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Are Mid-season Acquisitions Good Business for Sports Teams?

It’s been quite a hectic few days in the latest transfer window of the English Premier League (EPL). As I write this post, it is still transfer deadline day in England and rumors of players switching clubs in the remaining last few hours are dominating the sports headlines.

The transfer commanding the most headlines has been the move of Spaniard and World Cup winning striker Fernando Torres from Liverpool FC to the London club Chelsea for£50m. This represents a British record transfer fee and occurs even after champions Chelsea reported a £70.9m loss for the year to June 2010. Andy Carroll has also signed for Liverpool from Newcastle United for £35m, making him the most expensive English player in the history of the game.

The Merseyside club now owned by John Henry of the New England Sports Ventures and Boston Red Sox, has been extremely active in the transfer window and has also confirmed the signature of Uruguayan star Luis Suarez from Dutch club Ajax for £22.7m.

These moves and the cash sums involved raise the question: are these mid-season transfers good business for the clubs – or merely a knee-jerk reaction and a panic stricken measure by owners, coaches and managers to resurrect their seasons and careers?

Sports economist Stefan Szymanski and sports writer Simon Kuper write, in their book Why England lose and Other Curious Football Phenomena, that there is a lack of economic rationality and emotional intelligence in soccer. The book is soccer’s equivalent to Michael Lewis’ MoneyBall, which looks at the inefficiencies in the market for baseball players. Szymanski and Kuper argue that the transfer market is full of obvious irrationalities and claim that clubs pay too much for teenagers and too much for recent stars of international tournaments (the transfer of Suarez may prove them right here – time will tell). They also state that certain nationalities become fashionable without any rational basis.

With a recent EPL game played on January 23rd between Blackburn Rovers and West Bromich Albion featuring 22 different nationalities in the 27 players used, it is anyone’s guess as to which nationality is currently in vogue.

Above all, soccer clubs, unlike multinational companies in other industries, do not due their due diligence before opening their checkbooks to strengthen their work force. They do not adequately assess a player’s likely development or their fit for a certain culture. This oversight, in many cases, leads to the transfer being an inevitable failure for both player and club.

So, if many transfers are not rational are they still good for business? In another book, Pay As You Play: The True Price of Success in the Premier League Era, Paul Tomkins, Graeme Riley and Gary Fulcher analyze soccer transfers in detail and look at whether success can be bought in the EPL. They conclude that, in most cases, it can.

Converting all transfer fees since 1992 into modern prices (which they call Current Transfer Purchase Price – CTPP), the authors are able to evaluate manager and team performance by calculating “cost per point”, or “£XI”. The £XI term represents the average cost of the XI (11 player team) over the course of the season with prices at CTPP. From there, how many pounds had to be spent to win a Premier League point can be determined.

While I won’t go into any more detail on the analytics, the results are interesting.  In the 18 seasons to date, the team with the highest  £XI has won the league ten times and of the other eight, four went to the second-most expensive team.  Success, it seems, can be bought.

The book also reveals the top 10 worst value for money players. The names speak for themselves – well they don’t, in fact, as you probably won’t remember them! Heading the list is Per Kroldrup, the Danish defender who signed for Everton FC in 2005 for a transfer fee of £5m.  Before making his first start, Kroldrup suffered a groin injury, and ended up making just one solitary performance for the Toffees.  According to the analytics in the book, his CTPP per game was a staggering £9,123,766.

At that price, Torres looks a definite bargain.

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