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Wage Equilibrium

The recent acquisition of Konstantinos Tsimikas (£12m) by Liverpool continues to demonstrate their intentions on following the smart money in the transfer market. According to our models they’ve now signed two leading full-backs, including Robertson, in European football for less than £20m. How is it possible that they’ve managed to increase Tsimikas’s annual wage more than 5 fold but still only reportedly pay him £2.6m per year?

Wages can sometimes be overlooked but they ultimately play an integral role in maintaining a harmonized squad in the long-run. A well oiled wage structure allows for gradual wage increases through contract renewals without destabilizing other high earning players. Benjamin Mendy and Andrew Robertson were both signed in 2017, but Liverpool have paid roughly £5m less in wages, with Robertson costing £1,257 per Premier League minute, in contrast to £5,656 for Mendy.

Based on several predictive factors, including player performance levels, team quality, position & age, our models suggest Robertson should be paid closer to £10.4m in today’s market whereas Mendy is probably in line with his predicted salary at around £5.2m. By contrast, Tsimikas merits roughly £2.9m.

We’re able to look at these predictions from a league level and begin painting a picture of inefficient leagues in terms of player wages. To keep things simple, we’re only considering players of Premier League quality or better for our final results. Serie A (Italy) has been the most inefficient league with players earning roughly £4.2m annually. Our models suggest the average player merits a salary closer to £2.1m, meaning it is a market where clubs tend to significantly overpay.

One of the main reasons big 5 leagues pay more for players than we would expect is that they have higher revenues than clubs outside the big 5 leagues, and so will naturally pay more for talent than a club that is more squeezed on their finances.The Bundesliga and La Liga earned roughly the same revenues this season (£2.9bn) but German clubs were smarter on how they distributed their wages to players. The Bundesliga was the most efficient big 5 league, overpaying by only around 8% whilst clubs in La Liga overpaid by 26%.

The Greek 1st division, a relatively untapped league from a big-5 point of view, provided the best value for money. Players here, like Konstantinos Tsimikas, should be earning around 105% more than their current wages. Although this sounds drastic, this would only increase their wages from £988k to around £2m. Our World Super League rates Olympiacos as a top six Premier League quality team, but signing a full-back of Tsimikas’s quality from a top six side would cost closer to £4.8m a year.

Since 2015, signings from the big 5 leagues have played 49% of Premier League minutes in their first season compared to 41% from other foreign leagues. Not only is the notion of big 5 experience over-hyped but it’s also very much over-priced. There are a number of markets both in Europe and South America that can offer Premier League standard players for a fraction of the price in wages. If clubs are looking to cut costs this summer due to lower revenues, they can do so by being smarter with wages whilst maintaining performance levels, if they target the right markets.

 

About Aurel Nazmiu

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