Money and Football: Big Spenders Take All?

It’s Transfer Deadline: D-Day for many managers and club Presidents across Europe to scramble together their winning team for the months to come. One of the main insights stemming from a “soccernomics” approach is that transfer-fee spending does not lead to positive results on the pitch, but that wage spending does. This relationship was proposed some years ago by sports economist Stefan Szymanski and sports journalist Simon Kuper in their bestseller Soccernomics and, meanwhile, has influenced some of the most powerful people on the business side of sports, such as Ferran Soriano, CEO of the highest-spending sports club worldwide, Manchester City, as evidenced in his book Goal: The Ball Doesn’t Go In by Chance. In an earlier post, I pointed out that a causal relationship going from wage spending to success is very unlikely to exist. Interestingly, in his new book Money and Football: A Soccernomics Guide, Professor Szymanski formally reiterates his stands on the matter, although he actually gives away that it is wrong... I’ll explain very succinctly.

Prof. Szymanski states that there is a very high correlation between wage spending of football clubs and their league position. He now acknowledges that correlation (i.e. two things occurring at the same time) does not automatically imply causation (i.e. one causing the other). However, he points out that, “now there are some statistical tests that one can implement in order to get a better idea about whether a relationship is causal. Some (but) not all of these studies support the view that causation runs from wage spending to league success” – without any indication of what “some (but) not all” concretely means (e.g. two out of ten?, nine out of ten?; which ones yes and which ones no?) He further mentions – and here I certainly do follow – that, “it’s also important to have a theoretical model in mind" and he goes on by suggesting that, "it’s very hard to develop an argument to explain the data that does not entail causality from wages to performance.” Don’t mind if I at least gave it a try:

Wage and talent, or quality, of a player tend to be very highly correlated – including for reasons mentioned by Prof. Szymanski, i.e. that players are operating in a competitive market, with lots of information being available on players and their performance. As a result, a team made up of highly-paid players often reaps success. But the causal driver is the talent, not the wage. In other words, if a same quality player would earn less (within reasonable bounds), performance would be very likely to be the same. For example, do we really expect Kevin De Bruyne to start playing so much better even now than last season just because his wage just nearly doubled? Ridiculous. The driver of – player and team – performance is the quality of the player(s). The wage a player earns is an indicator of that quality, but it does not drive that quality.

Source: mcfc.co.uk

Prof. Szymanski actually confirms exactly that with his “revised formulation” of the pay–performance relationship in his new book. He mentions that money is the key to success, not because by paying donkeys very high wages you will become successful, but because a big checkbook gives you access to superstars (i.e. very high-quality players). It doesn't take a PhD to realize that, if you put two and two together, what this in fact means is that quality, or talent, not wage, drives success. And that quality or talent tends to be highly correlated with wages, due to supply and demand dynamics of the market for players. Prof. Szymanski actually concludes that his "pay-performance line works because there is a market–...the market prices the relationship...between talent and success"! (emphasis added)

For those who love statistics, my conjecture corresponds to a strong suspicion that Prof. Szymanski's results demonstrate what is known in the jargon as omitted-variable bias. According to Wikipedia, "in statistics, omitted-variable bias occurs when a model is created which incorrectly leaves out one or more important causal factors. The "bias" is created when the model compensates for the missing factor by over- or underestimating the effect of one of the other factors." Leaving out an actual variable for talent, or quality, while including a variable that is highly correlated with quality (such as wage) may thus lead to showing a very strong direct relationship between wage and success - but only because talent as such has erroneously been omitted. A look at the original 2002 Journal of Sports Economics paper by Hall, Szymanski and Zimbalist confirms omission of a talent variable in both the regressions and the causality tests.

The main lesson for sports managers out there? Look out for talent, not just to spend your money! Something the likes of Swansea’s Garry Monk realized quite some time ago – partly out of necessity – and something Louis van Gaal still doesn’t – partly for lack thereof. Fortunately for mad King Louis, he seems blessed with Maecenases who don’t seem to either.

