Good writeup, Scott. Was thinking about this during the recent AV Podcast. The way I think about this is the opportunity cost. If we needed to replace Nelson with a winger who was 1) good enough to play in our squad, 2) Arteta trusted to play 750+ min next season, and 3) was English/homegrown.....what would that player cost?
To me, we’d play a Trossard-type number in terms of transfer fee and wages. Instead, it’s much cheaper to retain Nelson. And he’s an Academy kid (like Eddie) who is earning a good wage, which helps sell our Academy to young, highly touted players. “Join Arsenal, if you are good enough, you will get minutes and we will pay you.”
I have already said that I would have moved on, and I would have prioritized spending money here on a RW backup. That being said, I totally get why this move would be made. It makes sense and it probably is a question of allocating money here vs another position (Caicedo?) and if I were privy to that information maybe I would make that call too.
Jun 13, 2023·edited Jun 13, 2023Liked by Scott Willis
Great job, Scott. You started at the end examining a question I've always wondered about...why don't more players run out their contracts so that they can receive in compensation or sign-on bonus the full value of their expected contribution?
For instance, we demonstrated 4 years ago that Pepe was worth ~£110m to us for 5 years, and so we paid £72m to Nice and ~£38m to Pepe in salary (plus probably a sign-on bonus...the precise numbers aren't important for my question). The reason we paid Nice all that money was bc Pepe still had time on his contract. However, if his contract had just ended, then Nice gets £0, and Pepe should capture the entire £110m value instead of the much smaller amount. As you say, who we pay is fungible, so it shouldn't matter to us if we pay Nice £72m or pay that £72m to Pepe as a signing bonus.
So...why don't players like Pepe run out their contracts more often? Arsenal undoubtedly offered him more in wages than he was receiving from Nice, but certainly not enough to make up for the £72m that Nice received to give up his services. And I imagine he was already making more than enough to live comfortably, so it's not as though he was desperate for money then/there.
And I don't think it is entirely explained by risk aversion...ie, that someone like Pepe takes the guaranteed increase in compensation (by leaving immediately) instead of waiting to run out their contract to take the guaranteed much much greater increase in compensation. Indeed, if that were the case, then you'd expect to see some sort of insurance market (there are a few famous cases, such as Neuer's hands, but my impression is those are the minority).
Another story that I don't buy is that somebody like Pepe is willing to forego a much larger payday in order to start playing with a club like Arsenal. That might be a little bit, but I'm skeptical it's significant.
You likely have much better insights, but what are the compensation structures for agents? Don't players' agents get a lot more for transfer fees than for wages? And they're presumably pretty smart, persuasive individuals who can convince their athletes that a certain move is in their best interest, whereas it's really only in the best interest of the agent.
Any other explanations? Or maybe my premise is wrong? Anyway, love what you guys are doing!
I am not sure a player would be able to capture all of the previous transfer fee but that is almost certainly money left on the table that they are foregoing.
You are seeing more players run down contracts (Eddie and Nelson are examples here) or even Saka and Saliba who got things down to one year and were able to use that to leverage only signing a 4 year deal vs the more standard 5 year deals.
It is still tough for a player to turn down a life changing amount of money and if I were an agent I would still look to get a player that first deal with the biggest guarantee first, even if it meant forgoing a bit of future money. After that tho, I would try and really balance things favoring running down a contract vs moving for a fee.
It is still tough and with a short career and ever changing managers it will be hard to always do that but I think it will be more common.
I definitely see what you mean that it's tough for a player 'to turn down a life changing amount of money'. That kind of gets to the risk aversion idea that I was trying to articulate.
But in the rest of the business world, we have insurance to resolve the risk aversion issue. So my question then becomes why a market hasn't popped up to protect players against the downside of them not getting a massive contract that next year.
For instance (continuing with Pepe)...assume he had one more year on his contract and could have received in expectation an extra $70m for waiting that one more year than he would have otherwise received. Why can't a hedge fund go up to him and say 'hey, we'll give you $40m right now if you play one more year with Nice. That $40m is roughly the same as you would get in a five-year contract from Arsenal. In exchange, when all of that $70m that would have otherwise gone to Nice instead goes to you as a signing bonus, you'll give us $60m.'
So, instead of Pepe signing now, he is $40m better off this year, and then $10m better off next year ($70m in, $60m out), ignoring the salary difference between Nice and Arsenal. The hedge fund cash flows being -$40m this year and +$60m next year.
Yes, I'm ignoring a lot of unknowns, but that's kind of the simple idea that would help move some $$$ from the agents (who I'm not a fan of) to the players (who I am a fan of). Except Harry Kane's brother...I'm definitely more a fan of him than Harry.
Anyway, thanks again for all your insights. Love what you and Adam are doing.
Great writeup and I think you've helped guide some of the recent discussions on Twitter and AVP.
I have a hard time believing either Eddie or Reiss are on a BASE of 100K. My bet is 60-70K with appearance bonuses. Therefore, given everything you've outlined, I think their deals are completely appropriate.
Finally, I can see how from Edu's perspective, if in 2yrs keeping Reiss doesn't make sense, and he can move him on to a mid-table team for $10M, it's still a profit for the org, they don't need to have a high floor on sale price to do well overall from the asset.
