Didier Le Menestrel

Has football gone crazy?

The relative calm prevailing in financial markets in recent weeks gave many an opportunity to turn their attention to a much more volatile market: the Mercato for the football player transfers. Football dominated media over the summer, even the financial press, driven by the spectacular surge in the price of football players. Everyone today accordingly knows that the PSG bought from FC Barcelona for the astronomical amount of €222 million the now very famous Neymar da Silva Santos Júnior, or “Neymar” for short. Overall, the amount paid by the PSG to acquire this young Brazilian striker was €572 million over five years, the “transfer of the century” which has logically fuelled passions and conversations over the summer.

It is not so much Neymar’s price which is striking but rather its consequences on other transactions. Now that this new benchmark has been set, financial flows from transfers will in turn surge. French striker Ousmane Dembélé, 20 years old, totalling six goals in 32 matches last year, has just been transferred from Borussia Dortmund to FC Barcelona for €105 million. European clubs paid out a total of more than €5 billion during this last Mercato1, nearly twice the amount of 2015. Neymar’s mind-boggling transfer eclipses the previous record paid in 2016 by Manchester United for the services of the French player, Paul Pogba, considerably higher than the €75 million paid for Zizou, France’s iconic player, in 2001, a record that remained unbeaten for 8 years.

But how much is a football player really worth? A few points of reference in an attempt to answer the question of the summer: a Neymar (€3.26 million per kilo) = two Pogba, five Olympique de Marseille or if one prefers two A320. Is a player valued at more than €200 million really reasonable? “Of course” some will say” Neymar is a global brand with name recognition extending to the  far reaches of China that will boost the club’s audience and football shirt sales. “Not so sure” neophytes will respond, justly noting that there is no equivalent in the real economy for such amounts for just one person.

Finally, those who remember the past will have a third interpretation. Inflation of investments, expectations for strong rises of audio-visual rights, a little bit of creative accounting – the proposed transfer of the French player, Kylian Mbappé, in the form of a loan with a mandatory purchase option of €145 million (plus a €35 million bonus) – the absence of regulation, intense media pressure…: All the ingredients for a bubble are there! The end of the 1990s is not so far off and such behaviour is well known to stock market participants.

Some have moreover profited to note that the valuations of the GAFA2 also attained astonishing records, like Apple, up 54% year-on-year, reaching a market capitalization of nearly US$850 billion. However, a single figure suffices to highlight the creation of real value generated by the digital economy: in the 2017 second quarter, the results of Facebook which grew 70% to reach US$4 billion. In just one quarter, the company generated more earnings than it did for all of 2015 (US$3.6 billion). In comparison, to boast the same pace of growth as Facebook, Neymar would have to mark 156 goals or four times more than 2014/2015 (39 goals).

The fourth industrial revolution is underway and sustainable, extending far beyond the horizon of a football icon’s career.

 Didier Le Menestrel

Les Echos, 29 August 2017
2 An abbreviation designating the tech giants:  GOOGLE (ALPHABET), AMAZON, FACEBOOK, APPLE