Transfer Fee Regulations and Player Development

Journal of the European Economic Association, Vol. 4, No. 5, pp. 957-987, 2006

31 Pages Posted: 1 Nov 2004 Last revised: 22 Feb 2009

Date Written: September 15, 2005

Abstract

This paper studies the role of transfer fees in professional sports, where players can commit to binding long-term contracts. They cannot switch clubs before their contract expires unless the old club agrees to let them go; transfer fee is the price of that agreement. Transfer fees have been defended as a necessary incentive for clubs to invest into training their young players. The apparent absence of significant training costs (compared to the level of transfer fees) has undermined this defense. We present a model without training where an industry of clubs with heterogeneous marginal revenue products for player ability and a population of players with various levels of talent and experience match. Transfer fees are needed to efficiently allocate scarce playing opportunities among players of different levels of known and potential ability. We show that total surplus would be lower without transfer fees because playing time would be reallocated towards older players with less upside potential. The resulting increase in player salaries would exceed the current transfer fee costs for each level of ability. We also study the effects of early termination penalties, transfer taxes, and non-tradable contracts.

Keywords: Transfer Fees, Sports, Football, Regulation

JEL Classification: J31, J41, K12, L83

Suggested Citation

Terviö, Marko, Transfer Fee Regulations and Player Development (September 15, 2005). Journal of the European Economic Association, Vol. 4, No. 5, pp. 957-987, 2006. Available at SSRN: https://ssrn.com/abstract=610741 or http://dx.doi.org/10.2139/ssrn.610741

Marko Terviö (Contact Author)

Aalto University ( email )

P.O. Box 21240
Helsinki, 00101
Finland

HOME PAGE: http://hse-econ.fi/tervio

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