Making Soccer more like baseball

Another trend from baseball might be coming to soccer

Twitter User Mitch Peotter had a very interesting thread that got me thinking and pushed me to really nail down some of my thoughts on the current contract strategy that we see in soccer.

Mitch Peotter @mitchpeotter

How Todd Boehly is bringing baseball-style contracts to the Premier League and what it means for teams, players, and transfers (a thread)

I think that there is potentially something to the idea that Boehly is trying to bring some of the ideas from baseball to his ownership but I think that is only partially the reason for the contract lengths we have seen recently from Chelsea.

I think the number one reason right now is Financial Fair Play (FFP). The UEFA FFP rules have been changed from the old limit of losses to a quasi-salary cap type rule based on revenues, in addition to a loosened restriction on the losses allowed (from 30m to 60m). Starting next year a team’s “player costs” (wages, amortized transfer fees, and agent fees) must be less than 90 percent of club revenues. That will drop to 80 percent for the 2024 season, and finally down to 70 percent from 2025 onward.

Lowering Amortization Charges

I think that this is the initial reasoning behind these 7 and 8 year contacts that Chelsea is using currently. When a player is signed the overall cost is totaled and then spread out equally over the cost of the contract. Let’s look at a simplified example (really testing out my memory of accounting and a reminder why I was my degree is in Economics and not Business or Finance). Feel free to skip ahead if you’re already similar with how amortization works.

A player is signed with a 50m transfer fee, with a 5m agent fee (honestly I have no idea what kind of agent fee is realistic, this is another murky area that isn’t reported well), and his contract is for 10m a year. Let’s look at this with a couple different contract lengths.

First, let’s look at a short-term 3-year contract, what the team will put on the books is transfer plus agent’s fees divided by contract length, that is 55m divided by 3, and then add the wages. The player in this situation costs the team 28.3m per season in total cost.

Let’s look next a more typical length of 5 years, the work is the same but that 28.3 is now 21m per season of player cost.

Last let’s look at what Chelsea are doing with an 8-year contract. That is now 16.9m per season of player cost.

Nothing else changes but the length of the contract but that has a pretty big effect on the total player cost associated with a player. This is the same sort of thing that happens when a player extends their contract, any previous transfer/agent fees that had not been amortized will be spread over the length of a new contract. When a player is sold, anything thing remaining is recognized right away (this is also how player profit/loss is calculated).

Using this strategy allows Chelsea to lower the total cost pushing more of that into the future and lowering the per-season totals helping to keep them in a better spot for player cost compared to revenues.

Baseball Style Contracts

Back to the original thread and point of thinking about the question is Bohely trying to bring in a more Major League Baseball style of contract?

This may surprise you but I also used to be a baseball stats nerd, I don’t follow as closely as I used to but I still have a pretty good grasp on the goings-on of baseball and the contract strategy.

I am going to use the tweets in the thread as jumping-off point, but it isn’t necessarily a direct criticism or anything, just my point of starting.

Mitch Peotter @mitchpeotter

In baseball, 10, 11, 12, or even 13-year contracts are not out of the ordinary. Many of these deals take the players signing them into their year 40 season. There are a lot of reasons why a player would want that kind of security for the next ten years, but why would the team?

One nit to pick, is that THIS long of a contract is still pretty rare (but becoming more common), there have been 22 contracts of 10 or more years with most of those having been signed in the last few years (11 of the 22 in the last 3 years).

Mitch Peotter @mitchpeotter

MLB players' primes are much later than in football, but even then, there's a major drop off in production as a player hits the mid to late 30s. Albert Pujols' 10-year $240 million contract with the Angels looks pretty poor in hindsight as he did not live up to that $ as he aged.

The player primes are generally later (but not too much) with a player being thought of as peaking around 26 with a fairly gradual decline off of that into the early 30’s where the decline (and attrition of players dropping out) really picks up. This isn’t that different than soccer but with a shorter period where the decline might be thought of as gradual.

The biggest difference is that in baseball, a team has control on a player for the first 6 years that they are in the major leagues regardless on if they have signed a contract or not. This is a remnant of an old system (much to long to dig into here, I have also done some simplifying here as well as their is additional things to get an additional year of control as well) and came about as players fought for the ability to be free agents.