Good writeup, Scott. Was thinking about this during the recent AV Podcast. The way I think about this is the opportunity cost. If we needed to replace Nelson with a winger who was 1) good enough to play in our squad, 2) Arteta trusted to play 750+ min next season, and 3) was English/homegrown.....what would that player cost?
To me, we’d play a Trossard-type number in terms of transfer fee and wages. Instead, it’s much cheaper to retain Nelson. And he’s an Academy kid (like Eddie) who is earning a good wage, which helps sell our Academy to young, highly touted players. “Join Arsenal, if you are good enough, you will get minutes and we will pay you.”
This seems like a smart piece of business.
I have already said that I would have moved on, and I would have prioritized spending money here on a RW backup. That being said, I totally get why this move would be made. It makes sense and it probably is a question of allocating money here vs another position (Caicedo?) and if I were privy to that information maybe I would make that call too.
Great job, Scott. You started at the end examining a question I've always wondered about...why don't more players run out their contracts so that they can receive in compensation or sign-on bonus the full value of their expected contribution?
For instance, we demonstrated 4 years ago that Pepe was worth ~£110m to us for 5 years, and so we paid £72m to Nice and ~£38m to Pepe in salary (plus probably a sign-on bonus...the precise numbers aren't important for my question). The reason we paid Nice all that money was bc Pepe still had time on his contract. However, if his contract had just ended, then Nice gets £0, and Pepe should capture the entire £110m value instead of the much smaller amount. As you say, who we pay is fungible, so it shouldn't matter to us if we pay Nice £72m or pay that £72m to Pepe as a signing bonus.
So...why don't players like Pepe run out their contracts more often? Arsenal undoubtedly offered him more in wages than he was receiving from Nice, but certainly not enough to make up for the £72m that Nice received to give up his services. And I imagine he was already making more than enough to live comfortably, so it's not as though he was desperate for money then/there.
And I don't think it is entirely explained by risk aversion...ie, that someone like Pepe takes the guaranteed increase in compensation (by leaving immediately) instead of waiting to run out their contract to take the guaranteed much much greater increase in compensation. Indeed, if that were the case, then you'd expect to see some sort of insurance market (there are a few famous cases, such as Neuer's hands, but my impression is those are the minority).
Another story that I don't buy is that somebody like Pepe is willing to forego a much larger payday in order to start playing with a club like Arsenal. That might be a little bit, but I'm skeptical it's significant.
You likely have much better insights, but what are the compensation structures for agents? Don't players' agents get a lot more for transfer fees than for wages? And they're presumably pretty smart, persuasive individuals who can convince their athletes that a certain move is in their best interest, whereas it's really only in the best interest of the agent.
Any other explanations? Or maybe my premise is wrong? Anyway, love what you guys are doing!
No I think you're exactly right.
I am not sure a player would be able to capture all of the previous transfer fee but that is almost certainly money left on the table that they are foregoing.
You are seeing more players run down contracts (Eddie and Nelson are examples here) or even Saka and Saliba who got things down to one year and were able to use that to leverage only signing a 4 year deal vs the more standard 5 year deals.
It is still tough for a player to turn down a life changing amount of money and if I were an agent I would still look to get a player that first deal with the biggest guarantee first, even if it meant forgoing a bit of future money. After that tho, I would try and really balance things favoring running down a contract vs moving for a fee.
It is still tough and with a short career and ever changing managers it will be hard to always do that but I think it will be more common.
I definitely see what you mean that it's tough for a player 'to turn down a life changing amount of money'. That kind of gets to the risk aversion idea that I was trying to articulate.
But in the rest of the business world, we have insurance to resolve the risk aversion issue. So my question then becomes why a market hasn't popped up to protect players against the downside of them not getting a massive contract that next year.
For instance (continuing with Pepe)...assume he had one more year on his contract and could have received in expectation an extra $70m for waiting that one more year than he would have otherwise received. Why can't a hedge fund go up to him and say 'hey, we'll give you $40m right now if you play one more year with Nice. That $40m is roughly the same as you would get in a five-year contract from Arsenal. In exchange, when all of that $70m that would have otherwise gone to Nice instead goes to you as a signing bonus, you'll give us $60m.'
So, instead of Pepe signing now, he is $40m better off this year, and then $10m better off next year ($70m in, $60m out), ignoring the salary difference between Nice and Arsenal. The hedge fund cash flows being -$40m this year and +$60m next year.
Yes, I'm ignoring a lot of unknowns, but that's kind of the simple idea that would help move some $$$ from the agents (who I'm not a fan of) to the players (who I am a fan of). Except Harry Kane's brother...I'm definitely more a fan of him than Harry.
Anyway, thanks again for all your insights. Love what you and Adam are doing.
Great writeup and I think you've helped guide some of the recent discussions on Twitter and AVP.
I have a hard time believing either Eddie or Reiss are on a BASE of 100K. My bet is 60-70K with appearance bonuses. Therefore, given everything you've outlined, I think their deals are completely appropriate.
Finally, I can see how from Edu's perspective, if in 2yrs keeping Reiss doesn't make sense, and he can move him on to a mid-table team for $10M, it's still a profit for the org, they don't need to have a high floor on sale price to do well overall from the asset.