Becoming big business: Football’s inflated agent fees
Following his two-part article on procurement savings, James Bousher, Operations Performance Manager at Ayming UK, feels that there’s something about football’s January transfer window that just doesn’t sit right. If football is becoming big business, then when are we going to talk about inflated agent fees?
For most people, the first of January marks an end to the season of gluttony and excess. People embark wishfully, or perhaps naively, on New Year’s resolutions of going to the gym or Dry January. However, the first of January also represents the start of a manic, month long frenzy of business activity, that has become so inflated in recent years that it has extended well outside the realms of normality: Football’s January transfer window.
The numbers associated with the transfer windows, both in the summer and in January, are getting progressively bigger as TV revenues bring more and more money to the Premier League. 2018 was no exception when the record transfer fee for a defender was broken with the sale of Virgil Van Djik from Southampton to Liverpool for £75m. Despite most people immediately thinking about the morality of such exorbitant sums, I can’t help but see it with critical, commercially-tinted spectacles and identify a market slightly out of kilter.
Whilst £75m is an astronomical sum for a player who was bought for roughly £13m in September 2015, this fee (and all other fees of recent times) acts purely as an example of basic microeconomics. There is a finite supply of good players; TV money, including the risk of losing it with poor performances, has increased demand for immediate results and, in the case of Van Djik, Liverpool had a woeful defence that needed shoring up. All these demand and supply factors work to cause inflationary pressures and cause prices to balloon.
However, with inflated transfer fees, come inflated agent fees.
In the year from February 2016 to January 2017, Premier League clubs paid £174m to intermediaries or agents according to figures released by the FA. This is where the consultant instincts, forged through many projects assisting companies cut costs and become more efficient in their commercial operations, sees the real issue and where action is likely needed.
Take the transfer of Paul Pogba from Juventus to Manchester United in 2016. The transfer fee was just shy of £90m. His agent, Mino Raiola, one of the two ‘super agents’ that exist in football, received a reported £23m in agent fees to facilitate the deal. Approximately 25% of the transfer value. In addition to the £23m from Juventus, it was reported, Raiola would receive £3.3m from Manchester United, likely on behalf of Pogba, for every year of the five-year deal. To put that into context, assuming a top lawyer is somewhere in the region of £1,000 per hour, that would equate to them working solidly for 9 hours a day, every day of the year. Inflated agent fees indeed.
This begs the question: why don’t football clubs, or more importantly, footballing authorities such as FIFA or the FA start to question the commercial arrangements with agents and start to look at it as a normal professional service? The historic ways of working, where agents receive a fixed percentage of transfer fees may have been acceptable, and in line with the effort put in, when fees were in the low millions. Nowadays, even Championship clubs are paying over £10 million plus for players.
Typically, professional services tend to work on one of three broad commercial models:
Input based models, like with the example of the lawyer, rely on a fixed price for each unit of input, whether that be hours, days, or years;
Utility based models rely on a fixed price for each action, for example a call centre charging on a per call basis
Outcome based models rely on incentivising a beneficial outcome being achieved, such as an increase in revenues or a reduction in costs, and fees being linked to that outcome
Each commercial model has its pros and cons and at times, a hybrid model can be best. The fixed percentage approach applied by agents is an outcome-based model. When instructed by a club, the incentive is to increase the value of the transfer. When instructed by a player, the incentive is to increase their earnings.
If the cliché that football is “becoming big business” is true, then it must start thinking as a big business would.
As transfer fees continue to escalate then a hybrid model of outcome and input may become more appropriate. This would still incentivise an agent to get a good deal whilst providing protection to the clubs or players. In addition, this would restrict the outflow of money from football (ideally allowing it to be spent on good causes) and rebalance the power of some intermediaries.
This happens all the time in life and business. Uber has challenged the power held by mini-cab firms to put consumers in contact with a much larger pool of vehicles and increased the money flowing through to taxi drivers. Internet shopping has allowed manufacturers or travel companies access to consumers, removing the margins or commissions that shops or travel agents would traditionally have had in place.
Despite the hopes of every Football Manager aficionado, I can’t see technology necessarily being the answer in this instance, but I do feel different ways of working should be trialed to redress the balance that currently exists. This would take some tough decisions and strong change management from the FA or FIFA to implement a new system that caps or limits agent fees. Based on the track record of these two at progressive, forward-thinking, I think it’s probably more likely that Dulwich Hamlet will win the Premier League. Maybe instead then, I should pay the £500 to become a registered intermediary and hope I can find the next Pogba…
About the author
James Bousher is an Operations Performance Manager, specialising in procurement and supply chain, at Ayming UK. James has a degree from Cambridge University in Land Economy & Management.