Valuing replacements: opportunity cost in the transfer market

I don't think I need to explain just how ridiculous player transfer fees and wage levels are now across football. The average fee for a Premier League player in now well over £12m, wages are well above £50k a week, nudging nearer to £100k for first team ready players.

Everybody wants that 'missing piece of the jigsaw' that is going to turn them from also-rans to challengers.

I've written before about how fear of missing out is a huge driver in the recruitment of young players, most of whom will never make the first team.

One concept from American sport I feel we are missing is 'value above replacement'. What does a generic football player at various levels do? If you swapped a player in your team for that generic player what would be the impact?

So for example, if we say an average top 5 league striker is going to offer 14 G+A a season then clearly swapping them for Messi is going to have a much greater negative impact on Barcelona than swapping them out for Steve Mounie would for Huddersfield.

Messi would, therefore, have a 'value above replacement' score of +37 (because of ~51 actual G+A) whilst Mounie might be -9.

If you were valuing players you would see that Messi is worth a vast amount of extra points compared with a generic replacement but if Mounie demanded league average wages you may be better looking elsewhere.

The problem with very simple averages like this is the impact of teammates on performance. Does Messi at Huddersfield score more than Mounie at Barcelona?

There are lots of very cool models that try to solve these problems but my basic point is this, clubs need to consider whether a new player is really THAT much better than the players already on their payroll to justify the opportunity cost of that investment.

What do we mean by opportunity cost? The loss of other alternatives when one option is chosen.

So if you have £1 and go into Poundland the opportunity cost of that small Toblerone is every alternative item priced at £1.

I doubt even people who read this sort of blog keep a running track of every purchase and agonise over small spending decisions. 

But if you are buying a car, let alone a house, you will probably do a lot more research. You will look at alternatives, check the market to see all the options, and look for the best value you can get. If there are two identical houses next door to each other, both for sale at the same time you would expect them to be priced very similarly.

If one was twice the price of the other there is no way any rational person would purchase it.

You have essentially just looked at the 'value over replacement' and made a rational decision based on data. Congratulations, you have a decision-making process that is more sophisticated than a lot of football clubs seem to have from an outside perspective. 

Where I think rational thinking could have the biggest impact for smart clubs is combining a proper value over replacement system with an appreciation of opportunity cost.

Example:
The club has £20m (plus £80k a week wages for 5 years) available to spend.

Scenario
The club has identified a new midfielder. The manager and coaching staff think he is better than the alternative players already on the books. They think the money should be used to sign him.

Value over replacement: Look at all his key metrics, adjust them for the relative strength of the team he plays on, compare them with all existing alternatives already at the club and a generic "league average" player. How much better will this one purchase make the team?

Opportunity cost: What else could £20m (plus £80k for 5 years) buy? In 5 years time, what are the expected payoffs of either purchase?

My personal view is that teams massively overvalue the novelty of the new over long term sensible planning. We seem to have lost sight over just how much money £20m plus £5m a year in wages really is.

As my favourite current example let us consider an alternative use of this £20m (plus £5m a year on costs):

Buy Sochaux: Cost £~10m.
Clear debts: £~10m
Cover deficit: £5m a year until a sensible structure in place then run at break even.

So for the same price as one Premier League player you now own a debt-free Ligue 2 club with a history of player development and are running it at break-even level.

You now have the club that has developed Ibrahima Konaté, Jerome Roussillion, Marcus Thuram, Jerome Onguéné, Lucien Agoume, Jeandro Fuchs and many more over the last 10 years.

I may have mentioned once or twice in the past that there are quite good players to be found in the French second tier.

Keep up the current production rate of the academy, use the French work permit system to access markets in Africa unavailable to PL clubs, rebuild a great club.

In 5 years time, the smart club owner could easily own both a PL team and a Ligue 1 club and could have one of the best pipelines and player development pathways around.

Could it all go wrong? Of course, but so do a LOT of transfers. I see the risk as being far lower but the complexity being far higher. Are clubs prepared to take a long term approach?

Only by properly assessing alternative uses of the vast sums of money demanded of PL club owners for very small improvements to the first team, will the middle tier of clubs actually be able to challenge for trophies.

And surely that is the point of it all?