Ban transfer fees in professional soccer (football)?

A very interesting piece in the telegraph today where Rory Smith argues that it is time to abolish the transfer fee. This passage of the article had particular resonance, mainly because it smelled like there was some economics present:

In what other sphere do companies have to pay other companies to recruit their staff?

There would be some logic to it if it was a figure reflective of the time left on a player’s contract, the wages they were due to earn, the potential loss to the club, that sort of thing. But an arbitrary sum plucked from an oligarch’s imagination? An amount a local baker decides he desires for a teenager with a season’s mediocrity under his belt? Nonsense. Victorian nonsense. It’s people trafficking in Baby Bentleys. It’s a Roman slave market.

He seems to be saying that transfer fees represent some form of barrier to switching. While transfer fees are higher for better players, and lower when contracts have less time to run (i.e. Liverpool paying  more for Stuart Downing then Manchester United paid for Ashley Young, primarily because Ashley Young only had a year remaining on his contract), I can see some logic to what Rory is getting at. If we abolished transfer fees, then players would presumably still move to where they are most valued by virtue of the wages they would be offered?

What are your thoughts…are transfer fees a historical relic or is there an efficiency justification hiding in there somewhere?

  • I’m confused: are you saying that freedom of contracting is inefficient and we shouldn’t allow people to agree a sum for breaking contracts?!

    • I’m not saying anything, I just posed a question:P

      I just find it interesting that soccer is different from any other job and am interested in people’s thoughts as to why.

      • Is it different from other jobs? If you’re on a fixed-term contract with your employer and decide to leave halfway because of a better offer by one of their competitors might they object? Well, if you’re valuable enough to the firm then certainly. A more common remedy for a breach than monetary compensation might be specific performance but there are cases of compensation. Just look at ‘golden handshakes’ for an example of compensation for a unilateral breach of contract.

        The difference may be that most employees are easy enough to replace that it isn’t worth the effort to haggle for compensation.

        • I can give notice at my job and then go work for a competitor, a football player can’t. That’s where I see a difference.

          Maybe good footballers players being relatively scarce explains the difference.

        • Do you work on a fixed-term, fixed-fee contract, though?

        • Nope.

          So you think the defining feature is that soccer players are on fixed term contracts?

        • Yes. You’re not breaching your employment contract when you give notice but they are. Because you’re not breaching it you’re not liable to your employer but they would be.

          As a test, do transfer fees get paid when a contract comes to a close and the player then signs with another club? I’d guess not because then there’s no breach and no liability. 

        • That’s all fine, and I accept that when you breach a contract the other party should be made whole.

          But that’s not really getting at the issue I think I am interested in, which is why do we have that legal form of contract for soccer players in the first place? And what would the world look like if soccer players weren’t on fixed term contracts but had to give e.g. a seasons notice?

        • Does this help?

        • tl;dr I’m off to the pub then the airport:)

      • Training and investment?  A lot of the players form comes from training.  A football club may only be only willing to invest in this way if they can peg someone to a contract for a number of years – and so they agree on that.  This would be consistent with the fact that the contracts of younger players are for longer periods of time.

        I also have to add the fact that players could just move around constantly if they weren’t pegged to a contract for at least a season.

        • For young players at least compensation has to be paid for training when they move.

          And for established players, if clubs don’t train they play crap and don’t win stuff, so they still have the incentive to train.

          I guess you could characterise the costs of developing players as sunk, which may give a dynamic efficiency reason for recovering them through transfer fees.

  • Do players take a slice of the booty when a transfer free is paid? I recall reading somewhere that some do.

    If so this would certainly change the economics of a deal.  

    • Generally no as far as I understand, though I don’t claim to be an expert! Often there will be sell on fees to a player’s previous club, so some of the fee is passed on to another club.