10 Aug 2017 16:08 IST

The geo-economics of Neymar’s $260-million transfer

Paris Saint-Germain paid a record ‘buy-out fee’ to Barcelona for the Brazilian

Oh, come on, it’s just soccer lunacy!

It may well be, but the lunacy — of the record ‘buy-out fee’ French soccer team Paris Saint-Germain paid Barcelona to poach Brazilian star Neymar — is bankrolled by the eddying undercurrents of geopolitical and economic forces.

How so?

To understand the dynamics, you have to follow the money trail. Paris Saint-Germain is owned by Oryx Qatar Sports Investment, a privately held company based in Doha, which is in fact an investment vehicle for the Qatar government. The Qataris have been facing diplomatic isolation since June, when an Arab alliance led by Saudi Arabia severed relations with them. And Qatar has been trying to win international goodwill in the only way that sheikhs know: by throwing money around.

And the Neymar buy-out…

…is only one part of a string of big-money deals that Qatar has consummated or announced since June to signal that it has not been affected by the Saudi-led sanctions. Think of it as a projection of ‘soft power’.

But does Neymar’s transfer fee make economic sense?

Deloitte’s most recent report on the ‘Football Money League’ lists Paris Saint-Germain as the sixth-biggest club by revenue. However, with the Neymar buy-out, for an amount bigger than the GDP of a few countries, the club effectively uses up more than half of its revenue on just one player. That doesn’t exactly reflect sound economic or business sense. It probably also falls foul of the “financial fair play” rules framed by the Union of European Football Associations (UEFA), which governs football finances. Under those rules, clubs are expected to break even based only on their “football income”. But like I said, the underlying rationale isn’t sound economics.

How do football clubs make money off star players?

Indicatively, on the day that Neymar’s buy-out was announced, fans queued up in Paris for hours to spend $118 for every Nike jersey bearing his name! The club sold more than 10,000 T-shirts, and so great was the demand that the jerseys had to be rationed.

Surely there must be more revenue streams?

Of course, jersey sales are the least of them. Deloitte uses a number of metrics (financial and non-financial) to compare clubs. In the Money League, it focusses on clubs’ ability to generate revenues from match-day (including ticket and corporate hospitality sales), broadcast rights (including distributions from participation in domestic leagues, cups and European club competitions) and commercial sources (including sponsorship, merchandising, stadium tours and other commercial operations). On the non-financial front, it looks at attendance, worldwide fan base, broadcast audience and on-field success, all of which too can be monetised.

Does the club gain from Neymar’s brand value?

You bet. Neymar is the world’s 18th-highest-paid sports star on his earnings from the game and from endorsements. The club can generate funds from commercial endorsements, additional sponsorships and image rights, given his marketability. The buzz around his buy-out fee may have bumped up his star value.

But will the buy-out prove a game-changer?

Typically, European teams that pay sky-high transfer fees don’t get their money’s worth. Stefan Szymanski and Simon Kuper, the authors of Soccernomics, found a very low correlation between transfer spends and club rankings. On the other hand, club performance improved with players’ wages.

What does that imply?

The authors suggest that it makes more sense to raise players’ pay than to risk losing them and paying astronomical transfer fees.

(The article first appeared in The Hindu BusinessLine.)

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