dr. Stefan Kesenne em. professor of sports economics Univ. of Antwerp and K.U.Leuven

1. Beyond Bosman
the end of all transfer fees in European football
dr. Stefan Kesenne
em. professor of sports economics
Univ. of Antwerp and K.U.Leuven

2. Two important propositions in
Sports Economics theory
1. The Invariance Proposition:
The competitive balance in a profit-maximization league will be the
same with or without a transfer system.
2. The Uncertainty of outcome hypothesis:
The competitve balance or the uncertainty of outcome in sports has a
positive effect on spectators’ interest, ticket sales and TV ratings

3. Does the Invariance Proposition also
hold in a win-maximization league?
American sports economists always started from the hypothesis that
their Major League sports teams are profit maximizers.
But in European football, most sports economists consider utility- or win
maximization being a more relevant hypothesis. It has also been shown
empirically that win maximization under the breakeven constraint is the
dominant objective of a professional football team,
(see Szymanski and Garcia-del-Barrio, 2009).
A win-maximizing team’s demand for talent (hiring of players) is
determined by the team’s (net) Average Revenue function (R-c°)/t
because, after the subtraction of the non-player costs, a team spends all
its revenue on playing talent.
In the following graphical presentation, we try to show how the market
equilibrium under the transfer system does not deviate from the free-
market equilibrium.

4. C
tx
ty
NARy
Ew
NARx
tW
TRANSFER SYSTEM IN A 2-TEAM WIN-MAXIMIZATION LEAGUE
50 / 50
ce
narY
narX
t*
W
Talent supply
And overcompensated by the fact that the small team cannot pay the transfer fee of a
player, but it can possibly pay his salary, which is only a fraction of the transfer fee.
In fact, this
improvement of
the CB under the
transfer system is
very limited.

5. In December 1995, the Bosman verdict of the European Court of
Justice abolished the existing transfer system, allowing end-of-
contract players to move to another team without any transfer fee.
Nevertheless, after 1995, the number of transfer deals more than
tripled, from 5 735 to 18 037 in 2010, with skyrocking transfer fees up
to 100 million euro for top players like Ronaldo and Bale.
Over the same period of 15 year, football clubs’ annual transfer
spending has increased from 403 million euro to 3000 million euro, an
increase of more than 700 %.
Less than 2 % of the transfer money was filtering down to smaller
clubs.
Turning to some facts and figures

6. What these facts and figures indicate is that transfer
spending has become a quasi-closed money circuit
among a small number of European top teams, that can
only buy talent if they can also sell talent. The spending
is concentrated in a few clubs with the largest budgets
and the financial support of “wealthy investors”.
As mentioned also by the KEA-study, the European
football competition has become a ‘de facto’ closed
league, comparable to the ‘officially’ closed major
leagues in North America.
An important observation is that, although there has
been an increase in the teams’ transfer spending, their
net transfer spending, that is: paid transfer fees minus
received transfer fees has not increased.

7. Furthermore, the total turnover of the first division
championships of all 53 UEFA member countries
together increased from 9 billion euro in 2006 to more
than 12 billion euro in 2010.
Nevertheless, overall net losses increased steadily to
reach 1,6 billion euro, with more than 50 % of the
clubs reporting net losses for the year 2010.
Also, in many clubs, players are not paid or paid too
late, because of serious financial problems, both in
terms of solvability and liquidity.
Altogether, this indicates that European football is sick
and in need of some fundamental cures and refoms,
including an end to the transfer system and to the
trading of players or player contracts.

8. What I try to analyse, using a simple theoretical
model, is the expected impact of :
1. The abolition of all transfer fees for all players,
end-of-contract as well as under-contract.
2. The introduction of a training compensation
system that is not linked to the transfer of a player.
Transfer System and Youth Training

9. A transfer market is redundant and unethical,
all transfer fees should be abolished and forbidden.
The abolition of transfer fees for end-of-contract players didn’t have much impact
because clubs reacted by lengthening player contracts, although FIFA limited the
contract length in 2001 to a maximum of 5 years, which is still too long.
Also, some teams reacted by forcing players to sign a new contract before the old
contract expired. This way, some players never reach the end of their contract
before retiring age.
The Bosman verdict created an open and competitive European player market,
which detemines the allocation of players and the level of player salaries. What is
a transfer system good for on top of the competitive player market ? Transfer
payments do not exist in any other industry, why should they exist in Football?
Moreover, this trade of football players and player contracts raises ethical
questions as well, because it is modern (well-paid) slavery.

