Transfer Window Geeking Out

As has probably become apparent to most of you during the course of reading this blog, I'm a bit of a geek about not just the Premier League and the Fantasy Game (which would be even worse if better statistics were readily available) but also about the economics of the sport.  We have talked about the financial pressures on ManYoo and Liverpool well before it became apparent in selling off players and not signing new ones.  We've talked about the potential impact of Stan Kroenke selling off his NFL franchise as he potentially looks to take over at Arsenal.  You get the idea - not everything ends up being about the action on the field.

Why do I mention this? For no other reason than I have another bit of economic randomness to share (whether you want to read it is another story entirely)...

This idea got into my head when Everton sold off Lucas Neill for a minimal profit (something under £1 Million) at about the same time they were facing a crisis in the back with Yobo off at the ANC and a bunch of other options all injured.  What did this seeming non-event get me thinking?

What is the marginal value of a point in the standings?

In this case, why would Everton potentially sacrifice points in the standings by giving up a useful player at a position of need when they weren't getting THAT much money back in return?

Here's what I found as I started researching...

1. In 2007-08, each place in the standings was worth about £700,000 in prize money from the FA up from £500,000 just a couple years before.  If we extrapolate and assume that the amount continues to increase it is probably nearing the £1 Million mark.
2. Taking that same year and throwing out the insane difference between the bottom team (Derby) and the 19th place team the average difference between places in the table was just under 3 points.
3. Again, using that same year (07/08), average turnover (or revenue) outside of the "Big Four" was £66 Million.

Why do I mention the above statistics? And what does it have to do with a team's activity (or lack thereof) in the transfer market?

What is the expected value of the new player to the club that acquires him over the life of his time at the club? Here are a few ways that the player can make a financial impact:

1. For clubs near the bottom, a new player (or players) can mean the difference between relegation and staying up in the Premier League which means about £25 Million a year in television revenue for each additional year in the Premier League. 
   
2. For clubs in the middle, a new player or players may mean the difference of one or more places in the standings with each place valued at approximately £1 Million year.
3. For clubs close to the top, a new player may mean the difference between a place in the Europa League, the Champions League, or no extra competitions.  The value of the European competitions varies significantly based on progress and which competition but the revenues can be significant.
4. All clubs will experience some boost in revenue if they are better in the form of more FA and/or League Cup matches where tickets, concessions, and merchandise are sold.
5. Finally, most incoming transfers of any value note will also lead to new merchandise sales - personalized team shirts, photos, mobile wallpaper, and the like.  Obviously a major acquisition will make more of an impact in this regard (I don't think a lot of Lucas Neill shirts were sold at Goodison Park this past summer) but I'm sure every new players causes some uptick in sales.

Finally, you have to think about all of the above in terms of Expected Value and not an Exact Value.  That is to say, you have to assign a probability of any or all of the above impacts when you acquire a new player.  For a team like Derby who was hopelessly out of contention for staying up by January of 2008, the expected value of any additional Premier League television revenue was £0 because it would have taken the ManYoo Treble Winning side in their prime to save that team from relegation.

On the other hand, for the teams like Liverpool, Villa, Citeh, and Spurs who all have a legitimate chance of finishing in the 4th spot and earning a Champions League birth there is every reason to expect that bringing in a significant player will have a positive expected value.  We all understand why Liverpool aren't doing so - they just don't have the money even if it would be a strong investment.  But assuming that Spurs, Villa, and Citeh all have about an equal chance of finishing 4th this season and assuming that it would be worth £25 Million in Champions League prize money, additional Premier League prize money for finishing higher on the table, additional Champions League merchandise next season, and other ancillary revenues then each should be willing to spend between £8 Million and £9 Million on reinforcements.  If they think a new player will increase their chances of getting the 4th spot to higher than 33% then they should be willing to go even higher than £9 Million. 

I certainly understand that Citeh don't care about such things as their owners don't have to run the club like a business - must be nice - but for Spurs and Villa it seems like they're being conservative when they should be stepping on the gas pedal and going for it.


As for our friends at Everton who were quick to sell Lucas Neill when they were putting themselves at risk of losing points with Rodwell, Gosling, Distin, et al injured - they won their wager by picking up a point at Arsenal and 3 points from Citeh at Goodison (certainly as much as they could have hoped for even with their entire squad healthy and no one absent for the ANC).  They did lose their FA Cup match to Birmingham but lots of people have been losing to Birmingham recently and an extra defender may not have helped much.


So, would it have made more sense to keep Lucas Neill? Probably not, it was probably worth the risk (even before knowing the outcome) to let him go and cash in.  That said, for those teams bunched up at the bottom of the table Burnley, West Ham, Wolves, Hull, Bolton, and Pompey it seems irresponsible NOT to be spending unless the money just isn't available at all (we're looking at you Pompey).  For the rest, failure to invest when there is a reasonable chance of securing a player who could make the difference between staying up and going down is just begging your supporters to give up hope that management has already decided that the season will end in misery and relegation.


OK, I'm sure you've had enough of my economics rant (which I'm sure hasn't been very coherent but I needed to write it so I could stop thinking about it).


Cheers - Neal