Transfer Economics: How Much is a Player Worth?

When players are sold and bought on the transfer market, it is important to consider that it is not actually the player that is being bought (Mr. Blatter, take note!), but his registration.

A transfer is short for transfer of registration.

A player registered by one club cannot be registered with another because he has a contract with his current club. Therefore, one accurate estimate of a player's value could be the remaining value on his contract. If a player earns three million per year and has three years remaining on his contract, the remaining value of his contract is nine million—at least this is what he is worth to his current club.

If we use this formula, then many players are overvalued in the transfer market because they are transferred for huge transfer fees at a time when they were not set to earn that much over the duration of their remaining contract.

Either that, or players like Michael Essien, Didier Drogba, Wayne Rooney, Robinho and so forth were underpaid before their big money moves.

However, one can also argue that the player's valuation should not be based on the number of years on the current contract but his remaining useful life—the number of years he is expected to continue playing competitive football.

This is not a simple calculation. Although the player may have seven years of useful life remaining, he will not deliver the same in the last two years as he will in the next two.  A complex calculation but it can be done with varying degrees of accuracy, if only it was really useful in transfer dealings.

The fact is that in the transfer of a player from one club to another, it is usually the buying club that initiates the deal and therefore the selling club is usually in a better bargaining position. As a result, most players will be bought for more than their real valuation, if such a measure existed.

When we buy goods in shops we often pay less than what we are willing to pay because the shopkeeper wants to maximise profits by selling the most items at the most profitable price.

If shopkeepers could sell every single item to every customer at a different price (close to what they are willing to pay), that's exactly what they would do, but it would be impractical negotiating prices with every customer that walks through the door and the shopkeeper could end up with stockpiles of unsold stock.

When a club is buying a player, they will have to pay close to what they are willing to pay because the selling club is selling only one player to one club. There's also no harm if a player is not sold and often, that's exactly what the selling club wants. 

A club want to buy a player because he will be of some value to their team, the team will enjoy certain benefits (goals, trophies, merchandising) in having his registration. The club that currently owns his registration is also currently enjoying those benefits, so more often than not, they will force the buying club to pay more than what they are willing to pay in a "take it or leave it" manner.

So the answer to the question: How much is a player worth? As much as the buying club is willing to pay, or even more!

Of course it's not that simple, but the point is that a player is only overvalued if the buying club refuses to pay the transfer fee and the deal doesn't go through.

As soon as the deal goes through, we can assume that the player is really worth close to that amount—at least to the buyer.