Saturday, June 18, 2011

Player Valuation: Illogical, Irrational and Inflated.

For a few transfer windows, Sir Alex Ferguson has been watching Man City splash their cash from the south of France, while telling the media that there has been "no value in the market". While City have been living large, (for which I don't begrudge them) Sir Alex has been scouring the world for bargains, and in the last few years brought some high quality players to the club for relatively small transfer fees.

 Patrice Evra (£5.5mil), Nemanja Vidic (£7mil), Fabio and Rafael Da Silva ( £5.2mil combined-not sourced),  Ji-Sung Park (£4mil) and Javier Hernandez (£6mil) have all come to the club for under £10mil and have flourished at United. That said, when required, Sir Alex is not afraid to back player evaluations with the club cheque book, sanctioning the purchases of Dimitar Berbatov ( £30.75mil), Rio Ferdinand (£30mil), Anderson (E30mil ~as per Porto's books), Juan Sebastian Veron (£28.1mil), Wayne Rooney (£25.6mil), Luis Nani (E25.5mil), Micheal Carrick (£18.6mil), Owen Hargreaves(£17mil) and Chris Smalling (£10mil) as of season 2010/11.

Before we look at this summer's acquisitions, lets explore the factors clubs; directors of football and managers might take into account before opening the war-chest ( i love that cliche). Obviously talent/potential is one of, if not the most important factor in deciding on the transfer of young players, but other factors, like age, experience, footballing education, as well as back ground factors, like temperament, education,  ambition/drive/perseverance are all considered. Financial factors like transfer costs(including the length of contract at current club), wage and contract length expectations, as well as the club position in regards to their cash balance, access to loans, 'can they promote from their academy instead' and most importantly, space in their squad, play a part in determining if, when and how much to spend on a players' transfer.

Another element we should factor in, though hard to quantify, is the relative bargaining positions of the clubs involved. Essentially, we must work out how desperate the club is to do the deal. Clubs who are under financial/footballing pressure to sell almost always sell under value, while clubs who are able to "walk" from negotiations if they don't get what they "want" can usually extract more from buyers. Similarly, clubs who plan long term can afford to have a player in the last year of a contract simply play out their contract at their current club and move for him in January as he becomes a free agent, although they run the risk of him agreeing to extend his contract or demanding exorbitant wages when the time comes for negotiations.Sometimes this backfires on a club, but its rare that a "under the table deal" isn't done via agents to sort that kind of thing out in advance. That said, its not unheard of for players to do a 180 and leave a potential employer in the lurch.

Now acquiring talent is not a scientific process. Talent recognition is tough as it is,but getting highly talented players to your club for a reasonable fee is another matter entirely. How do you distinguish between levels of talent when the talent is non consistent? Consider Chris Smalling and Phil Jones, the former is older than the later, the later has more premier league experience than the former, although the former has played more professional senior games, and they are both playing together for the England Under 21s. Another anomaly would be found when comparing Jordan Henderson and Jack Rodwell to players like Henri Lansbury and Tom Cleverley. Henderson has been bought by Liverpool for a mammoth 20mil, with a similar figure likely to be needed to acquire Rodwell, while if they are to be sold by their clubs Lansbury and Cleverley are most likely to go for around 10mil. What makes this hard to fathom, is that all four are of similar age, experience and skill. So its not just talent that decides the fee for a player, what the buyer is willing to pay, which plays a significant part in the final fee. There are however, other factors that have an impact on transfer fees.

Other than talent, which factors should add the most to the transfer fee of a player? Experience? Potential resale price? Age? Should a talented youngster who's only played  half a seasons-worth of senior games but shown much promise  cost more than an experienced player, who still has room to develop and improve? Contrast "Kaka"29, who is rumoured to be available for around £30mil from Real Madrid, with the 19 year old mercurial talent Neymar, whos club Santos is demanding a minimum of E40mil. Everyone knows how good Kaka is, and even though he's had a few injuries, he presents less risk than Neymar, who is still honing his game, growing, and may/may not immediately cope with the demands of top level European football. So why does Neymar cost more?

If we take up the cases of Luka Modric and Javier Pastore, we see a similar thing. Although both clubs are looking to keep hold of their talismanic midfielders, there is no doubt that both clubs will sell for the right price. So why are Palermo expecting bids in the high 30millions, while Chelsea's opening bid for Modric was a "measly" £22mil?  Given Modric's experience in both the Premier League and Champions' League, isn't he less of a risk than Javier Pastore? One might argue that in accordance with financial risk/return modelling, lower risk should cost less and that more riskier investments should cost more, but intuitively, shouldn't a player that is more likely to succeed cost more, ( because success is closer to be guaranteed) when compared to a player who will most likely fail? So risk plays a major part in transfer fees, but its not just age related. Risk of Injury, Risk that a player is not suited to a league, and risk that potential is not realized all factor heavily.
 
