Sports Economics: Does the Valuation of Neymar Make Economic Sense?
Neymar Junior moves from Barcelona to PSG
It is confirmed, the rumours were not fake news, Neymar Junior is now the world’s most expensive footballer. PSG (Paris Saint Germain) Football Club has reportedly paid EUR 222 Million to Barcelona Football Club for Mr Neymar Junior.
For a football fan, like myself, this is certainly an exciting day and shows how football has evolved over the years. Back in 1982, Diego Maradonna became the most expensive footballer when he moved to Barcelona for £3 million, in 1996 Ronaldo went to Barcelona for £13m, in 2009 Cristiano Ronaldo moved from Manchester United to Real Madrid for £80 million and just last year in 2017 Manchester United paid Juventus £89 Million for Pogba! You can find more on ESPN that did a wonderful job in compiling a list of the record transfer fees in footballing history.
Ain’t that just pure excitement and insane energy for Football (aka Soccer) fans?
The economic sense (or nonsense) of things
Now, as a finance professional, this might appear to be a little ridiculous. First of all, how on earth is PSG going to fund this transaction and his wages of £782,000 per week? Second, will PSG be able to recoup its investment? Lastly, is this inflated transfer just some hocus pocus?
After some careful thinking and analysis, one can see why this transfer is not crazy. In fact, it kind of make good financial and business sense.
QSI (Qatari Sports Investment) is the owner of PSG since 2013, which is backed by Nasser Al-Khelaifi a reknown and influential businessman in Qatar. PSG was bought for a reported €50million for 70% share in 2011 and €30m for remaining 30% in 2012. Mr Nasser also chairs BeIn media group and most interestingly, Forbes gave up trying to calculate his nett worth. Surely, funding a EUR 222 acquisition is not going to be a big issue!
To date, PSG is rated as one of the world’s top Football club in terms of performance and also in terms of financial value. Forbes valued PSG as EUR 775 Million and Deloitte estimated PSG’s revenue was EUR480 Million in 2015! Footballing prowess is important, but being able to market itself as a world record setter is crucial in grabbing headlines, coverage and of course commercial & TV revenue! EPL rights were sold for £5 Billion. Chelsea was paid £150 million for winning the title in May 2017!
If one is a technical analyst or number patterns person, it is not hard to see that football transfer records have been only going higher and higher. And from 1980s till now, the Maradonna’s £3 Million in 1982 roughly quadruple to £13 Million for Ronaldo in 1996, which went 4 times higher in 2009 for Zlatan (£57 Million) And now in 2017, we are seeing £200Million for Neymar. Perhaps, prices for top footballers quadruple every 10 years or so???
Maybe if i can stay long enough in the market, i hope my salary package quadruples or doubles every 10 ten years. Then again, looking at property prices and stock market indices, maybe price levels are meant to only go higher and never lower over long periods of time.