The true cost of a transfer
A big challenge for leagues and clubs at the moment is to become more sustainable and efficient with the resources they have available. A majority of a football club’s revenue will be spent on a combination of transfer fees and player’s wages. Often these figures are reported separately but in reality club’s have a single budget which they need to balance between both transfer fees and wages. By combining these two values we can gain a better understanding of transfer market dynamics with the aim of identifying successful strategies for both leagues and clubs.
The true cost of a transfer can be calculated using the equation:
Cost = Transfer Fee +(Wages × Time at Club) – Received Fee
For players still playing at a club the Received Fee can be substituted for the current market value of a player (as determined by our valuation model). A negative Cost corresponds to the club having made (or having the potential to make) an overall profit on the deal. To compare transfers we look at the Cost per Time at Club measured in years. Using this definition we can determine which leagues tend to accrue value from the transfer market and from which leagues buyers tend to gain the most value.
We rate Brazilian Serie A clubs as having been the most prolific at using the transfer market to create value for themselves over the past five seasons; with a median transfer Cost per year of €-2.1million. Meaning, on average, transfers made by top tier Brazillian teams generate €2.1million per year for their club. Here, the business model is to acquire top talent from their domestic market and other South American markets, give the players the opportunity to compete at a high level (our model rates the Brazillian Serie A as the highest quality league in the world outside of the Big 5) and sell them into Europe for a profit. The Swiss Super League and Danish Superliga also have a median transfer Cost per year of below €-1million. Both have created significant value by selling predominantly into the German market.
In terms of leagues that have historically created value for buying clubs, we rate the Uruguayan Primera División as top; having offered a median Cost per year of €-2.3million to clubs in both South America and Europe. Meaning, on average, signings made from the Uruguayan top division generate €2.3million per year for the buying club. The French Ligue 2, Swedish Allsvenskan, Austrian Bundesliga and Spanish Segunda División also feature among leagues that offer buying clubs a Cost per year of below €-0.6million. At the other end of the spectrum, signing players from the Big 5 leagues has historically offered some of the worst value deals with a median Cost per year of €1.6 million. This is not surprising, Big 5 clubs have higher revenues and can offer more lucrative contracts. Therefore, buying these players will be accompanied by higher transfer fees and wages than equivalent players in different leagues.
By increasing our understanding of the transfer market, we can identify individual markets which promise greater value for money. As more clubs attempt to incorporate transfer income as a genuine revenue stream knowledge of these profitable trends could provide a crucial edge. Understanding the flow of transfers can also help leagues to create more sustainable long term strategies by positioning themselves at the required level to pass talent between other leagues or countries.