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Player contributions to cash flow

With the European transfer window opening, millions of dollars will soon be changing hands as soccer players shuttle back and forth between clubs around the world. But how do clubs know the right amount to pay for a new player? In most cases, there are only a few buyers and sellers for players who fit a specific profile, so the market won’t necessarily generate a price that truly represents the players’ values to their new teams. Moreover, every player has a different value to every team. So how much is that new signing really worth? I think there’s room for some new tools to answer this question.

The presentation linked below describes a few early versions of these tools. It starts with some background on how clubs differ from typical businesses, and the role of players as capital assets as well as employees. Then it shows how to measure a player’s total rate of return at a club. Finally, it focuses on one component of the return: performance-based contributions to cash flow. This is the money players earn for their clubs by their actions on the field via merit payments from their leagues, qualifying for European competitions, avoiding relegation, and the like. To show how these ideas work together, I offer an analysis of Yaya TourĂ©’s possible (and uncompleted) move from Manchester City to Chelsea in 2013. Spoiler: Chelsea probably made the right decision.

Click here for a PDF of the presentation.