In any negotiation, accurately assessing the value of the subject matter is of utmost importance. In the heat of a negotiation, without a clear valuation, negotiators might lose sight and move far beyond the actual value. Employing effective negotiation strategies can greatly impact the outcome of such negotiations. 

The same rationale applies to the world of football.  While the industry is known for its astronomical player expenditures (USD 48.5 billion in transfer fees in the previous decade alone), there is no clear reference point or objective player valuation that club officials can rely on when negotiating a transfer. This means that negotiations in football have a wider range of potential outcomes compared to other industries, where clear-cut precedents and valuation methods are more available. 

In other words, this unique environment is a dream come true for an advanced negotiator, presenting immense opportunities. On the flip side, it can lead to disastrous outcomes for those who lack negotiation skills; however fortunately for them, they may never become aware of just how much money they left on the table, as the opposing party certainly won't be revealing that. 

In this article, Senior Consultant Simon Rödder shares a deep dive to help you understand the challenges and opportunities faced by sporting directors when negotiating player transfers. This knowledge and implementation of techniques and useful tips are a core part of The Gap Partnership’s negotiation training solutions and consulting services.

The basics

In football, the commercial value of a player can be defined as the net present value (today’s value) of future cash flows directly or indirectly generated by the player for the club.  These include revenue from sports performance and match days, broadcasting rights, commercial ventures (such as sponsorships and merchandise), as well as a potential future transfer fee when the player is sold to another club. 

Assuming the buying club behaves rationally and under normal circumstances, they will naturally not pay more for the player than the value they expect him to generate. Notably, the overall player costs extend beyond the transfer fee, encompassing various player-related expenditures such as the player's salary, agency and attorney fees, taxes, as well as financing expenses. In the broader context, indirect player costs, such as a share of the expenditures related to coaching staff and training facilities, may also be taken into account.

By deducting the total of these player expenditures beyond the transfer fee from the anticipated commercial value of a player, you arrive at the net value gain that a player contributes to the club.  This value gain represents the utmost willingness to pay (so-called breakpoint) for the transfer fee if the club acts rationally, as any amount paid beyond this value gain would result in an overall loss for the club.

Conversely, a rational and competent negotiator at the selling club will under normal circumstances never accept a transfer fee that is lower than the net value loss incurred by the player leaving the club.  As a result, a player transfer is mutually beneficial for both the buying club (BC) and selling club (SC) as long as the following condition is met:  

Hence, this represents the “bargaining range”: the zone in which both the buying and the selling club can accept any deal.    

Case study – Bargaining Range 

If the value gain for the buying club is USD 20M and the value loss to the selling club equals USD 10M, both parties could agree on any possible transfer fee between USD 10M and USD 20M. Concluding a deal comes down to the negotiation skills of the involved parties, including their capability to determine the bargaining range by correctly assessing the value of the player. 

Let’s imagine that the buying club correctly assesses that the selling club’s breakpoint is USD 10M, while the selling club believes the value gain for the buying club (and therefore their maximum willingness to pay) is only USD 15M.  This significant discrepancy in the player’s valuation will heavily influence the negotiation outcome in favor of the buying club. 

Assuming they not only excel in this analytical preparation but also demonstrate superior negotiation behavior at the table, it's likely that we will witness a transfer fee much closer to the seller's breakpoint, around USD 10M. Both parties will have found a deal they can live with, while only the buyer has a truly good deal.  

Accurately estimating the bargaining range, particularly the breakpoint of the other party, is one of the keys to maximizing transfer negotiations. Unfortunately, accurately estimating the player value is much more difficult than it might seem at first glance, but do not worry, we can help.

Exploring the complexity of the player value 

In current industry practices, the most prominent player valuation and therefore the strongest anchor for today’s negotiations (see the anchoring effect) is derived from a crowdsourcing approach, in which private individuals estimate the value of a player and selected community members known as ‘the judges’ aggregate those to a so-called market value (Müller et al., 2017). 

This approach has several limitations. First, the values are mainly determined by private individuals who likely do not understand all the different drivers of the player value for the club. Second, the entire process lacks objectivity, and judges can overrule the opinion of the crowd by determining adjustments without any oversight.  Third, the accuracy of the market value depends on the player’s popularity. Lesser-known players do not receive sufficient market value estimates from the crowd. 

Last, the individuals’ estimations of the market values use recent transfer fees as orientations, which is not a suitable approach when facing unprecedented impacts such as the COVID-19 pandemic; eg. player values had been generically discounted by 20% as a reaction to the pandemic (transfermarkt.com, retrieved March 2024). 

