Have you ever wondered how much David Beckham’s 2003 move to Real Madrid would cost in modern-day cash? Even after adjusting it for inflation, 35 million pound move of Beckham would have costed only 43 million pounds. Putting things into perspective 198 million pounds was the gargantuan amount which the Qatari owned giants Paris Saint German paid for the transfer of Neymar Jr. from Barcelona in 2017 making him the most expensive player in the world. Neymar broke the world record fee set by Manchester United for Paul Pogba from Juventus the previous year at a valuation of 89 million pounds by an astronomical 109 million pounds which makes us discern the hyper inflation taking place in the premier European leagues. The same transfer window Kylian Mbappe (Monaco to PSG) and Ousmanne Dembele (Borrusia Dortmund to Barcelona) were sold for 166 million pounds and 97 million pounds respectively.

The 3 most exorbitant transfers in footballing history took place in a single window setting the precedent for other subsequent windows. The 2019-20 window  witnessed quite a number of incredible transfers including the likes of Eden Hazard (Chelsea to Real Madrid – £100 million), Antoine Griezmann  ( Atletico Madrid to Barcelona- £120 million) and Joao Felix ( Benfica to Atletico Madrid- £126 million). But the most eye-catching transfer was that of Harry Maguire who traded the blue of Leicester for Mancunian red, with the fee of £87 million paid making him the most expensive defender of all time breaking the 75 million pounds record set by Virgil Van Dijk’s transfer from Southampton to Liverpool in 2018.

Betweeen 2017 and 2019 the transfer market has exploded. Players that were previously thought to be worth one amount were now valued double. Virgil Van Dijk’s transfer is solely responsible for over valuation of Harry Maguire as the deal shattered the notion that central defenders couldn’t cost such hefty amount of money. In 1989 you could buy the entire Manchester United club for 20 million pounds. In 2010, a record setting £444M was spent in total on transfers throughout European Leagues. Remarkable transfers included David Villa to Barcelona (£33.4M), Zlatan Ibrahimovic to AC Milan (£26.5M).  To put 2010 and 2019 in contrast, David Villa, a world-class striker at the time, dispatched for a lesser fee than that of Danilo(£34.1M) this transfer window. The fact is 50 million pounds signings have become normality and the worrying part is that clubs are willing to spend stupendous amounts for mediocre professional players or players who have not proved their worth

European soccer is in an inflationary bubble, and its heart is in England. The average spending of English Premier League clubs is far more than that of the other European Leagues. The main reason behind the hyperinflation in the transfer market is an increment of money supply with clubs which dovetails with business performance of the football clubs. English football is precisely experiencing this phenomenon where there is an increase transfer capital but it has not been matched buy increase in number of star players triggering the prices to skyrocket.

This seems to be an archetypical illustration of an economic situation called “demand-pull inflation”. This is when there is an increase in the supply of money (demand) while the supply of goods stays constant or depreciates. For e.g. When Germans started printing their own currency recklessly in the 1920’s the price of even essentials such as bread skyrocketed causing hyperinflation in the economy. Inflation in football transfer markets has become more severe in recent years but it has always existed. In the past decade only spending in transfer markets has increased manifold times. The question that remains is when this unabating trend would cease?

The answer to that question is simple: when money supply falls in the footballing industry. In the past few years there has been a rapid growth in the value of football clubs. Take the example of Manchester United, world’s third most valuable club which has witnessed its club worth rise by 150% in the timespan of 7 years. Accordingly the most prominent 32 clubs have seen their worth rise by almost 15% in 2018 only. This growth can be imputed to football’s broadcasting boom, ingress of oil money in football, the globalization of the clubs’ commercial operations, their investment into privately-owned and modern facilities, and overall more sustainable management practices.

The boom of media and broadcasting rights play a special role in particular with Sky and BT Sports purchasing domestic broadcasting rights for the 2016-2019 Premier League seasons for a whopping £5.1 billion. Hyperinflation is a direct outcome of these broadcasting deals as it delivers unprecedented levels of income to these clubs. The deals have enabled a flood of fiscal overreaching at the lower-ranked and more domestic-orientated EPL clubs, allowing them to compete with inflated budgets against the wealthier, high-tier clubs. One catalyst for such an inflationary bubble is American corporations like Amazon, Google, Apple, Facebook and Netflix, which are continually diversifying into areas they view as lucrative. For instance Amazon Prime has grabbed the broadcasting rights for 20 premier league matches annually from 2019-2022 thereby increasing the amount of money capital in the league and thus contributing to the ever increasing inflationary bubble.

PSG and Man City are the primary anomalies abetting the trend as both are financed by petrol-state Gulf monarchies that are diversifying their economies and promoting their affluence. The Qatari monarchy in particular has torn the Financial Fair Play rules to pieces with its erudite business maneuver involving Neymar. These clubs are spending more than the revenue they generate due to direct involvement of owners causing tremendous and unequal inflow of capital in the market.

The noticeable outcome of inflated transfer markets is that it has made impossible for premier league clubs to buy more than a handful of first team players in a single transfer window. Due to this teams are becoming more reliant on youth academy players to fill in the gaps. For instance Manchester United spent almost 150 million pounds on the transfer trio of Harry Maguire, Daniel James and Aaron Wan Bissaka leaving them short in other areas. Manchester United boss Solskjaer is using a no. of academy graduates, including Mason Greenwood, Axel Tuenzebe, Angel Gomes and Tahith Chong, to plug these gaps. Transfer market inflation has made it much more difficult to rebuild a squad in one, or even two transfer windows which has forced managers to use both the transfer market and the club’s youth academy. The transfer market is relentless as ever, but that has opened up an unanticipated window of opportunity for youth.

The bubble will burst sooner or later but what intrigues the most is what would be the ramifications when it does burst. Nothing can be anticipated in its entirety but in purely economic terms it would cause a deflationary period (depression) in the footballing economy which would restart the complete cycle once again.

Written by Vidit Jain for The Connectere.

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