How then, shall we contextualize the purchases of Veron, Berbatov, Ferdinand, and Rooney to United and the deals that brought Shevchenko and Torres to Chelsea? With hindsight, we can clearly see that some of these deals failed spectacularly while others were successes, although Torres and Berbatov still have to justify their price-tags to sections of their home support. Both Wayne Rooney and Rio Ferdinand had showed signs that they possessed enough talent to compete against the world's best at a young age and had put in consistent performances at a high standard to attract record breaking transfer fees to secure their playing services. They were still quite risky purchases, and it would have been disastrous if either one of them had proven not to be a success. Andriy Shevchenko, Veron and Dimitar Berbatov moved to Chelsea and United at 29, 26 and 26 years of age respectively, their natural talent was no longer under question and were considered to be in the peak of their careers. The fees paid for them were considered to be a fairly accurate reflection of their standing in the game and their footballing pedigree. At the time of signing, most Chelsea and United fans were united in proclaiming that they had bought a top quality superstar, who would drive their team into a trophy laden era of success, and that baring some disaster or injury, the individual would be a successful signing for their club. Neither Shevchenko nor Veron really settled into the league but even with hindsight, most people would take that risk, given the potential benefit. So it makes sense to pay top dollar to acquire top quality players whatever their age, even if their value is not going to appreciate. 

Other players are bought with appreciation firmly in mind. Cristiano Ronaldo is one of, if not the greatest example of this. Brought to United at the age of 18 for a not insignificant sum of £12.5mil, Ronaldo was bought with hopes, not expectations that he'd play out the remainder of his career at United. Initially introduced late on in games, with  a mandate to operate on the wing and cross the ball in for the strikers, there were many facets of his game that need refinement. Six years, 196 appearances 31 assists and 84 goals later, United sanctioned the sale of their prized asset, cashing in a world-record £80mil transfer fee, representing a  540% return on initial investment, excluding wages. Real Madrid had gotten a proven, goal scoring, creative talent, while incurring little or no risk, other than that of injury, given Cristiano wanted to move to Spain. If they wanted, they could sell him a couple years down the line and be sure that his value will not have decreased by much, if at all, if he remained fit and in form.This shows that clubs are willing to pay a decent transfer fee for a player they think they can make a profit on in the future. For many small to medium sized clubs, this is a heavily weighted factor in the decision making process.

Let's use the aforementioned criteria to compare a few attacking central midfielders being targeted by England's top clubs.
                           L. Modric      J.Pastore     A.Young     A. Sanchez  W.Sneijder  
Talent*                 7-8/10            8-9/10          7-8/10            8/10                8-9/10
Age                          25                   21                 25               22                     27
Experience   
Seasons Played        6                     3                   6                 3                     8       
---in PL/CL          High/Decent    None x2     Good/None    None x2       None/Winner
Football Ed.         D.Zagreb     Argentina       England   Chile/Italy           Ajax 
Potential Resale-       2/3 yrs            5/6yrs           2/3yrs         5/6yrs                1/2yrs
@ Profit-Window       
* Talent has no objective test from a distance, but judging on how early we've "heard about them/performing well at a young age",what size/stature of club they play at, how quickly they moved to a "big club" or trained with a big academy, i think, is a pretty fair judge of talent.

So how much should these players cost? If we assume that they are all on long term contracts (even though Ashley Young isn't), they all have similar personal characteristics( ambitions, perseverance, emotional stability, ability to fit in with team-mates)  and that they all command similar wages (even though I assume Sneijder earns considerably more than the others), the only real determining factors should be how well the manager/buying club thinks the player will fit into their team and how well they'll adjust to the unique demands of the league.They are young enough to have a few good seasons and be sold for a decent fee, but are also talented enough to justify holding onto them until they retire. They aren't complete "rough diamonds" that can be rationalized as gambles, like Tosic, Bebe, Manucho or Diouf, but still pose a certain amount of risk to the club, as they may fail to "settle" in Manchester, ( i seriously don't understand the problem of persistent rain) or be unable to cope with the speed/strength of the league.

This leaves us to the final question; "How much is too much?". Sir Alex is notoriously wary of getting caught in auctions for players, having narrowly avoided one in 08 thanks to Dimitar not wanting to go to City, but he has not been afraid to pull out of a bid because of it.  Given the inflationary nature of transfer fees,  the "english player premium" and  the "big club premium", its important to set a ceiling for each player, and try not to overspend by more than 4/5mil. Whether this means 35mil for Sanchez, 30mil for Modric and 20mil for Young, only the manger knows.

In Alex we Trust.