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Transfer Fee Regulations and Player Development

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  • Marko Terviö

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; the transfer fee is the price of that agreement. Transfer fees have been defended as a necessary incentive for clubs to invest in 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 allocate scarce playing opportunities efficiently among players of different levels of known and potential ability. We show that total surplus is lower without transfer fees because playing time gets reallocated towards older players with less upside potential. The resulting increase in player salaries exceeds the transfer fee costs for each level of ability. (JEL: J31, J41, K12, L83) (c) 2006 by the European Economic Association.

Suggested Citation

  • Marko Terviö, 2006. "Transfer Fee Regulations and Player Development," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 957-987, September.
  • Handle: RePEc:tpr:jeurec:v:4:y:2006:i:5:p:957-987
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    Citations

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    Cited by:

    1. Eberhard Feess & Michael Gerfin & Gerd Muehlheusser, 2015. "Contracts As Rent-Seeking Devices: Evidence From German Soccer," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 714-730, January.
    2. Colin Green & Fernando Lozano & Rob Simmons, 2015. "Rank-Order Tournaments, Probability of Winning and Investing in Talent: Evidence from Champions' League Qualifying Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 232(1), pages 30-40, May.
    3. Norbäck, Pehr-Johan & Olsson, Martin & Persson, Lars, 2016. "Talent Development and Labour Market Integration: The Case of EU Football," Working Paper Series 1126, Research Institute of Industrial Economics, revised 14 Mar 2018.
    4. Müller, Michael, 2015. "Leiharbeit im Profifußball: Sind Leihspieler stärker motiviert?," Discussion Papers of the Institute for Organisational Economics 6/2015, University of Münster, Institute for Organisational Economics.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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