Introduction
Why do football players cost so much? Why do players transferred from one club to another get so very high price of £82,500,000 while another players a sum of £21,000,000? What determines these prices and are they determined? All these questions poses a potent reason for a demand supply analysis of football players.
This paper analyses the reason why players are given higher transfer rates and the economic theory that lies behind this transfer. The players that we choose for this analysis are Nacho Monreal from Arsenal and Jack Butland from Stoke City.
Supply Demand Theory
While discussing the price that footballers receive from the clubs are astronomically high. Some players receive very high transfer prices while others do not receive such high wages. The transfer costs are actually, in economic sense, the price, or the wages that is determined through the interaction of supply and demand. The footballers who have a very high degree of skill and have a proven past record are priced very high.
The supply curve of a commodity as we know in economics is a positively sloping line, whereas in case of football players is a vertical line indicating a fixed supply. This is because, the service that the footballers have to offer is their skill sets as a player which cannot rise or fall with the price. It remains same at any price, showing a highly inelastic supply curve.
However, the demand curve of the footballers is highly elastic that varies with the prices. When there is an interaction between the supply and the demand curves, and the price at which they interact, becomes the equilibrium price at which the player is transferred. This price is the transfer cost that clubs pay.
In figure 1 the supply curve is shown as a perfectly inelastic curve and the downward sloping demand curve shows that with an increase in the price of the player shows that the demand for the player would reduce.
Skill Sets
In case of Nacho Monreal from Arsenal and Jack Butland a comparison has to be made in terms of their skills. A comparison of their past performances shows that Nacho was a defender who had 2 goals to his credit, he had assisted in making 8 goals, in 35 matches he had played. On the other hand, Jack a goalkeeper, had conceded 69 goals and missed 13 goals in the 49 matches he had played.
This shows that if a performance ratio is considered, Nacho’s performance was far better than that of Jack. Hence, it may be concluded that the higher price that was offered to nacho was due to the better performance he had shown in the previous matches he had played.
The theory of marginal revenue product of the players demonstrates that the price of a product or marginal revenue of a product depends on the price of the last good that was sold and on the productivity of the good. In case of a football player, the marginal revenue i.e. the price the clubs are willing to pay for a player. This price also includes the ability of the player to draw sponsors and advertisements money.
In a way, this is directly dependent on the media popularity fo the football player. Earlier, the amount of the transfer price has not been very high, which has increased exorbitantly in the recent years. Many believe that the high price paid to the footballers is due to the higher media popularity paid to the player.
Many television channels and media houses willingly pay premium sponsorship prices to get a particular player to endorse their program or product. This again increases the market value of the player. For instance, Manchester United may just have to pay a meagre sum to its employees as they hire only few people but they earn revenue of £1 million per game, which is much higher than what they pay .
Bargaining Power
From the point of view of the bargaining theory, a player who has a unique and commendable skill sets and is popular with the media would be in a better position to bargain with the clubs while a transfer cost is being determined . The reason being, even the player is aware of the amount of revenue he can fetch for the club through good performance on the field as well as through sponsorships.
Further, the marginal productivity of a player is not assessable. But a good player can help his team to perform better and therefore, the skills he has a footballer would help the team to gain a higher position in the league matches which would increase the popularity of the club. For instance, Messi is a great asset for Barcelona, as he almost singlehandedly helps the club win, as well as become the champion.
A player of his calibre would definitely fetch a higher price for he has a higher level of skill sets and performance to offer . Therefore, a player who has the potential to make the club win or reach the finals or semi-finals of the premiere leagues would definitely have a higher bargaining power as well as price.
Sponsorship
Another aspect that has a strong influence on the price of the football players is the sponsorship that he can draw. For instance, David Beckham, Messi, or Christiano Ronaldo is the poster boys of all big companies who are the primary sponsors of football.
As these players are immensely popular with the football watching and non-watching audience, they have a higher endorsement price that eventually goes to the club. Therefore, if a player is media friendly and is priced high by the media, he would eventually cost high to the clubs too.
Other Factors
Another factor that may have an influence on the transfer cost of the players is their degree of competitiveness. The clubs in the English Premier League are highly competitive and they vigorously compete against each other for a good player. Therefore, when the demand for the good is very competitive, this would increase the price of the product, supply being constant.
High bidding on a player from the top clubs also results in higher costs of players. Furthermore, there are rich clubs who are willing to pay a very high price for the right player and this knowledge in the market increases the expectation as well as the price of the footballers.
Price of a player is dependent on various factors. However, the whole mechanism of the bidding prices and the price is determined through the process of demand and supply interaction as explained through economic theories.
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