Relying on historical transactions of comparable players is not advisable in general, as prices paid in those instances can substantially deviate from the actual value of a player. In other words, the fact that clubs may have overpaid for specific players in the past should not serve as justification for overpaying in future transfers.

By far the most important limitation of the approach, however, is the fact that the concept of a universal market value for a player is fundamentally flawed in the first place. My previous research has demonstrated that a single universal value for a player cannot exist.  To gain a deeper understanding of this, let's explore the intricacies of the player value.

Factors influencing the player value 

The value of a player is influenced by numerous factors, ranging from their football skills to various team-related and off-pitch considerations. 

On the pitch, the player's technical abilities, tactical understanding, cognitive skills, speed, and physical strength all contribute to their value.  Team-related factors, such as versatility, tactical compatibility, and player chemistry also play a significant role in determining a player's worth.  Additionally, factors like previous development, age and work ethic contribute to assessing a player's potential, which has a substantial impact on their valuation. 

Off the pitch, several non-football-related factors can influence the commercial value a club can derive from a player. For instance, if a player comes from the same nation or even region as the club, fan identification and therefore commercial potential are likely to be higher. 

By interviewing sporting directors I identified a total of 36 factors that potentially influence a player's value for a specific club, with 22 of them directly relating to on-pitch performance.  A comprehensive overview of these factors is available upon request or will be utilized in a consulting assignment. 

While these factors are fundamental for estimating the player value for a specific club, deriving a single universal market value is not possible. This is due to two main issues:

Issue 1: Club-dependent differences in player value 

Partial cause for this dilemma is the fact that about one-third of the identified factors influencing the player value vary greatly across different clubs. For instance, team-related factors such as tactical fit and player chemistry heavily depend on the game philosophy and dynamics among team members at a given club. Consequently, a player can be extremely valuable for one club while potentially resulting in a loss for another. 

The nationality and cultural fit also vary amongst players; just language capabilities alone can greatly influence the value a specific player can generate for the club. For example, a player’s performance is often impacted by how well they are integrated into the team (and subsequently their state of happiness). 

A player equipped with the necessary language and cultural skills required by a specific club is more likely to become invaluable off the pitch as well, contributing to the overall team climate and cohesion.  This may explain why, for instance, many Brazilian players start their European football venture in Portugal first before moving on to other European teams. 

Moreover, the marketability and commercial potential of a player exhibit significant variations across clubs.  Among others, the influence of a player's brand on the club's brand is an often underestimated yet vital aspect of the value when a superstar moves clubs.

Case study – Impact of player brand on club brand  

There were rumors of Cristiano Ronaldo potentially joining Borussia Dortmund before he eventually decided to move to Saudi Arabia.  This hypothetical transfer to Borussia Dortmund is used to illustrate the significant impact a player can have on a club's brand and the subsequent value this can generate. 

Figure 1 displays how selected European clubs are perceived by fans regarding a few of the hundreds of tested attributes. For example, Borussia Dortmund is perceived as the least glamorous and exceptionally humble. Figure 2 illustrates that Cristiano Ronaldo might hurt the latter perception, suggesting that his brand could be of lesser value for Borussia Dortmund than for other clubs that do not differentiate themselves as much through modesty. 

Note: Figures 1-3 are based on preliminary data (n = 567) about worldwide fan perceptions gained from Simon’s previous research with McKinsey & Company.

Figure 1: Fan perceptions about six leading football clubs (selected attributes)

Figure 2: Fan perceptions about Cristiano Ronaldo and Borussia Dortmund (selected attributes), illustrating possible impact of player brand on club brand

On the other hand, Ronaldo is one of the players with the highest perceived glamour factor which is the most important attribute for Chinese fans when choosing the club they follow (Figure 3). If Dortmund’s primary strategic objective were to conquer the Chinese market, Cristiano Ronaldo would have been extremely valuable to them, considering that of the leading European football clubs they are perceived as one of the least glamorous clubs at the moment (Figure 1). 

Figure 3: Most important club characteristics for Chinese fans when describing their favorite club

Issue 2: Subjective differences among industry professionals  

The findings from a separate study I conducted indicate further complexity surrounding player valuation. Upon interviewing >150 executives in the football industry, my research revealed a significant divergence of opinions regarding the relative importance of the aforementioned value drivers. 

While there is general agreement on certain on-pitch factors such as speed and cognitive capabilities, strong disagreement arises when considering many of the other 36 factors. For instance, some club managers may highly value factors such as prior experience, intellect, identification with the club, the player's youth academy, preferred foot, social media presence, or fan and sponsor appeal. Conversely, others may disregard these value drivers entirely when assessing a player's worth. Hence, even without club-specific differences, no two sporting directors would value a player in the same manner. Consequently, they could not agree on a universal market value for a given player. 

