Football and economics: The first billion pound football player?

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3 mins. to read

By Richard Gill, CFA

It’s no secret that the game of football is one of the biggest on the planet, not only socially but also economically: the last Word Cup in Brazil was watched by an estimated 3.2 billion around the planet; governing body FIFA calculates that 270 million people actively participate in the sport; and the industry derives billions and billions of pounds worth of revenues a year.

There have been several recent pieces of news that demonstrate just how much money continues to flow through the game:

– Following the closure of the recent transfer window, English Premier League clubs had spent a combined £950 million on players over the summer and winter dealing periods. This was an all time record and up from £760 million in the previous season.

– A clever calculator from the BBC shows that someone on the average UK wage of around £26,100 per annum would take 709 years to earn the annual wage of Real Madrid superstar Cristiano Ronaldo, who is paid a reported €18.2 million a year. Put another way, Ronaldo earns in 14 minutes what the average UK worker does every 12 months.

– Just yesterday Sky (SKY) and BT (BT.A) agreed a £5.136 billion package for the UK television rights to show Premier League matches for three years from 2016. This was up by 71% on the £3.018 billion paid for the 2013-2016 rights, well ahead of analysts’ forecasts for a total of £4.4 billion, and is worth £10.19 million a game. Who would have thought Stoke vs Hull on a Monday night could be so valuable?

N.B. For more analysis of the Sky/BT deal watch out for the March edition of Spreadbet Magazine.

Premier League TV rights UK income chart. Data source: Premier League

As in any industry, prices are going up due to an ever increasing demand to watch the beautiful game, with supply remaining flat – in England a mooted “39th game” idea was scrapped by the Premier League a few years back.

An increased number of bidders may be partly responsible for the latest Premier League deal increase. But demand is also increasing around the world for English football – it’s a fact that only two countries in the world, Albania and North Korea, do not have a deal to show Premier League matches. And we haven’t even talked about the huge Spanish, Italian, German and South American leagues yet, along with the ever growing Major League Soccer in the US, which doesn’t even seem to have scratched the surface in terms of economic potential.

So with the increasing amounts of money being poured into the game, and this filtering down to clubs’ income statements, will this mean that footballer transfer fees will also continue on their upward trajectory?

It was 40 years ago that fans saw the first £1 million footballer, moaning that it was a ridiculous sum of money to pay for someone to kick a ball around a field, once, perhaps two times a week. Incidentally (pub quiz fans take note!), it was not Trevor Francis in 1979 who was the first million pound player, but Italian striker Giuseppe Savoldi in 1975 (accounting for exchange rates at the time).

So how far away are we from seeing the first billion pound football player?

The following table shows highlights of some of the world record football transfer fees paid over the past 122 years.

Select football transfer world fee records. Source: Wikipedia

We start with Willie Groves’ move from West Brom to Aston Villa back in 1893 for just £100, to Diego Maradona twice breaking the record in the 1980s, finishing with the current record – Gareth Bale’s €100 million (£85.3 million) transfer from Tottenham to Real Madrid in 2013. Note that the figures in the table are not adjusted for inflation but if they were Cristiano Ronaldo would in fact be the world’s most expensive player ever as transfer fee inflation lagged behind CPI from 2009 to 2013.

Back to the question. From 1893 to 2013 the compound annual growth rate in the record transfer fee was just over 12%, the figure being consistently within one percentage point either side of this number since 1952. Given this fact, and along with the recent flood of money into the game, it seems reasonable that we can extrapolate this figure into the future. Doing so would mean we could see the first billion pound transfer fee paid around the year 2034 or 2035.

With footballers peaking in their late 20s it could well be that our first billion pound man has already been born. Of course, it could always turn out to be a woman!

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