Explaining the recent surge of prices in the football transfer market and what this means
The footballing world has experienced a lot of changes in the past year, especially in the transfer market. While Neymar is the headline transfer of the past year, the spending standards in the transfer market have risen exponentially, with £50m signings now considered a normality in today’s market. The total spent during the recent January transfer window was £419.m, a staggering £182.8 increase from the previous year, where £236.7m was spent.
Let’s look at the highest valued league in the world; the Premier League. In recent years, the Premier League have signed exorbitantly high TV deals, which as a result, brings more money to the Premier League clubs. This is also why the Championship playoff match is considered “the most expensive match in football”, as the loser missing out on hundreds of millions of pounds. Because clubs have more money to spend, you would assume that clubs can now spend on better players, however, that’s not necessarily true. While there is an increase in money supply, there is no increase in the supply of top quality, world-class footballers. Because of this, top class footballers are now worth even more, resulting in a case of “demand-pull inflation”. Demand-pull inflation is when aggregate demand outpaces aggregate supply in the market. In the case of the Premier League, there are more available funds, as business spending increase (an increase in aggregate demand), but there is no increase in aggregate supply or world class players. In this market, there is no governing body that can take cooling measures to slow down the ever-growing inflation, which can either be good or bad, depending how you can see it. It can be good because clubs continue to make more and more money, but it also bad, because the model is unsustainable. Eventually, they’ll come to a point when telecommunication companies can no longer afford TV rights, and less money will stop flowing into the teams, resulting in a disinflation, and eventually deflation. Furthermore, it’ll come to the point of which the aggregate demand slows down, but at the same time, clubs will still attempt to maintain the high prices of players. However, the fall may come sooner than we think. According to the Financial Times, the packages for the TV rights cost Sky & BT £4.46bn, a drop from £5.1bn from the previous auction. Because of the decrease of price, Premier League clubs will be receiving fewer funds and as a result, the market will experience a case of disinflation, a general rise in prices, but at a slower rate.
Because of hyperinflation, clubs will now have to consider and think carefully about how to spend the money. Because of the increase in money supply for Premier League clubs, prices of Premier League footballers will rise, and therefore, players of similar quality in other leagues will be considered relatively undervalued. Newly promoted sides, Brighton and Huddersfield Town have both had to look at the Bundesliga and even the Dutch Eredivisie to look at recruiting quality players that they can get at a decent price. The first thing clubs should look for when buying a player is how can the player fit into the team, and whether they can make a good return based on their value of money. In the case of £75m Romelu Lukaku, he’s scored 23 goals in all competitions in 43 appearances. At first, you may consider him a flop, as a £75m signing should be bagging a goal every game, however, relative to £60m signing Alvaro Morata, and £46.5m signing Alexandre Lacazette, who combined have fewer goals than Lukaku, Manchester United seemed to be getting a fairly good return on Lukaku, relative to their rivals. Whether a striker scores goals or not is very much dependent on the service they receive from their teammates and considering that Lukaku doesn’t recent much service, it’s very impressive that he’s got 23 goals this season. Furthermore, to invest smartly is to look at players that will immediately improve the team, give the club a great return based on the value of money, and doesn’t divide the team. Because of such inflation in the market, clubs have to account for all factors when looking to purchase a player and look at the short-term and long-term returns that they could potentially get out of the player.
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