Thursday, July 12, 2012

Is Clint Dempsey undervalued in the transfer market?

The often unreliable Daily Mirror reported earlier this week that Clint Dempsey is on the verge of a move to Liverpool for a £7.5m fee. A common response to this transfer rumor has been that £7.5m seems like a very low fee for a player of Dempsey’s quality. Dempsey was the joint-4th leading scorer in the 2011-12 Premier League with 17 league goals. Perhaps even more impressive, Dempsey was involved, by either scoring or assisting, in 54 percent of Fulham’s non-own goals in the 2011-12 Premier League—that is the highest share of involvement in a club’s non-own goals in the Premier League's 2011-12 season.1 Moreover, Dempsey’s 23 goals for Fulham in all competitions during the 2011-12 season was hardly a fluke. During the 2010-11 season, Dempsey scored a very respectable 14 goals in all competitions, 12 of which were Premier League goals. 

While it’s clear that Dempsey is a very talented player, actually calculating a player’s value in the transfer market is a convoluted exercise. Two primary factors are driving down his cost in the transfer market: his age (29.3 years) and the one year remaining on his contract. Prior to the implementation of UEFA’s Financial Fair Play (FFP) rules,2 wealthy clubs like Chelsea and Manchester City were much less concerned about a player’s value in 3-5 years. But, as the rules are implemented, these clubs are now forced to consider a longer time horizon for player purchases. If Chelsea buy a player who is age 21 for £35-40m, in 4 years that player is still in the prime of his career. Consequently, Chelsea could sell the player and likely collect a substantial fee or avoid paying a hefty transfer fee for a replacement. On the other hand, if Chelsea buy a player who is age 29 for £35-40m, in 4 years it is unlikely that the player will still be able to play at high level. Chelsea probably could get at most £2-3m for a player who is 33, and they would need to spend even more cash for a replacement. While this example is presented as a hypothetical, Chelsea spent £35m on 21-year-old Eden Hazard earlier this summer. During the summer of 2006, Chelsea bought then 29-year-old Andriy Shevchenko from AC Milan for £40m. Shevchenko had a terribly disappointing spell with the club. He returned to Milan on loan for the 2008-09 season and then left Chelsea for Dynamo Kiev on a free transfer during the summer of 2009.

Simon Kuper and Stefan Szymanski summarize the basic economics behind buying and selling older players in their book Soccernomics (57-58):
Second, older players are overrated. "I've noticed over the years how often Liverpool sell players as they near or pass their thirtieth birthday," notes Taylor in his book. "Bob Paisley [Liverpool's then manager] believes the average First Division footballer is beginning to burn out at thirty."  Taylor added, rather snottily, that that was true of "running side like Liverpool," but less so of a passing one like Forest. Nonetheless, he agreed with the principle of selling older players.
The master of that trade today is Wenger. Arsenal's manager is one of the few people in soccer who can view the game from the outside. In part, this is because he has a degree in economic sciences from the University of Strasbourg in France. As a trained economist, he is inclined to trust data rather than the game's received wisdom. Wenger sees that in the transfer market, clubs tend to overvalue a player's past performance. That prompts them to pay fortunes for players who have just passed their peak. Probably because Wenger was one of the first managers to use statistics to assess players, he spotted that older players declined sooner than was conventionally realized. […]
Wenger often lets defenders carry on until their midthirties, but he usually gets rid of his midfielders and forwards much younger. He sold Patrick Vieira for $25 million (age twenty-nine), Thierry Henry for $30 million (age twenty-nine), Emmanuel Petit for $10.5 million (age twenty-nine), and Marc Overmars for $37 million (age twenty-seven), and none of them ever did as well again after leaving Arsenal.
The Taylor that Kuper and Szymanski reference above is Peter Taylor who, along with Brian Clough, assembled the Nottingham Forest teams in the 1970s that won two European Cups on a very limited budget.

A simple method to gauge Dempsey’s value in the transfer market is to compare Dempsey to “similar” purchases. To do this, I searched through the current rosters of Manchester City, Manchester United, Arsenal, Chelsea, Tottenham, and Liverpool. From the current rosters for only these clubs, I compiled a list of the players whose clubs purchased them on or after their 28th birthday:


Of the 13 players who satisfy the above criteria, four players were free transfers, five players cost less than £10m, three players cost £10-12m, and one player cost £16m. Interestingly, Manchester United’s roster does not contain a single player who was purchased by the club on or after his 28th birthday. The two largest fees, those of Kolo Toure and Gareth Barry, were purchases of Manchester City during the summer of 2009 prior to the start of FFP implementation. Meireles, Arteta, and Benayoun seem like more comparable purchases, but I believe all three had longer than one year remaining on their contracts at the date of their transfer. When players have a single year remaining on their contract, their transfer fee is obviously deflated since the purchasing club could have the player on a free the following summer. How much is having Dempsey for the 2012-13 season worth? This question is somewhat misleading since a purchasing club would also risk losing Dempsey to another club the following summer. Arsenal reportedly offered €7m for Marouane Chamakh in the summer of 2009, and Bordeaux turned down the offer. Chamakh subsequently signed with Arsenal on a free transfer in the summer of 2010.

My personal view is that a player of Dempsey’s quality with a proven track record in the Premier League is likely worth more than £7.5m even at 29.3 years of age with one year on his contract. That said, I think there is little evidence to suggest that he is severely undervalued. He is probably worth in the range of £1-3m more than the rumored £7.5m price tag, but his price very well could increase before any deal is done. If he had more than one year remaining on his contract, I'd probably add another £1-2m to the fee.


1. Dempsey’s 54 percent edged out Robin van Persie in this category who was involved with 53 percent of Arsenal’s 2011-12 Premier League goals.
2. While UEFA will not assess a club’s finances until the 2013-14 season, they will analyze a club’s finances for that season and the two prior seasons (2011-12 and 2012-13).

2 comments:

  1. 7m for Squillacci is a crime.

    ReplyDelete
    Replies
    1. He was definitely not one of Wenger's better buys.

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