For the first 3 seasons, a team gets to unilaterally set a player’s salary amount at something equal to or above the League minimum salary. For the next 3 seasons (if the player and team haven’t agreed to a contract extension to cover these seasons), before the season starts the player and the team each submit what they think is a “fair” salary based on comparable players, looking to come to an agreement and if not it goes to an arbiter to pick one of the two amounts based on a hearing.

This leads to baseball players’ salaries being very low (typically less than $1 million, with the minimum salary in 2023 set at $720k for the season) for the first 3 years of their career and then rising for the next 3 years (arbitration does still hold down salaries quite a bit). After those 6 years, a player is able to then negotiate on the open market and this is where a player can more typically earn a very large contract.

Mitch Peotter @mitchpeotter

So why do teams want to give out these long deals? The name of the game in baseball is always: control, and owners want as much as they can. If a player signs that deal, there is not a lot of power to get out of it, as they have in football.

Control and leverage are a big part of this. Many of the long contracts that are signed, happen before a player becomes a free agent, even if they are not the longest contracts. Teams want to try and extend their years of control beyond the 6 that they have by default. Players want to try and pull some of the future earnings that they might get as a free agent (or in arbitration) forward to guarantee that it happens.

That gives a perfect situation for young players to want to sign these 6 to 8 year type deals in their early 20’s. Because of the VERY low salary for the first 3 seasons, a player will be far from set for life with their contracts, with the risk of injury and a short career getting a guaranteed payday is worth it even if it could mean that a player is risking getting less than if they went year to year in the system.

The other big difference that Peotter touches on is that contracts in baseball also work differently. When a player changes team in baseball, they do not sign a new contract with the team they are going to, they will be on the same deal. In soccer, contracts are still guaranteed but are treated a lot more like guiding suggestions that are often torn up and renegotiated or even bought out as a player moves to a different team.

What you don’t see in baseball that you see in soccer, is that with two to three years before a contract is due to expire a team will look to renegotiate. The soccer model is more of a medium-length contract that if a player performs at or above expectation will look to be redone quickly. In baseball, you really don’t see that until perhaps the final year of the deal (there also isn’t the ability for a player to formally negotiate with other teams 6 months before it expires). In baseball if a player is under contract, that is basically it no matter if they are performing above or below expectations, a team might look to trade the contract (usually by including another player that is more talented or on a favorable contract) or simply eat the deal cutting the player and paying them to not play for them.

I think this highlights the biggest difference and is perhaps where Chelsea are looking to make a tweak. In soccer, a player is almost always close to their market wages or they are earning more. It is not often that you will see a player for an extended period significantly underpaid due to the norm of contracts being something that are always open to being renegotiated.

The Pros and Cons of longer Contracts

Let’s get back to the thread.

Mitch Peotter @mitchpeotter

These long deals are a double-edged sword and can make it hard for the team to move on if the player is underperforming and harder for the player to move if they're unhappy with their situation.

I think Peotter nails it here. That is almost certainly a possibility with a long contract, especially if the salary the player is earning is higher than he would earn at any new team interested. The only way to really deal with something like this because it isn’t possible to bundle another player with the deal (remember transfers need the player’s consent as well) is to pay off the player or team signing him.

This is the classic Arsenal move during their time rebuilding. They had players on contracts that no other team wanted to match and thus had to subsidize their move to another team or buy them out of their contract to come to an agreement to terminate the contract.

This is obviously the biggest risk that comes with a long contract. If you sign a player to a big contract and an 8 year deal and it turns out in year 3 it isn’t working out, that is something that still has 5 years to run rather than the more customary 2 years. With the turnover in managers and the change in player priorities it isn’t that crazy to imagine players not fitting even if they are performing okay, this is very different than baseball where manager to manager the batter vs pitcher dynamic of baseball doesn’t really have that much room to change.

Let’s do another hypothetical example with a player who earns 10m a season but might only get 5m from another team. If he has 2 years to go maybe he is will to take a 10m payout to sign a new 3-year deal at 5m, he takes a bit less on his current deal but still ends up a head and is still locking in an extra year at a solid salary that might not be there if he doesn’t play for two seasons. If he has 5 years to go, that same player would have to be willing to forgo 25m and the risk of what might be available to him at the end of his contract if he takes that same 10m payoff to terminate. That is a situation that much less likely if a player wants to maximize his earnings.

