Is price a fair reflection of value?
Now the summer window has closed and new signings are bedding in, it is a good time to reflect on the recent transfer activity. As well as the headline numbers, the variation in fees paid for similar players has given us pause for thought.
So how do we know that c. £33m is a fair price for Michy Batshuayi? Or that c. £15m is a fair price for Borja Bastón?
In the absence of an efficient market, establishing a fair value is a tricky business. Accurate valuation of anything requires consistent, rational buyer behaviour as well as predictability in the performance of the product. But football isn’t that simple, presenting us with challenges around what to offer for our transfer targets and which offers to accept ourselves.
Ultimately, a player’s value is whatever someone is willing to pay and this can vary hugely for players of an objectively similar level (see charts below). There is limited value, therefore, in understanding what the fair value of a player is if it bares little relation to what you may have to actually pay to acquire his services.
As such, we may be better served by valuing the player in the context of both the buying and the selling club’s situation – i.e. what will the buyer gain, and the seller lose, through the transaction? Here are just some examples (with a nod to Porter’s Five Forces) which may have an influence on transaction fees:
- Buyer squad needs: A team short of strikers may be in a weaker negotiating position and might therefore have to pay more for the same player
- Buyer performance needs: A player may be more suited to a buyer’s playing style than the seller’s – making the same player more effective for one team than another
- Seller financial needs: A relegated team with financial pressure to cut their wage bill may be required to take a haircut on an asset’s value to help their working capital
- Seller performance needs: A key player in a team battling relegation is more valuable to them than a to club sitting comfortably in mid-table. Put simply, the same player providing the same performance levels should cost more to prise from a team facing a material event (e.g. relegation, qualification for the Champions League) than one who isn’t
- Rivalry among buyers: Where a number of clubs are in for the same player, his transfer value will be likely to increase – this will be the opposite if buyers have alternative options
As ever, context is everything and having a consistent methodology to value players is pointless if it isn’t reflective of the prevailing circumstances. Knowing what a player will give you, or what you might miss without him, is what really drives valuation in football – fairness has little to do with it.