide recently has been the establishment of multi-club networks. Notwithstanding the concerns behind these organizations true motives (namely “sportswashing”), such establishments are an effective method of avoiding pitfalls in the transfer market especially in how they share risk. Two such networks are City Football Group and Red Bull. Although the methods in which they operate may differ their end goal is similar; to become a market leader. City Football Group will look to establish a single team in each continental market with the long term goal of them becoming a market force in their respective regions. Meanwhile on the other hand Red Bull operate from a more centralized system where coaching and recruitment practices are frequently shared between clubs. The frequent player trading between Salzburg and Leipzig has in recent years come under scrutiny from the regulatory forces. The sheer magnitude of both networks are illustrated as per the below;
Despite the initial financial trouble and litigation involved with establishing such networks they are far outweighed by the time and cost efficiencies saved in the long term. Take for instance the youth development model adopted by Red Bull. The model offers teenagers pathways to play at a high level otherwise unavailable to them. The formulation of clear succession plans for squads means the club then avoids hastily discussing pay rises for players before selling them at or just before their peak. The basic premise behind this appears financially sensible, players can be moved between different clubs which are used as stepping stones for young talent. The group structure will also save costs in scouting and management in addition to providing joined up thinking and pooling it’s commercial resources together. These models target markets to control them. Thanks to extensive knowledge networks they are able to effectively scout and recruit players and have the subsequent infrastructure to develop them. However the benefits of these models stretch far past the transfer market. These networks are globalized ecosystems that provide shared services and supporting businesses. Indeed City Football Group’s success has been such that thanks to a diversification of revenues the model is becoming less dependent on Manchester City’s Premier League and Champions League revenues. These market disruptors are so effective because they see sport as seriously undervalued and not run akin to the professional business environments they arrive from. Strategic thinking and effective execution strategies ensures these groups remain in prime position to prey upon any market inefficiencies.
However not all clubs require a holding company under which they can profit from. There are plenty of examples of clubs from regions who have targeted markets and succeeded in procuring their best talents. Portuguese and Scandinavian clubs have been well vested in this regard in recent years. For long Portuguese clubs have offered players coming from Brazil with a gateway into Europe. The similar climate and language are notable factors which make relocation easier and ease players transition into the European game. For relatively small transfer fees Portuguese clubs have acquired young Brazilian talent before flipping them later on for sums of several times over on the market. Not only are the likes of Benfica and Porto adept at producing world class players, they recruit well from undervalued areas such as South America. It is this combination which ensures their odds in the transfer market are heavily stacked in their favour. There have been other examples with clubs in Scandinavia like FC Nordsjaelland. Owing to their partnership with the Right to Dream Academy they have a substantial knowledge network in Eastern Africa. Thanks to coaching and other resources they are then able to develop these players in Europe. As we discussed earlier some clubs with the adequate resources would not go far wrong if they were to allocate funds towards buying out a second division team in one of Europe’s big five leagues. Should it prove successful this “feeder club” model could help pay dividends in future years and save clubs from unnecessary spending in future markets.
CROSS-BORDER LEAGUES
One serious strategy given serious consideration in recent years has been the invention of cross-border leagues. Many clubs in secondary leagues for years have struggled to keep up with the top five leagues on a financial footing. Although the invention of a cross-border league is not the all encompassing remedy, it would provide such clubs relief to compete in the short term while recouping financial aid to ensure stability in the medium term. The Agnelli family among other owners of elite clubs have for long advocated the inception of a European Super League for the elite clubs in Europe. However such developments would surely serve to raise the top and leave the chasing pack more deficient than ever. Rather would it be preferable to bridge the gap between top and bottom? In recent years ideas such as the Atlantic League, Nordic League and Holland-Belgium League have all received positive responses. Should the regulatory bodies ever be hopeful of the market ever returning to some sort of equilibrium looking towards these cross-border leagues could provide the required respite.
