The price of a player

What a transfer fee actually buys, and why the market keeps producing the opposite of its intention

A The sums now paid when a footballer moves between clubs are reported as though a person were being bought, and the vocabulary of the trade encourages it. What is actually purchased is the early termination of a contract. A player under contract to one club cannot join another until that contract ends, and the fee is the price at which the first club will agree to release him from it. The distinction is not pedantic, because everything peculiar about the market follows from it: the value of a player rises when he signs a longer contract, and falls to nothing on the day it expires.

B For most of the twentieth century the arrangement in England was considerably worse than that for the player. Under the system then operating, a club retained a player's registration even after his contract had ended, and could refuse to release him while declining to employ him. A player who would not accept the terms offered could be prevented from playing at all, anywhere. The system was defended on the grounds that without it the wealthiest clubs would accumulate all the talent and the competition would become predictable, and it was accompanied for decades by a maximum wage, abolished in 1961 after a threatened strike.

C The comparison usually drawn is with an ordinary employment contract, and it fails in an instructive way. In most occupations an employer whose employee leaves at the end of a contract receives nothing, because the employer never owned anything transferable; football created a tradeable asset out of the right to employ somebody, and the market that grew around it has no real parallel outside sport. The arrangement that replaced it lasted until a Belgian midfielder whose contract had expired was prevented from joining a French club because the two clubs could not agree a fee. He took the case to the European court, arguing that a restriction on a worker moving between member states at the end of his contract could not be reconciled with the free movement of labour. The court agreed in 1995. Its ruling did not abolish transfer fees; it abolished them for players out of contract, which sounds narrow and was not.

D The consequences ran in two directions at once. Players approaching the end of a contract acquired enormous leverage, since a club faced with an expiring contract must either extend it on the player's terms or lose the asset for nothing, and wages rose sharply as a result. At the same time fees for players under contract rose too, because a club now had to be compensated for surrendering an asset it could otherwise retain, and because the money released by the growth of broadcasting had to go somewhere. The share of football revenue reaching players increased substantially, which is what a court ruling on labour law would be expected to achieve. Whether it improved the competition is a separate question and the answer appears to be no: the clubs best placed to pay higher wages were the ones that were already wealthy, and the gap between them and everyone else widened over the following two decades.

E The accounting matters more than it sounds. A transfer fee is not treated as an expense in the year it is paid; it is capitalised and written off across the length of the contract, so that a very large fee spread over five years appears in each year's accounts as a fifth of itself. Wages, by contrast, are charged in full as they are paid. This asymmetry gives clubs a reason to prefer a large fee and a modest wage over the reverse, and it means that the reported financial position of a club depends heavily on how long its contracts run. It also produced, for a period, contracts of eight and nine years offered to very young players, since a longer contract spread the cost more thinly and made the accounts easier to reconcile with the rules; the practice was restricted once regulators noticed what it was for.

F Regulation has attempted to restrain the resulting inflation and has mostly redirected it. Rules limiting losses in relation to revenue were introduced in Europe from 2011, with the intention of preventing clubs from spending money they did not have. Their principal effect has been to entrench the position of clubs whose revenues were already large, since a rule permitting expenditure in proportion to income is a rule that favours whoever had the most income when it was written. Challenging clubs that would once have spent an owner's money to close the gap can no longer do so.

G The stable response has been specialisation. A number of clubs, particularly in Portugal, the Netherlands and Belgium, no longer attempt to compete for major trophies and instead operate as developers: they recruit young players cheaply from South America and Africa, improve them, give them competitive football, and sell them at a multiple of what they paid. The model is coherent, profitable and produces the uncomfortable fact that such a club's most successful season is one in which it loses its best players. A market designed to prevent the concentration of talent has produced a hierarchy in which some clubs exist to supply others, which is precisely what the original restrictions were meant to avoid.