Transfer Fee Regulations in European Football

Abstract

We analyze the impact of three different transfer fee systems on payoffs, contract lengths,training and effort incentives in European football. The different regimes, being used until1995 (”Pre-Bosman” or P), currently in use (”Bosman” or B), and recently approved (”Monti”or M) differ with respect to the transfer fee an initial club must accept in case of a transferdepending on whether a player has a valid contract or not. We show that the differentsystems differ only with respect to the contract length if the contract which maximizes theexpected joint surplus of the initial club and the player is feasible under each system.Otherwise, regime P is strictly dominated by regime B in terms of expected social welfare.Regime M leads to higher effort but lower incentives to invest in training compared to systemB.

Keywords: investment incentives, breach of contract, transfer fees, Bosman judgement, Labor contracts, general skills, externalities

JEL Classification: J41, K12, L83