BENCHMARKING / MEASURING EFFICIENCY
LEAGUES
Going forward as clubs and leagues may look to implement some of these strategies, how might they look to measure the effectiveness of them? There are few guaranteed indicators if even which determine the success of an individual transfer or set recruitment principles. However as the old adage goes; “what gets measured gets managed” and clubs would be otherwise foolish to negate this core aspect of recruitment. If leagues as a whole are to look towards financial stability, the MLS is a good case study. The league operates off a centralized system where clubs are participants. Salary Caps, Targeted Allocation Money and the Draft are all measures dedicated towards generating financial stability and creating a level playing field. Although such measures don’t facilitate the sort of fast paced growth we see throughout Europe and inadvertently create some barriers to entry it has lead to manageable growth over the past decade. Those leagues which have agile leadership and an openness to innovation such as the Bundesliga may be best suited towards exploring this strategy. It may even incentivize more clubs to participate in the cross-border leagues which we earlier mentioned. By contrast many of the big European leagues operate off a decentralized system where clubs are active users of the transfer market rather than participants within it. Clubs engage proactively within these markets to acquire players of choice usually in the absence of constraints. A heavily marketed league and packaged entertainment product such as the Premiership would not be suitable towards pioneering such an approach. Any policy or rule change which would hamper the Premier League package would deter viewers and have a negative impact on TV subscriptions. Should crucial broadcasting revenues decrease it would naturally affect clubs funds to regenerate and buy the best stars, it is a vicious cycle.
CLUBS
Nonetheless one must be cognisant of where they stand in respect of the market. In the Premier League it is very difficult to survive year in year out without forgoing huge sums. The consequences of lying idle can be significant. Despite Mauricio Pochettino and Tottenham’s early success in beating the market, towards it’s finale, the laws of Premier League gravity dictated for an unfortunate end. Clubs in all echelons of the game know that without some element of risk there can be no progress. For teams further down the impacts may prove calamitous. Both Fulham and Aston Villa have invested significant funds into their squads with little concern for a life beyond Premiership revenues. Throwing the kitchen sink at it does not guarantee Premier League safety as if it ever did once before. One such team who seem to have learned from the failings of those before them is bottom placed, Norwich City. The bottom club has a transfer net spend of £5.95m for the 19/20 season. Even though inevitable relegation is no sure sign of success in the short term, the club is confident that their strategy of holding fire on their Premier League revenues and reinvesting them in the medium to long term will be.
Looking at net spend over a five year period and there is a new picture beginning to emerge. Teams are beginning to succeed from within the certain parameters they set themselves. Liverpool, Chelsea and Spurs have all retained their top six status without little deviation from their own frameworks, choosing not to match the spending of Manchester City, Manchester United and Arsenal. Although the past five years for Manchester City have been full of accolades and awards, the same cannot be said for their crosstown rivals and Arsenal. For those clubs apprehensive of the stance which Norwich City take, the performances of Burnley, Crystal Palace and Southampton in relation to their net spend give cause for optimism. What if any of the aforementioned strategies they pursue is unknown however it is clear that the days of reckless spending are coming to a climax.
SIGNINGS
What about the signings themselves? How do we judge the success of a new player? Silverware? Points gained? Or simple performance metrics such as goals scored and minutes played? One current case study would be the departure of Timo Werner from RB Leipzig to Chelsea. Brentford’s co-director of football; Rasmus Ankersen had his own interesting opinion concerning it on Twitter;
Ankersen could have said to be incredulous at the assertion that with Werner’s departure from RB Leipzig the German club were losing 34 goals a season. Under conventional thinking and given the organization they belong to you maybe forgiven for thinking “Die Rottenbullen’s” best bet would be to sign either Patson Daka or Hwang Hee-Chan from their sister club (RB Salzburg) and hope to make a dent in the 34 goals. Or could Nagelsmann look to reinvest the funds elsewhere and make the team more defensively solid, thereby reducing the need to score an additional 34 goals a season? One such club that has leveraged these insights was Liverpool in how they reinvested the money earned from Phillippe Coutinho’s move with the signings of Alisson and Virgil Van Dijk. Although no one at Anfield was delighted by the departure of the dazzling twinkle toed Brazilian, the absence of such a maverick was a small price to pay overall for a Champions League and maiden Premier League crown.
