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How to get lucky in the transfer market

“The stockmarket is a risky and complicated place. For more than a century many investors have trusted financial experts to pick the best shares for them, in return for a hefty fee. But even the experts can get it badly wrong” wrote The Economist earlier this month. And while decisions made on a trading floor on stocks might seem a world away from decisions made in a boardroom on players, we know that consistently recruiting the best assets in football is just as easy to go badly wrong.

The Economist was commentating on Woodford Investment Management where, following strong performance in the early years of his flagship fund, their “star” investment manager Neil Woodford has recently run into challenging times.

While the fall of the prominent fund manager may have surprised some here in London, his troubles in fact point to a wider trend; that even the most promising investors struggle to beat the market in the long term.

And so it’s the case in football’s own stockmarket: player trading.

According to research by 21st Club’s intelligence team, the value of the global transfer market grew by about 60% in 2016-19 compared to the previous three year period (2013-16). Yet of clubs that generated more than €50m in transfer income in 2013-16, only one third grew transfer revenues at a rate faster than the market in the period 2016-19.

Why might this be the case? The most obvious reason, although one that nobody likes to admit, is that outperformance in the short run is down to luck more than skill. That is; in the long run, the ‘skill’ of those involved in player trading often reverts to the mean. The global nature of the football transfer market also creates genuine complexities. While on the one hand it represents a huge opportunity, on the other the sheer size of the overseas talent pool makes it an inherently volatile ‘stock’.

So what can we take from this?

Well, for one, clearly we need to really do our due diligence when hiring any new scouting personnel who lay claim to a strong recent record in player acquisition. There’s a 66% chance that their past feats won’t be repeated.

The truth is that even the best traders struggle to consistently beat their market. Yet our data also shows that it’s possible; 1 in 3 clubs were able to repeat their transfer success by identifying undervalued talent and consistently selling overvalued talent. The list includes the likes of Borussia Dortmund, Ajax and Lyon. Few would question that their ‘luck’ was in fact down to good process.


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About Blake Wooster

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