Source: BBC's Match of the Day (30/08/15)

Frank Lampard and New York City FC: (No) Way Out of an Arranged Marriage?

When Chelsea FC monument Frank Lampard ended up in the Skyblues kit early this season, under a City Football Group construction, Chelsea fans did not know where they had it. Not that they seemed to really hold it against their former captain – they would later applaud him even after having scored a dramatic late equalizing goal against Chelsea. And they were right not to do so. Irrespective of one’s achievements and loyalty during one’s career, it seems that the hard laws of professional football make that at a certain age top clubs will just gently push their heroes aside, under the form of either a contract extension of very limited duration or a huge wage reduction – and most typically both.

This had been the case of Lampard, who thus decided to embark on the exciting new project of joining Manchester City’s new franchise in the Major League Soccer, New York City FC. At the new City franchise team, he would be playing aside other designated player David Villa. The expected arrival of both at the Big Apple was announced more than half a year before the club would start competing. Notwithstanding the fact the squad did not yet count eleven players, season ticket sales kicked off in earnest, thanks to figureheads Lampard and Villa.

Source: dailymail.co.uk

So as to keep both aging stars in good form ahead of the new MLS season commencing, in March 2015, City Football Group assigned Lampard and Villa to its other portfolio teams, Manchester City and Melbourne City, respectively. While not necessarily always in the starting line-up, Lampard has shown that he is still of great value to a club of the stature of the Premier League Champions. To such an extent even that Manuel Pellegrini is now making it heard he wants to hold on to Lampard, at least until the end of the season. The Citizens are both rather injury plagued and, surprisingly, in the end, made it through to the knock-out stages of the Champions League, only for the second time in their history. Moreover, in the Premier league, the champions are only 3 points behind leaders Chelsea. Pellegrini thus sees in the 36-year old, who scored the only goal in last weekend’s league encounter with Leicester, a “very important player” for his team.

The Chilean does realize it is not just about what he – or even the player – wants, though. There is not only another team (New York City FC – although belonging to the same decision-makers as Manchester City) involved, but also, even much more critically, the Major League Soccer. It is clear that the MLS granted the City consortium the New York franchise based on the expectation to bring in players of the stature of Lampard and Villa. Likewise, newly declared fans bought their season tickets based on the same promise. When you come to the market with a new product, the last thing you would want to do is disappoint those who have been found willing to give you a try. To the extent that the City executives are in need of it, the MLS will surely remind them thereof.

Thus, it may seem unlikely we’ll be seeing Lampard playing his football in Europe much longer. However, every dissatisfactory solution has its alternative. It just happens to be that a very similar player to Lampard – in terms of both position and stature – is being led to the exit by his own Premier-League club. Indeed, Steven Gerrard, who nearly by himself was able to make the tactical errors of his manager Brendan Rodgers (see elsewhere on this blog) undone by qualifying the reds in extremis for the next round of the Champions League, is being forced by Liverpool FC to seriously reconsider his future at Anfield.

Liverpool FC proposed its 34-year-old captain a much reduced pay, from next season onward – should he decide to stay with them as a player – and their non-qualification for the Champions-League knock-out stages is unlikely to give them more financial breathing room. Their worst-case scenario would be to see Gerrard leave for free to a Premier-league competitor at the end of the season – which is not all that unlikely, with Stevie G recently having been linked to West Ham U, who are much more likely even than the Reds to feature in next year's Champions League. Thus, in case they are not willing and/or able to meet his needs, selling Gerrard off over Christmas – the last time the Reds could still get a transfer fee for him – to a cash-rich, non-direct competitor (i.e. NYC FC, through City Football Group) may well be their best available alternative. For Gerrard himself, it could well be an exciting new turn in his career and probably the best way for him to remain an icon at the club where he is most likely to return as staff member sooner rather than later.

Most importantly, for the MLS and NYC FC’s newly declared fans, Steven Gerrard may well be the only worthy and therefore acceptable alternative to Frankie Lampard – which, in turn, could only drive up the asking price for the Reds vis-á-vis City Football Group. A textbook example of a win-win solution? Let’s see if those writing the actual script agree.