WINNERS & LOSERS
WINNERS
Ole Gunnar Solskjaer encountered mild indignation at the onset of lockdown when he suggested that this summer’s window was prime time for “bigger” clubs to exploit the situation and target the smaller clubs in the market. Despite this so called run on the smaller clubs always existing, it has surprisingly required the Manchester United manager’s comment in passing to spark consternation. One such situation United may look towards is Aston Villa captain, Jack Grealish. Under normal market conditions and believing the Villains secure Premier League survival one could have reasonably expected the playmaker to move for nothing short of £50 million. Now fast forward to the end of the campaign and should Villa be relegated that could significantly affect Villa’s ability to negotiate. There will be situations like Grealish all over Europe this summer. For players such as Wilfried Zaha who in previous windows was priced out of moves to Tottenham and Everton, this window may represent as good a chance as any to depart Selhurst Park. As discussed above those clubs with clear recruitment strategies are best placed to profit. The current climate has only seemed to strengthen the hands of “superagents” such as Mino Raiola and Jorge Mendes who disproportionately control a lot of football’s wealth relative to the number of agents in the game.
LOSERS
There are several clubs for whom the remaining games behind closed doors will severely effect their position in this summer’s market. Failure to secure Champions League football could bring serious ramifications and the prospect of fire sales to control costs for the likes of Atletico Madrid, Borussia Monchengladbach and Arsenal. Relegation contenders, Bournemouth are just one of a number of clubs with financial affairs who either way require a massive reshape this summer. Should the Cherries stay up the club will be able to offset some of their losses while entertaining higher fees for some of their most coveted stars. West Ham United are another club who should be staring nervously at the drop, with many of the club’s stars on significant medium to long term contracts a drop into the EFL could bring an uncertain future.
As discussed there are a collection of clubs with generational talents, which in other circumstances would yield much needed funds. Brescia midfielder, Sandro Tonali is the best case in point. With the Lombardy club on the brink of relegation, it will significantly effect their ability to leverage with suitors of the Italian international. Furthermore there are some clubs that rely on developing and selling players to survive in the short term namely Watford and Sevilla. It will be interesting to see how such clubs are effected with a potential worldwide transfer market closed off. These are clubs who cannot compete with top clubs and buy lesser known stars before selling at a profit. It will be interesting to note how clubs who have become masters of market fluctuations change their strategy. Succession planning maybe knocked back as they both look to reap full value on their investments. Indeed with clubs more risk averse than ever it is only natural to envisage clubs pursuing business domestically. The knock on effect this may have will be for prices to be inflated to reflect the higher demand and lower risk option. Such movements would only serve to increase the chasm between Europe’s big five leagues and the secondary markets below them.
CONCLUSION
For the vast majority of clubs the forthcoming transfer window is one which they could do without. However for a select group of clubs this summer’s window represents their best chance in many a year to make up significant ground. Those clubs with a solid ownership structure, firm framework of principles and the agility to adapt and change strategy may be best suited to enjoying some success this summer. For many a time people had feared the excesses of the transfer market were all too unsustainable. We have already seen how much of an impact deflation has had on the market. Club’s worst fears will be realized as their star assets continue to fall and a brutal wave of deleveraging rips through an already brittle economy. Furthermore rising infection rates have already dented hopes of a V shaped recovery. There is not one all encompassing solution which boosts risk appetite, lowers volatility and gives the selling club apt funds. Nonetheless there are ready made solutions in the short, medium and long term which give clubs the best chance possible and could possibly “reset” the market in a way impossible before. However there is a worry that from the onset of FFP, UEFA as policy makers tightened up the transfer market so that in a way it would become too big to fail. If not alleviated by the current economic climate those fears may well be substantiated.