The wisdom of crowd, real option and game theory decisions: can they be used by clubs to improve their investment in football players?

Abstract

Purpose

The aim of this work is to explain the final negotiated prices for some of the most famous transfers of football players over the last twelve years (2007–2018).

Design/methodology/approach

The article analyses different values for forwards taken from the sports website Transfermarkt, developing a statistical model based on personal, performance, risk, environmental and popularity variables. From those values, the article finds an explanation for the final prices paid for 20 superstar players based on a combination of real option valuations, incorporating the players' life cycles and game theory.

Findings

The authors find that in a large percentage (70%) of the analysed cases, the price paid was higher than the intrinsic market value resulting from Transfermarkt, implying the existence of monopolistic rents, paid as “growth options” on prices from different negotiating conditions. On occasions, the final prices also exceed the value of the growth option, calculated under neutral bargaining conditions, highlighting the lack of economic viability of important transfers, leading to financial difficulties for the clubs involved.

Originality/value

The algorithm provides more flexibility and realism than previous proposals, based on the life cycle of football players, introducing the uncertainty and volatility of projections through Monte Carlo simulation, the capacity of clubs to bargain a price at any point of the contract and finally, the buyer's ability to transfer the player if his subsequent performance is not as expected.

Citation

Rubio Martín, G., Miguel García, C.M., González Sánchez, F.J. and Féliz Navarrete, Á. (2023), "The wisdom of crowd, real option and game theory decisions: can they be used by clubs to improve their investment in football players?", Managerial Finance, Vol. 49 No. 6, pp. 1036-1055. https://doi.org/10.1108/MF-05-2022-0230