The football transfers market

The first half of this month saw the two most expensive football transfer deals ever, as first the Brazilian playmaker Kaka and then Portuguese Cristiano Ronaldo moved from AC Milan and Manchester United to Real Madrid for 56 million and 80 million pounds respectively.

As Gideon Rachman writes, these high cost purchases by Real Madrid, reminiscent of their deals in the early part of this decade involving Zidane, Figo, Ronaldo and Beckham, is part of an astute commercial strategy (the galacticos business model) that has seen Real becoming the highest revenue earning club in the world, despite not so encouraging performance during the period (not even entering a final since 2001-02).



The graphic above highlights a few interesting things
1. Apart from the parsimonious Bundesliga teams, the recession appears to have had no effect on player wages, as its share of revenues has been on the way up in all the other four major European leagues - England, Italy, Spain, and France. Maybe, it has something to do with the generally observed fact that economic downturns leaves the popular sources of entertainment unscathed and even gives them a boost.

2. Further incresases in wages does not appear to have much co-relation with performance. English Premier League teams, not known for extravagant spending, have done remarkably well over the past five seasons, having representation in each of the five Champions League finals and winning two of them. Similarly, AC Milan too, with mostly home talent and no superstar signings, have done relatively well in recent years. In contrast, the extravagantly spending Real Madrid's stars have failed to set the Santiago Bernabeu alight in recent years.

3. As Gopal Muttu writes, there is an element of the stock picking strategy of relevance to purchasing a football player. In the equity markets, the timing is important, for we have purchase when the market is at its bottom and sell at its peak, so as to maximize the returns. Manchester United bought a then promising, but relatively unheralded Ronaldo for £12.24m after the 2002-2003 season and have now sold him for £80m at what appears to be his peak, thereby making handsome profit from brand and player Ronaldo. On the contrary, for Real, buying a Ronaldo at his prime, means that he may well cost more than at almost any time in his career. But then, as with all such equity purchases, player Ronaldo may be on his way up and below his peak, and Real Madrid may yet benefit.