Economic Valuation of Football Players through Media Value

Francesc PujolEconomics Sport and Intangibles Research Group (ESI-rg) & University of Navarra

Pedro Garcia-del-BarrioEconomics Sport and Intangibles Research Group (ESI-rg)& Universitat Internacional de Catalunya

IASE Conference, Gijón, 9 May 2008

Economic Valuation of Football Players through Media Value

1. Accounting for sport intangible assets (player’s market value)

2. Approaches to give economic valuation of players

3. ¿What is media value?

4. Valuing players through media value. The model

5. Valuing players through media value. Empirical results

6. Checking the robustness of the media value model

Economic Valuation of Football Players through Media Value

1. Accounting footballers’ economic value

¿How do we measure the economic value of a football player?

According to accounting standards:

“Intangible assets are measure initially at cost”(IAS 38.24)

Implications of measuring intangible assets at cost

• Transfer fee paid is counted as an asset for the buying club. The valueof the player is normally amortized by the straight line method.

• Home grown players are activated up to the formation costs supportedby the club.

1. Accounting

¿Does this rule produce an accurate picture of the economic wealthof a football team?

Let’s take an example (an extreme one)

Which is the accounting value of FC Barcelona squad?

Hired players:

Ronaldinho, Henry, Zambrotta, Deco, Eto’o, Thuram, Sylvinho, Yaya, Gudjohnsen, …

Home grown players:

Messi, Xavi, Iniesta, Puyol, Valdés, Bojan, Giovani do Santos,Oleguer, Jorquera

Accounting value: 0 euro

Accounting value: 119 million euro

1. Accounting

Potential equity and efficiency effects:

• Estimation of the fair economic value of a team

• Influence in the transfer market decisions

• Appraisal of the financial state of the clubs

• Club bias against home grown players

1. Accounting

It is useful to give economic valuation of players, independently from having been trasfered or not

Economic valuation models of players is needed.

1. Accounting

l

2. Valuation models

Explaining market value by relevant sport performance variables:

• Transfer fees. Dobson and Gerrard (1999)• Transfer fees. Castillo (2006)• Salaries. Rossi (2008)• Market value. Method (?) Transfermarkt.de• Delphi method. Nasser (2007)

Explaing market vale by media value

We propose to explain footballer market value by media value

¿What is media value?

2. Valuation models

o

3. Media value: popularity + notoriety

Players

Teams

SportSuccess

Media Coverage

FansSupporters

IdentificationProudnessAdmirationImitation

GamedayTV RightsMerchandisingSponsorship

Players: wagesAdvertisingTransferFees

Teams: Income Potential

Main Intangible Asset

Media Value: Notoriety+Popularity

Media value at the core of sport as business

3. Media Value

Players

Teams

SportSuccess

Media Coverage

FansSupporters

IdentificationProudnessAdmirationImitation

GamedayTV RightsMerchandisingSponsorship

Players: wagesAdvertisingTransferFees

Teams: Income Potential

Main Intangible Asset

Media Value: Notoriety+Popularity

4. Explaining market value by media value. The model

1. If media value captures sport performance and explains players and teams income …

2. Let’s try to explain football player’s market value relying just on media value measures …

3. Disregarding any kind of direct measure of sport performance

Explaining a player’s market value by:

1. Football player’s media value

2. Buying team media value

3. Selling team media value

4. Media value rank of the player in his precedent team

5. Age

6. Position in the pitch, nationality

4. The model

o

5. Explaining market value by media value. Empirical results

A set of 84 deals produced in season 2006/07 in Europe for whom we have information about actual transfer fees paid.

5. Empirical results

Results

• Adjusted R2: 0.735.

• An increase of 1% of player’s media value leads to an increase of 0.5% of player’s market value.

• The higher the media value of the buying team, the higher the premium to be paid.

• The higher the media value of the selling team, the lower the fee received.

• Inverted U-shape for the relationship between age and market value.

• A premium according to the MV rank in the previous team

• Position in the pitch does not have extra impact (already discounted in different media value)

5. Empirical results

5. Empirical results

2.2

5.4

1.5

0,0

1,0

2,0

3,0

4,0

5,0

6,0

Goalkeeper Defender Midfielder

Strikers Media Value in Comparison with Other Pitch

Positions

Differences between actual and theoretical market value

Some examples

5. Empirical results

0

5

10

15

20

25

30

35

40

45

50

Andriy Shevchenko Mahamadou Diarra J oaquín Zlatan Ibrahimovic Damien Duff Ruud VanNistelrooy

FC Chelsea Real Madrid Valencia Inter M Ilan Newcastle Utd Real Madrid

AC M ilan O Lyon Betis J uventus Chelsea Manchester Utd

Mill

ion

s o

f eu

ro

Theoretical Value

Actual Transfer

Differences between actual and theoretical market value

Some examples

5. Empirical results

0

2

4

6

8

10

12

14

16

Obafemi Martins Ricardo Oliveira Gianluca Zambrotta Eidur Gudjohnsen Nicolás Anelka Émerson

Newcastle Utd AC MIlan Barcelona Barcelona Bolton W. Real Madrid

Inter M ilan Betis J uventus Chelsea Fenerbahce J uventus

Mill

ion

s o

f eu

ro

Theoretical Value

Actual Transfer

Differences between actual and theoretical market value

Some examples

5. Empirical results

0

2

4

6

8

10

12

14

16

Fabio Cannavaro P atrick Vieira Robert Huth Vincent Kompany Ronaldo Asier Del Horno

Real Madrid Inter MIlan Middlesbrough Hamburger SV AC MIlan Valencia

J uventus J uventus Chelsea Anderlecht Real Madrid Chelsea

Mill

ion

s o

f eu

ro

Theoretical Value

Actual Transfer

Using the coefficients as method to estimate football players’ fair market value

Some examples: reviewing FC Barcelona intangible assets.

