Are Transfer Fees in Football Really So Outrageous?

Are Transfer Fees in Football Really So Outrageous?

Last year, English Premier League (EPL) clubs did record business. According to Deloitte, the EPL spent a combined £630m ($985m) on new players. However, perhaps the most eye-catching deal of the year involved a player leaving English shores, with Gareth Bale transferring from Tottenham to Real Madrid for a whopping £86m (€100 million). At the time, The Times called it the “craziest deal in the history of football” and a “descent into madness,” but a closer look at the return on investment of professional players suggests that it might not be so mad after all.

The ROI of football players

The real value of a professional football player comes both on and off the field. Broadcasting deals, corporate sponsorships, ticket sales, and merchandise sales all stand to benefit from the signing of a football superstar. When Paris Saint-Germain signed David Beckham for the 2012-13 season, he brought instant cache to the club, helping it ink sponsorship deals with global brands including McDonald’s and Panasonic.

Similarly, Real Madrid, the most commercially successful team in the world with players that include Gareth Bale, Cristiano Ronaldo, and Karim Benzema, has corporate sponsorships deals with Emirates, Audi and Coca-Cola. Real Madrid’s president, Florentino Pérez, who has a policy of signing galácticos (hugely expensive players), has long argued that fielding massive stars makes economic sense. “…Players are neither cheap nor expensive, but an investment…they produce a return.” Investing in top players is about cementing the club’s name as a prestigious worldwide brand. At it seems to be working. Real Madrid is valued at $3.44bn.

All eyes on us

The largest segment of Real Madrid’s booming earnings comes from broadcasting; a total of £161m. Securing lucrative broadcasting deals is an essential revenue stream for most football leagues – made easier when they have a star-studded line up of players.

According to Deloitte, the market for global sports rights will hit £16bn in 2014, with European football and the English Premier League contributing £6.5bn and £1.9bn respectively. Pay-TV has played a particularly important role in football’s commercial development. In England, Spain and other major European leagues, subscription TV has not only multiplied the biggest clubs’ incomes (by having their own country’s fans pay to watch live matches), but has also opened up the game to a much larger international audience.

In 2012, Sky and BT secured a record deal with the English Premier League worth £3bn over three years. That equates to at least £14m more per year for all 20 clubs within the league. Compare that to 1992, when live rights were granted exclusively to BSkyB for £305m over 5 years, and it’s clear that clubs now have a much larger pool of cash to work with when it comes to buying players.

Spend money, make money

Star players not only bring in the viewers, they also bring in the sponsors. With the help of superstars like Wayne Rooney, Michael Owen, and Danny Welbeck, Manchester United raked in £118m from sponsors in 2011-2012. That same year FC Barcelona made £391m from corporate sponsorship, including a £25m-a-year deal from Qatar Airways.

Of course, big-name players contribute to a club’s bread & butter revenue source as well – ticket sales. Millions of fans flock to games to see their favourite players perform. In 2011-12, Real Madrid’s famed stadium, Santiago Bernabéu, which seats 85,454 supporters, brought in £102m in revenue. And with Gareth Bale having now joined the club, there are plans to increase stadium capacity to 93,000, with more restaurants and corporate facilities planned to bring in even more revenue.

You can’t put a price on loyalty

Investing millions of dollars into players like Carlos Tevez, Cristiano Ronaldo, and Gareth Bale may seem like a hefty sum, but when you consider all the benefits such players bring to their respective clubs, their high transfer fees might actually make sense. While some players may be traded frequently, others can stay on with their clubs for years. Just look at Lionel Messi, the 27-year-old forward who just signed his seventh contract with FC Barcelona, a deal that will keep him there until at least 2018.

At the end of the day, football clubs are in the business of making money, and trading players is a necessary part of the game. And considering how much value they can bring to their clubs, elite players will continue to demand a premium for their talents.