So what are the pros?

With the current way contracts are done, there really isn’t THAT much.

A team gains a very strong position if the player does attract interest from other teams that want to sign him, but I am not sure it is really that much strong than say a player with 3 years left on a contract. That is still a situation where a team can very convincingly make a case that they will not sell because there isn’t really any risk of a player’s future value changing (outside a change in performance but that isn’t exclusive to this deal) and demand top dollar to let a player go.

With the way contracts are routinely renegotiated that also erodes any sort of gain from having a player underpaid. With contracts shorter, the window to take advantage of that is much smaller as well. I think if there is any area where we will see a more baseball-like treatment it might be here. It is hard to say with certainty because reporting on wages is highly inaccurate and unreliable, but if we are going to use Mykhailo Mudry as an example he appears to be on a fairly high salary but perhaps a salary still below to maybe significantly below other players that have moved for similar fees.

If he does turn out as good as Chelseas (and Arsenal fans before that) hope he will be he could very well end up being underpaid in two or three seasons. That would have been prime renegotiate range if he were on a five year deal or potentially look to be being sold to another team. With this contract Chelsea would have Mudryk in his prime (25 years old) and still have five or six seasons left on his original contract. So if Chelsea are willing to hold firm on not renegotiate his contract that could potentially have a player still on a long term contract that is below market value.

With the current inflation in player wages, there is a decent chance that could be possible even if he isn’t hitting even the absolute highs that are expected.

Why Would a Player Sign This?

Mitch Peotter @mitchpeotter

In football, a player should have less of an incentive to sign these kinds of deals than in baseball. With so much uncertainty in clubs, so much could change within the next 8.5 years of Mudryk's contract, and with no known release clause or flexibility, he could end up trapped.

This is also one of the questions I have about this too. Unlike baseball there isn’t a long stretch of being underpaid that a player has to worry about where they are underpaid. I can see a situation like Mudryk’s where he was at a much lower salary in Ukraine vs what he would earn in the Premier League. He is going to end up getting a guaranteed pay day that will really help him be financially secure for life.

I think that is really they why a player would do a deal like this, because it is really life changing money. Looking at the baseball examples that are long term, they are for $300 million plus over the life of the contract. If that kind of money is on the table for a player, I imagine that you will see a player consider doing that.

Mitch Peotter @mitchpeotter

Again it's all about perspective. If life at Chelsea is great for 8.5 years, then there's no need to worry, but if the €100m signing wants to leave a bad situation in two years, he wouldn't have the leverage to do so if he had signed a standard 5.5-year deal.

This is really the thing that I think players need to consider. There aren’t too many situations where if a player is doing well and wants to stay that they can’t work out an extension at the current club. What does happen fairly often, even in this time of medium term contracts, is that a player signs a contract and then does want to move but doesn’t have the leverage to force a move.

I think that the player contract trend is going to be the opposite direction, maybe more towards the NBA model that you have seen stars sign. There will still be some guys you go with the get paid a ton long term contract, but more and more look to sign one and two year deals with options to give them flexibility on where they pay while also maximizing their pay.

Where do we go from here

This is the big question and I am not foolish enough to try and predict the future.

Mitch Peotter @mitchpeotter

If this becomes a trend, with the way transfer fees are going, it could create weird things with transfers. There could be less player mobility after signing a new deal for up to 3-4 years of a contract as opposed to 1-2 years.

My general way of thinking about transfer fees is that they are basically the surplus value of the player compared to their existing contract. It isn’t always perfect because teams can be irrational in their valuations of a players future but I think this framework is close enough to think about.

With really long term deals you will probably see more extremes. There could be players who have a lot of time left on their deals and have contracts well below market rate making the teams in a very strong negotiating position (but I am still not sold it is that much more than what we see now with three years left). We will also see potentially more bad deals where players have a lot of time left but they are not close to expectations of their contracts and either will need to be sold at a big loss or subsidies to play somewhere else.

I still think that it is more likely that we see a shift towards shorter deals and more free transfers. Players looking at the transfer fee attached to their moves and look to see if they can capture a bit more of that for themselves rather than see these big sums go to teams.

I guess we will have to wait and see how this goes forward. I will say Todd Boehly is doing his best to make the transfer market exciting and busy,