Note for existing Premier League billionaire club owners: Don’t spend money on players…not until you have read this article at least.
Imagine you own a Premier League team and have £100m you want to spend to make that team more competitive.
How would you spend the money? What would you expect the outcome to be?
The obvious answer, and the one most beloved by investors, is signing players. This article is here to tell you why that is usually a very poor use of money, at least in some leagues.
I asked my twitter following what they would expect the impact of £100m to be on the results of the first team and received the following results
The majority of respondents expected a points per game increase of 15% or lower. For a 45 point team we are expecting £100m to yield 5 extra points a season.
Personally I think that is probably optimistic. From our research into the impact on signings and investment in the Premier League £100m as a one off investment is essentially negligible. Many teams have invested multiples of that and become worse over time.
When I asked the same question about a similar sized cash injection into a Spanish second division club these were the results.
A clear majority thought £100m invested in the Spanish second division would lead to a huge and immediate impact if the money were spent wisely. I am fairly sure I would have received similar answers for the second division in Italy, France, or Germany.
Some of the most knowledgeable and discerning people on the planet (aka my twitter followers) have concluded, correctly in my view, that there is a huge difference in the rate of return depending on the league you spend it in.
Whilst £100m is obviously a LOT of money, in the Premier League we are almost in Doctor Evil “$1 million dollars” territory, it just doesn’t get you what it used to.
Football is famous for its “prune juice economics”, in that any investment at the top end travels quickly through the system and disappears out in increased wages for players.
So does that mean we at MRKT Insights, who were formed to help clubs use data to make better decisions usually in the transfer market, are offering a pointless service?
No! There are still huge opportunities for clubs to spend more efficiently, find undervalued players, and combine them to build winning teams.
Where we see a huge disconnect in football is how and where money is spent.
£100m spend on the first team by Premier League owners is incredibly wasteful compared to alternative uses of that money.
There are two typical answers to that point.
The first is that most owners aren’t investors. They aren’t looking for value, they are looking for fun. You wouldn’t stand outside a Michelin Star restaurant and tell guests that they could get the same amount of calories from a fast food restaurant for 100th of the price. That isn’t the point, they just like the experience.
The second is that, for those who are investors, it is a similar purchase to a piece of art, or a classic car. As a rare, luxury good, you are able to own it, enjoy it, and sell it on for a profit. Many Premier League owners have purchased clubs, spent on players, and been able to exit the investment with a profit.
And those are perfectly reasonable points. My answers would be, you can have even more fun, and make greater returns if you critically evaluate how that money is spent and consider the alternatives.
What are the alternatives?
Investment 1: Find a way of not making huge errors in the transfer market or when appointing managers
There is obviously self interest in this but we truly believe the best thing a club can do is get independent, trusted advice from outside eyes. We have invested in building up data analytics products, scouting databases, performance analysis tools, set piece design, and video scouting teams. We have 6 full time employees, and a further 6 people on the consulting team, as big, if not bigger, than many professional teams.
We can of course work with clubs performing scouting and recruitment functions but most of our larger clients use us to supplement the work of their in-house teams. By setting us the same tasks as the internal team, but working separately, we perform the role of quality assurance on the process.
The idea is not to have us second guessing or vetoing internal choices. It is extra information to go into the final decision that the club ultimately makes. We are usually very close to the internal team view so if we differ greatly on a player or manager it is worth carefully reviewing why and factoring that into the final decision.
A single mistake at Premier League level can cost £50m in fees and wages. Our role is to help you prevent making those mistakes.
Investment 2: Find a solution to get regular minutes for unproven players.
As we have previously mentioned, the average Premier League squad contains around 50 players over the age of 17 on professional contracts. Over the course of a typical season a typical Premier League team will give:
21.8 players >100 minutes in the first team
8 players > 2000 minutes in the first team.
This means that most squads contain 28 players who will play <100 minutes and 42 who will play <2000 minutes.
One big issue is the incredible amount of sorting and filtering it takes to reach a Premier League squad. Many, many people will have watched you play and decided, above all other available options that you have the potential to be a Premier League player. And even then you have a relatively low chance of actually regularly playing minutes.
Almost every manager will choose to buy in a new talent rather than use the players within the existing squad. People want “proven” talent rather than risking an inexperienced player. This is despite every manager and coach I’ve spoken to saying that, given the choice, they would value a week working with a player to judge his ability over any number of scouting trips to watch him play.
Now this may mean that all the people who judged these players as being worth a Premier League contract were wrong. I certainly believe that judging potential is incredibly hard and that the fear of “being that idiot who let the next Messi go” is real. But I also feel that Premier League clubs select the best youngsters then have a system structured so they have very little chance of success.
The players who can go from a youth team to a Premier League starting XI are rare, but they do exist. However we seem to have designed a system to suit the outliers not the norm. It may be that plenty of the Premier League academy players could be regulars in lower divisions. Indeed when we have looked at Premier League players loaned to lower divisions they have quickly stood out on data.
We have written a lot of articles on why multi-club ownership is a hugely appealing option for investors. A well planned network is a must with standardised styles of play, regular exchange of players, and coach education as a key part.
Getting networks right is difficult but they offer an unrivalled opportunity for smart investors to solve the inherent problems with playing time for unproven players found in single club structures.
Again, we can consult in this area with the ability to independently assess the viability of projects.
Investment 3: Grow your own
However even in a single club you can still provide an exceptional environment. Find the best people at making players better and give them the power, resources, and support to do so. This shouldn’t be hard.
My deliberately over the top opinion is that every incoming transfer a club makes represents a failure in their youth development system. That probably exaggerates it, after all clubs can recruit from all over the globe to their first team, but clubs should definitely see if they are using the local talent they have.
Real Sociedad sit at the top of La Liga with 16 youth team graduates in their first team squad. Not only that but they directly compete for players with Athletic Bilbao who only play locally produced players, you could not get a more competitive recruitment environment. A region of 2.4m seems to provide sufficient players for not only those two clubs but also SD Eibar and Deportivo Alavés.
There are certainly regions that produce more talent than others. I have compared the productivity of Liverpool to Kent before but this isn’t a genetic issue. The Nordic nations improved talent identification and modernised coaching and went from producing big, physical, technically limited players, to some of the most technically gifted players in Europe.
What amazes me in football is we know what works. We can see the clubs who are producing talented players who go on to be worth multi-millions. But we don’t seem to actually value those skills financially.
Why are the best coaches, those who can develop systems, create environments where players want to improve, identify talent, and help train up people to be just as good as them, not valued and paid accordingly?
A club who could produce 2 first team regulars every year would be adding £50m worth of assets to the club.
Conclusion – add capacity
Footballers are, in the nicest possible way, consumables. They are the key components of the product but ultimately need replacing regularly.
The club pays them for the minutes they play on the field. Once they have served their purpose you don’t renew their contract and sell them on.
It sounds a bit harsh to talk about humans, and the heroes of our game, like that but it is the reality.
As a club owner you want to increase the supply of good players available to you, at the lowest possible cost.
Given that every year it gets increasingly easy to identify good players early with mass adoption of analytics and the wide availability of video clubs need to consider what happens next. We aren’t at that point yet, and we will never be free of mistakes in the transfer market.
But smart clubs need to think ahead, things don’t happen overnight and it may take 10 years to see the fruits of the labour undertaken today.
£100m spent today on transfers and wages will be gone in 5 years and will have very little impact if spent at Premier League level.
But, as with any other business, if you invest in the capacity to permanently produce an equivalent product at a lower cost than your rivals you will succeed in the long term.