Conclusion

Because of the subjective differences among industry professionals as well as club-dependent differences in player value, a universal, objective ‘market value’ of a player cannot exist. However, simply refraining from estimating a player's value is not a practical solution, as this would likely result in suboptimal transfer deals. 

Hence, it is advisable not only to assess the value for a given player from one’s perspective but also from the other party’s head. Because of the extreme ambiguity of the player value, these two valuations of the same player may differ greatly, resulting in a very large spectrum of mutually beneficial agreements. 

In general, these bargaining ranges tend to be much larger in transfer negotiations than in conventional industries with more objective, universal reference points. Hence, the club that can more accurately estimate the bargaining range is likely to secure a significantly better deal, potentially worth millions in the world of football. 

In conclusion, the ambiguity of the player value presents both a challenge and a great opportunity for clubs. 

To fully capitalize on this opportunity, football clubs should not only carefully assess the player's value but also pay close attention to who is negotiating the transfer deal. A highly skilled negotiator can read the counterpart and identify their breakpoint while negotiating at the table - a skill we teach our clients in our intensive behavioral capability development programs. 

In football terms:  While thorough preparation will put you in the lead, excelling at the negotiation table is also important to win the overall game.

Additionally, it is important to be aware of the numerous external factors (such as time pressure or employment contract specifics) that can vastly impact the outcome of transfer fee negotiations. Given the extensive nature of this subject, these external influences are explored in Part 2 of “The game changer:  Why advanced negotiation skills are exceptionally critical in football”. 

Comprehensive insights into harnessing these external factors to your advantage may also be within the scope of a consulting assignment, which would generally entail professional negotiation preparation as well as negotiation execution support. If you would like to find out more about how we can advise in optimizing player transfer negotiations, please get in touch. 

Note from the author: Many aspects of the above insights also apply to other major sports. Consequently, we can help you generate a ton of value in other sports as well.

Sources

Müller, O., Simons, A., & Weinmann, M. (2017). Beyond crowd judgments: Data-driven estimation of market value in association football. European Journal of Operational Research, 263(2), 611–624. https://doi.org/ 10.1016/j.ejor.2017.05.005

Transfermarket.com, https://www.transfermarkt.com/reaction-to-corona-majority-of-players-downgraded-loss-of-over-euro-9-billion-worldwide/view/news/358336, retrieved March 2024

More reading and listening…

Lessons from game theory: How collaboration and communication affect payoffs article by Daniel Rocha

Simon Rödder | Tricks of my trade podcast with Partner Mike Kamins and Senior Consultant Simon Rödder 

About the author

Simon is a Senior Consultant at The Gap Partnership with extensive experience in providing negotiation support to clients across various industries in Europe and the United States. As a German native, he specializes in sports negotiations. 

Before joining TGP, Simon led the DACH region, Spain, and Portugal for SciSports, an innovative Dutch sports analytics company dubbed the "Most Innovative Company in the Football World" (UEFA, 2017). He supported club managers in their player recruitment processes by providing data-driven insights and established long-term collaborations with 14 prestigious clubs such as Berlin, Wolfsburg, Vienna, Frankfurt and Basel. 

In addition to his hands-on work, Simon shared his expertise by speaking at various analytics conferences throughout Europe, engaging audiences of up to 4,500 people.

Moreover, Simon co-founded EasyMirror GmbH, a company that has received widespread media attention for its innovative mirror-building panels. Notably, he pitched the business in the competitive German Shark Tank format. 

He holds a Bachelor's degree in Business Administration from the University of Münster, as well as dual Master's degrees in International Management from CEMS and Nova SBE. 

Among his many academic accomplishments, Simon graduated at the top of his class of over 300 Master's students, received a distinction for his research in collaboration with McKinsey & Company, and was acknowledged as one of Germany's most talented young professionals in Management.

Outside the professional sphere, Simon is an avid sports enthusiast and enjoys traveling the globe.

About The Gap Partnership

The Gap Partnership is a management consultancy specializing in negotiation. We help organizations drive profitability, increase efficiency and reduce cost. 

Negotiation is an integral part of everything a business does. It exerts a critical influence on the profitability and market value of the organization.

At The Gap Partnership, we provide development programs and negotiation training to our clients. We work with you to understand your challenges and performance needs. Our negotiation consultants come from your industry and will support you with a 'complete' solution that embeds learning, measures capability and delivers sustainable change.

We hold ourselves accountable for your success. 70% of our business comes from clients we have worked with for over five years

If you require further information on how we can help you and your teams make the most of every negotiation, or simply need to ask us a question - just call, email or complete the form.