More money is being spent in football every year, especially during the transfer market, when clubs buy and sell players.This summer’s transfer window raised questions. That is mainly due to English clubs alone spending almost 3 billion euros, and the sudden emergence of Saudi Arabian football teams cashing in almost a billion euros on some of the most-watched players in the planet. With such numbers scratching the heads of many, Thomas Peeters, associate professor of Economics at the Erasmus School of Economics, breaks down and addresses the trend of spending huge amounts of money for football players.
Thomas Peeters is an associate professor at the Erasmus School of Economics. His work focuses on the intersection of strategy economics, innovation, industrial organization and sports economics.
How do teams spend this much money without breaking any rules?
“One thing that helps them is the way the accounting of transfers works. Media outlets report transfer fees of 120 million or 200 million for example. But these amounts are not spent on the day of the transfer. The money is spread, in an accounting sense, across the players’ contract. So, for example, if I contact you today and I pay 80 million and give you a four-year contract, this actually costs me 20 million this year, 20 million next year, and so on.
“What you have to realise is that what a club spent yesterday also counts. So they can push costs forward, but the costs from the past are their costs today. That is where F.C. Barcelona got into trouble, when five years ago they expected revenues of a billion euros, but they ended up with revenues of 600 million.”
Are huge expenditures like the ones in the transfer window sustainable in the long-term?
“Well, the thing is, football grows. In 2014, most clubs in Europe had a combined transfer spendings of 5 billion on their books. Five years later that amount doubled. Should we worry? If we look at the earnings in those same years, it follows a very similar pattern. Football grows every year by about 10 to 15 percent. The economy grows by 2 percent in a good year. So the football industry grows at least five times quicker than the economy as a whole, and this has been the case since 1995.
“There are always new ways to make money. First it was with the TV rights boom. Everyone wondered if it was possible to get people to pay 100 million euros to watch the English Premier League? Now that number is at 3 billion euros. Clubs then started growing their commercial revenues. Now there is interest from the Middle East. I think this year alone, the Saudi Arabia transfer boom is going to put 500 million euros into European football. In an industry that earns 20 billion, 500 million is already the growth for the year. Is it sustainable? Maybe not, but it sustained.”
Do you think that this overinflation in the football world reflects something in the economy?
“I don’t like the term ‘overinflation’ because that suggests that we know what the right rate is, and I don’t think we know that. What would worry me, for example, is if the wages of the players go up by 30 percent but the revenues go up by 10 percent. But that is not what happened, although the wages of some of the biggest players increased. But overall, the club revenues increased as well.
“English Premier League teams spent billions this summer, but if you look at their gap between costs and revenues, then I’d say that the league is underspending. The revenue inflation has been higher than the wage inflation, and to be honest, the English Premier League can be more dominant if they want, financially speaking.”
So the huge expenditures in the transfer market should not come as a surprise?
“No, it shouldn’t. Of course, I’m an economist, I’m just counting numbers. You can also ask ethical questions. Is it right that people make that much money? People often say ‘this much money just for kicking a ball’. My answer usually is: who else should get that money? It’s those guys making the entertainment that millions of people want to see, right? The alternative could be that the clubs get a lot of money, and the players less. Then the club owners would make more money. The owners are typically American businessmen, Russian oligarchs, and oil sheikhs. Do these people need money? I don’t think so. I’d rather give it to Messi than to Sheikh Mansour. It’s like ‘carrying water to the sea’, as we say in Dutch.”