10. Impact of abolishing transfer fees on player salaries
Assume that the unit cost of talent (ci) is equal to the
salary (si) of a talent, added to the difference between the
paid transfer fee (tpi) and the received transfer fee (tri)
devided by the average contract duration (m).
( )/i i i ic s tp tr m  
In a perfectly competitive player market, there is one
single market-clearing unit cost of talent c. It follows that:
( )/i i is c tp tr m for alli  
It follows that all si are different, i.e. under the transfer system,
equal talents don’t receive equal pay.

11. So, the abolition of all transfer fees will not have a
significant effect on average player salaries.
i itp tr 
,is c for all i and s c 
In the quasi-closed money circuit of transfer spending
among a few rich teams, the sum of all paid transfer fees
is equal to the sum of all received transfer fees,
( )1 i i
i
tp tr
s s c
n nm

  

The average salary level per talent can then be written as:
Without transfer fees:
s cSo, the average salary level is:

12. Money disappearing in the pockets of player agents
Net transfer fees paid for migrating talent in and out of Europe.
Transfer money filtering down to smaller clubs (less than 2%).
Possible deviations from i itp tr 
i itp tr  and s c
So, average salary level is lower under the transfer system.

13. Without the transfer system, player and team sign a contract with a
duration of 1 to maximum 3 years, and these contracts should be
honoured. As in any other industry, a one-sided breach of contract
should be punished, not by a money fine, because this would
reintroduce the transfer fee by the back door.
The punishment of a team that breaks a contract should be a loss of
points in the ranking or relegation to a lower division. The punishment
of a player who breaks a contract should be his suspension for a
number of games or the rest of the season. Obviously, contracts can
still be opened or broken by mutual consent, or by court decision if one
of the parties is not honouring the contract.
One of the unwanted consequences of the abolition of all transfer fees
is that teams with a well-established and successful youth training
program might suffer.
However, this is not a justification for paying transfer fees? There are
better ways to guarantee the compensation of youth training.
Football without a transfer system

14. Modelling the youth training compensation system
Assume that there are n teams in a league, and that each team’s
budget is Ri
: 1iR with i n
1
n
iµ R
*
(1 )
n
i i i jj
R µ R z µ R   
Every year, each team contributes the same percentage µi of its
budget tto a youth training fund. So, the money collected by the fund
is:
This amount of money is redistributed among all the teams in the league,
in proportion to the teams’ relative effort (quantity and quality) of youth
training. So, each team receives a share zi of the collected money.
The after-sharing team revenue Ri
* is then equal to:
*
(1 )i i iR µ R nz µR   1
n
ii
z or with

15. ,
i
i
i
R
z
R


In the particular case that each team puts the same effort in youth
training,
the after-sharing revenue of a low-budget team will be higher, because it
receives more money from the fund than it has contributed to the fund.
Before and After* Sharing Budget
So, a team will see its budget go up if
*
( )i i i iR R nz R R  
i inz R R
A small team’s after-sharing revenue will be higher if its relative
effort in training zi is larger than its relative budget
1/ 1i iz n and nz  *
( )i i iR R R R  

16. Impact on Competitive Balance, player salaries and
demand for playing talent
Because European football teams behave as win maximizers rather than
profit maximizers, it can be shown that this sharing system also
improves the competitive balance in league, because the small team
will increase its demand for talent and the large team will reduce its
demand for talent.
.
Furthermore, because the reduction in demand by the large teams is
smaller than the increase in demand by the small teams, the total
demand for talent in the league is higher and so are player salaries.
This system will create a strong incentive among teams to have the
best youth training, because teams will have to fight for their share
of the fund.
Finally, this compensation and sharing system does not violate any
European competition law, because it is not linked to the move or
the transfer of a player.

17. Conclusions
The abolition of all transfer fees will put an end to the unethical trade
of players or player contracts, without affecting the competitive
balance and the average level of player salaries.
Together with the creation of the proposed Youth Training
Compensation system, the competitive balance will improve and the
total employment of talent will enhance.
Moreover, the proposed Youth Training Compensation system will
create a strong incentive to invest in youth training.
Players are free to move at the end of their contract in line with the
European competition laws, without discouraging youth training, which
also solves the dilemma of the European Court of Justice in the 2010
Bernard case.