Player Portfolio Theory
Money has poured into football over the past decades, transitioning football clubs into football businesses. Savvy owners and operators are acutely aware that club business performance actually depends on sporting performance. And as a result, we’ve found that owners have started evaluating on-pitch talent like an investment portfolio.
Global football is more connected today than ever before. With the ability to measure player performance and corporeality in further detail than ever before, it makes sense why clubs closely monitor their most important assets: players. What are ways we can start to apply everyday investment principles to sporting decisions within football clubs?
Over 100k professional football players around the world present a dizzying array of assets and characteristics for clubs to invest in. Let’s break down a handful of investment principles and consider questions we could ask ourselves.
Determine what type of investor to be.
Clubs like Dortmund take a venture capital approach. They have been willing to take many cheap, but risky, investments in players and pride themselves on an ability to incubate talent over time. Chelsea take a more private equity approach to the talent market, often making expensive investments and executing a longer-hold of players, even those not playing at Stamford Bridge.
- What is our risk appetite?
- What are our core competencies as a club?
- What are our desired sources of revenue?
Develop an investment thesis.
A clearly defined thesis allows us to ensure club executives and staff are able to focus on what matters most. It allows all of us to better understand the nuances of how smaller decisions impact the big picture.
- Where does our club currently sit in the landscape of global football?
- Where do we want to get to and how quickly must we travel?
Evaluate within the context of the broader portfolio strategy.
Players within a squad are investments, and should not only be evaluated at their face value. A riskier player today (think: younger, smaller transfer fee, lower wages) could prove exponentially valuable for the club tomorrow.
- What time horizon am I solving for by signing a given player?
- How will my current squad makeup evolve two or three seasons from now?
Diversify across asset classes.
Some player roles provide a performance impact from Day 1; others grow into that role over time. Some players are time-tested cultural leaders; others fill a short-term positional need.
- What “asset classes” do we have in our current portfolio?
- How does this compare to what we aspire our squad makeup to be?
Pursue an efficient frontier.
Adjustments to squad can be considered through two mindsets of risk and return. We can either set an acceptable level of risk and aim to maximize for the highest return. Or we can define a required level of return and pursue an approach of lowest risk. By “risk”, think: player wages, squad reliance on individuals, etc. By “return”, think: competition performance, transfer market income, etc.
- What have our performance and financial returns been for different types of players over the years?
- How does this compare to our league and similar leagues around the world?
- Where are areas we can reallocate future squad spots to maximize club returns?
Always conduct portfolio due diligence.
We save valuable energy and resources by conducting portfolio-style due diligence on players prior to deeper recruitment. It also allows us to expand our reach, while simultaneously becoming more targeted with our searching. Once we know player candidates fit our portfolio, we can then conduct the typical process of recruitment diligence – video, scouts, relationships, and more.
- How will this player fit into our portfolio strategy?
- What similar options exist in the market that could be lower-risk or higher-return?
- What connections might we need to establish to reach those potential alternatives?
As with the rise of data in the financial world, our footballing world is becoming enveloped in hyper-available player data. While this allows us to consider more scenarios prior to making decisions, it can quickly prove to be confusing and sometimes debilitating.
Let’s establish strategies that fit our current environment and reflect our core principles. We can then spend more time building what truly matters and less time swirling through distractions.