Football can teach businesses plenty of useful strategy

ONCE again, the transfer season for the big five European leagues – in England, Germany, Spain, France and Italy – has seen top players move club for incredible sums. But the evidence shows that not all transfers benefit the buying club. And this not only raises interesting questions for football, but some that can also be applied to business.

Manchester United has just shelled out £24m for Arsenal’s Robin van Persie, while Chelsea paid a whopping £25m for Oscar, a 20-year-old Brazilian. Even in France, where the Socialist government is planning a monstrous 75 per cent tax on earnings over €1m (£785,000), Paris Saint Germain has paid £20m for Zlatan Ibrahimovic.

But are these transfer fees justified? In Simon Kupper’s and Stefan Szymanski’s Soccernomics, they surprisingly find that “the net amount that almost any club spends on transfer fees bears little relation to where it finishes in the league.” The transfer market is highly inefficient, and being a “buying club” rather than a “selling club” doesn’t help your team perform significantly better.

In business, a new chief executive may want to make his or her mark and will fire talented rivals in the company. This can be a costly mistake. In football, some of the most successful clubs have promoted young players from within their own football academies rather than looking outside for talent. Incoming chief executives might be best advised to hold fire before gutting the existing management.

Another costly mistake, which Kupper and Szymanski identify, is to hire the stars of a recent World Cup or European Championship. These players are often overvalued. In the business world there are parallels in companies hiring rising stars from major corporations, who are headhunted to become chief executives of distressed corporations or recently-floated firms. It’s not unlike the football transfer market, where fans demand famous players. According to Kupper and Szymanski, Real Madrid is the “supreme sucker of shooting stars”, having paid £136m for Ronaldo and Kaka in 2009.

Moneyball – Michael Lewis’s famous book on baseball – suggests that there is “a tendency to be overly influenced by a guy’s most recent performance”. But the statistics show that “what he did last was not necessarily what he will do next.” So with business. Success in the software industry is not always a guide to an executive’s ability to run a mobile phone company.

And finally, some footballing nations are overvalued. It is probably easier to sell a mediocre Brazilian player than one from Paraguay to a European club. In the British corporate world, there is also a tendency to hire overseas managers. There are more international chief executives in the FTSE 100 than in the companies of the Forbes 100.

At the end of the day, football, like business, is a funny old game. The glamorous stars of both will always command a high price, whatever their true value.

Gil Shidlo is an academic. He contributes to various London School of Economics publications.