5. Empirical results

Estimation of the Economic Value of FC Barcelona Home Grown

Players

136.2

81.7

147

78.4

164.9

130.6

0

30

60

90

120

150

180

Market Value Accounting Standars Accounting Value After

Amortization

Mill

ions

of

euro

ESI-rgTransfermarkt

Using the coefficients as method to estimate football players’ fair market value

Some examples: reviewing FC Barcelona intangible assets.

5. Empirical results

FC Barcelona Balance Sheet Revision Assuming Home Grown Players value

0 0

118.7

277.8

2.7

136.2

81.7

200.4

359.5

84.4

0

50

100

150

200

250

300

350

400

Value of HGP

(Cost)

Value of HGP

(Net)

Sport Intanglibe

Assets

Current Assets Stockholder

Equity

Mill

ions

of e

uro

Accounting Standards

ESI-rg Estimation

Using the coefficients as method to estimate football players’ fair market value

Some examples: evaluation of the transfer season Winter 2007/08 window).

5. Empirical results

o

Fair Transfer Value at Window Transfer Period 2008

Player From To

AgePositio

n

Transfer

Fee

ESI-rgFair

Valu

Difference

Diff in

%

(1) (2) (3)(4

) (5) (6) (7) (8) (9)

Nicolas Anelka Bolton Chelsea 29 Striker 19.9 29.7 9.8 49

Afonso Alves SC HeerenveenMiddlesbroug

h 27 Striker 16.0 9.5 -6.5 -41

Sissoko Liverpool Juventus 23 Striker 11.0 7.9 -3.1 -28

Jonathan Woodgate Middlesborough Tottenham 28

Defender 10.8 4.6 -6.2 -57

Jermain Defoe Tottenham Portsmouth 25 Striker 9.3 8.3 -1.0 -11

Daniele Mannini Brescia Naples 24Midfield

e 8.0 1.9 -6.1 -76

James McFadden Everton Birmingham 24 Striker 7.5 4.7 -2.8 -37

Lassana Diarra Arsenal Portsmouth 22 Striker 7.0 6.7 -0.3 -4

6. Checks of robustness: explaining the differences between actual and theoretical transfer fees

H1: Bargaining effects

H2: Estimations effects

Revision of 14 FIFA Agents’s estimations when having ESI-rg estimations.

6. Robustness checks

         

FIFA Agents’ Upward revision of the estimations

Number of revisions

    ESIrg ESIrg

    In favor Against

Actual Fee In favor 22 (52,4%) 5 (11,9%) 27 (64,3%)

Actual Fee Against 7 (16,7%) 0 (0%) 7 (16,7%)

Actual Fee Neutral 7 (16,7%) 1 (2,4%) 8 (19%)

36 (85,7%) 6 (14,3%)           

Revision of 14 FIFA Agents’s estimations when having ESI-rg estimations.

6. Robustness checks

Revision of FIFA Agents' Estimations

after having ESI-rg Information

(white, with no information; green, with information)

0

10

20

30

40

0 10 20 30 40ESI-rg Estimations

FIF

A A

gents

' Est

imati

ons

Free Transfer Deals: correlations between different approaches

6. Robustness checks

o

Correlations Between FIFA Agent's ex post Estimations and Other ex ante

Estimations Concerning Free Transfer Movements, Season 2007-2008

0

0.2

0.4

0.6

0.8

1

ESI-rg Other Agents EA Sport EA Sport Potential Transfermarkt

Media value explained by sport performance

3. Media Value

Actual Popularity and Popularity Estimated by Sport Success

0

10

20

30

40

50

60

Real

Madrid

FC B

arce

lona

Inter

Mila

n

Chels

ea

AC M

ilan

Arse

nal

O. Ly

on

Liver

pool

Manch

este

r Utd

Juve

ntus

AS R

oma

Baye

rn M

ünch

en

Valen

cia

Actual Popularity

Sportive Popularity

Media value explained by sport performance

3. Media Value

Media value explaining income

3. Media Value

o

Relationship Between Team Market Value and Media Value

(Big Three Leagues). Logarithmic Scale

y = 4,7996x + 18,711

R2 = 0,90061

10

100

1000

0 1 10 100

Team Media Value

Team

Mar

ket

Valu

e (M

illio

ns o

f Eu

ro)

Media value explaining income

3. Media Value

o

Relationship Between Team Market Value and Media Value

(Eight Leagues). Logarithmic Scale

y = 5,0037x + 15,227

R2 = 0,89271

10

100

1.000

0 1 10 100

Team Media Value

Team

Mar

ket

Valu

e (M

illio

ns o

f Eu

ro)

Media value explaining income

3. Media Value

o

Total revenues of top players by media value(in millions of euro)

6,1 5,7

9,1

3,5

0

2

4

6

8

10

12

14

16

Top 10 Top 11 a 20

Advertising

Salary