Was Fernando Torres' �50 million move to Chelsea worth the money?
By Professor Stefan Szymanski
Cass Business School
Last week's transfer fee extravaganza, where seemingly hundreds of millions of pounds were blown in the desire to win a few more games of football, raises a fundamental economic question: just how much is it worth spending to win a game?
Moralists might argue that twopence is too much to waste on what is, after all, only a game. But fans and economists know that the value has to be measured by what people are willing pay, and people are willing to pay a lot to win trophies.
In my research I use data collected from the audited accounts of football clubs to see how much clubs invest in winning.
Winning football matches is an expensive business
Measuring this investment through the use of transfer fees is a bit tricky because the transfer values of players vary hugely.
Moreover, even though strikers score goals that wins matches, it is still a team game and so it is hard to value individual contributions.
In fact, most clubs break even in the transfer market over time, and even the big spenders spend the bulk of their income on players.
So instead of using transfer fees, I've worked out a cost per win in the Premier League based on the wages paid by clubs to their employees (almost all wages are paid to the players) and the points they won.
I have used data going back to 1991 including all clubs except for Leicester City and Crystal Palace for the couple of seasons when they were in administration and so did not file accounts.
Average wage spending per club in the Premier League has risen from £4.5 million in 1992/93 to £66.4 million in 2000/09 (the most recent accounts available). In most seasons there are about 300 wins and about 80 draws.
The basic fact to observe is that teams which spend more on wages win more points.
Just for the Premier League, about two thirds of the variation in points can be attributed to the variation of wages.
Of course, other factors play a role, but spending power is the most important.
Given that a win is worth three points, the estimated cost of a win in 2008/09 was £7.2m.
Given the increase in broadcast income which is starting to feed in - this could well jump to the region of £10m in the next year or two.
As recently as 2006 a win only cost about £4.6m, £3.1 million in 2001, £892,000 in 1996 and £348,000 in 1991.
Of course, this is a cost of production. On the selling side, this is a reflection of how much we're prepared to pay to watch our team win.
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