The economics of football: the $89 million dollar question

With all this hoo-ha about Diego Costa's transfer drama, it got me thinking about Carlos Tevez. About a month ago, the famed Argentinian footballer - who once graced the pitches of Manchester United, Manchester City and Juventus - joined slightly less famed club Shanghai Shenhua for $89 million US dollars. It makes him, a 32 year old with at most 5 years left of playing time, the 6th most expensive player in the world.

From the Guardian:

That hefty price tag would make Tevez the world’s sixth most expensive player, behind Paul Pogba, Gareth Bale, Cristiano Ronaldo, Gonzalo Higuaín and Neymar.

Tevez is also in line to become the sport’s highest paid player with the striker reportedly earning around £615,000 per week on a two-year contract with Shanghai Shenhua.

The fact that an aged (by football standards) 32 year old with at most 5 years left of playing time was sold for such an exorbitant fee, even considering today's footballer prices, boggles me.

Basic economics 101: price is determined by demand and supply. Competition and thus higher demand drives up the price. Similarly, constricted or lack of supply has the same effect. This is why top level players like Messi in their prime are worth so much - there is a high demand for their services, and a very small supply of people with his skill set, age, ability and commercial potential.

Footballer prices also share similarities with stock prices: their value is partly based on future valuations in terms of increasing 'returns'. Thus the $116.4 million price tag of Paul Pogba, the most expensive player in the world: he displays the potential to be one of the best players, and the return on investment is likely to be high.

The case of Tevez seems to completely defy all of the above.

For one, demand for Tevez cannot be that high. The transfers of players at his price point are often accompanied by flurries of commentary and price wars between clubs, feeding journalistic fervour for weeks. While journalistic interest doesn't result in higher demand, it is an indicator of high demand. Tevez's transfer came entirely out of the blue.

To compare, below is a graph detailing the interest over time of Paul Pogba, measured by the number of google searches.

Paul Pogba's search interest over time

Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. Likewise a score of 0 means the term was less than 1% as popular as the peak.

As the above graph shows, preceding Pogba's eventual sale on August 9th, there was a significant upward trend in search interest.

Compare this to Tevez's search interest:

Carlos Tevez's search interest over time

 Tevez's search interest was sudden and steep within only a few days. Even then, interest at its peak was only 63 whereas Pogba's peak was 100. 

A more striking visualisation is depicted below. Pogba's interest is in red, while Tevez's is in blue. 

Tevez vs. Pogba Search Interest

So demand and competition between clubs for Tevez was seemingly very low. Moreover, Tevez, at 32 years old, is a declining player. He has very few years left of prime playing time. Perhaps there is a shortage of quality strikers in the market - but not that many. His value will only decrease, so why spend all that money? 

I think the answer to this question lies in examining the situation of the buyer, Shanghai Shenhua. They belong to an emerging league that is attempting to attract high-profile players in order to increase the commercial viability, recognition and quality of the league. 

From their perspective, Tevez is highly appealing. Though he may be ageing and past his prime, there are few players with his commercial value. To Shanghai Shenhua, he is a valuable asset. 

Moreover, Tevez was only in the early stages of his contract, meaning that his 'release clause' was likely very high. In order to sign him, Shanghai Shenhua would pay a premium. Add in agent, club and other assorted fees and the price becomes only higher. 

It's difficult to entice a player like Tevez to the Chinese league that Shanghai Shenhua belongs to, given the poor reputation, reputed corruption and playing quality of the Chinese Super League. The incentive must be particularly high for Tevez to be tempted, hence the €615,000 weekly wage (before tax). 

The real winner of the situation (although Tevez is no doubt satisfied) is Boca Juniors. Indeed, they sold an ageing (but beloved) player for a record fee. In a statement announcing his departure, they said: "Good luck Carlitos. You will always be in our hearts." And our wallets, no doubt...

Another weird case study of soccernomics!