Why soccer’s insane transfer fees for top talent might actually make sense

In good company.
In good company.
Image: Reuters/Gustau Nacarino
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Luis Suarez’s transfer to Barcelona for more than $110 million and World Cup standout James Rodriguez’s $100 million move to Real Madrid were the biggest of this summer’s moves in European soccer. Spending that much just for the right to pay a player a six-figure weekly salary seems crazy in the context of other sports.

But there’s a reason why soccer teams consistently pay up for players from other top clubs. Athletes who have been exposed to elite soccer teams have a much better track record, and significantly improve everyone around them, according to a new NBER working paper.

The researchers were inspired by what more conventional management research (pdf) finds, that star employees boost others through what are called peer effects. High-performing workers monitor colleagues, better managers boost performance, and it’s easier to recruit more stars. Soccer provides a particularly rich data set for measuring these effects. Players move frequently, and can play for both a club and a national team, letting the researchers gauge the impact a move can have on both teams.

National teams often pick strong players from local or otherwise lesser leagues. But those players are able boost their national team’s performance significantly more in the year after they move to an elite club team. Their own performance metrics increase, and their presence boosts the play of their teammates.

A 25% increase in the number of elite club players on a national team is estimated to increase the ELO points (a ranking system for national soccer teams) earned the following year by 44.6 points, which is approximately the difference between the world’s 35th ranked team and the 26th.

According to the research, pass completion rates, goals per shot taken, and other player metrics increase after joining an elite team. Not only are these players individually better, their teammates improve with their presence.

The authors bolstered their findings by speaking to six US men’s national team players who had played for elite clubs, asking if and how their performance improved, to try and get a sense of where these changes come from. The players cited their exposure to a whole new level of pressure, competition, and training, plus the ability to learn from some of the best in the world. Several described experiencing the most rapid improvement of their careers, which they could bring back to their national team.

The workplace equivalent would be moving to a new company where managers and teammates expect more. Someone who excels in that environment would be worth paying extra for. In soccer, the fees may have gotten inflated, but there’s some reasoning behind them. Top clubs are under so much pressure to perform that they can’t afford too many misses.

Of course, a strategy of finding diamonds in the rough is still appealing. It’s certainly cheaper, and sees coaches or organizations hailed as geniuses if it succeeds. But it generally doesn’t work as well as paying for more proven commodities.