One thing missing from the Deloitte Money League is revenue from the transfer of players. Why? The big clubs buy more than they sell and since Deloitte is ignoring expenses, it would seem odd to credit Barcelona with 15 million euros for the sale of Dmytro Chygrynskiy and ignore the fact they bought him for 25 million euros the year before. For smaller clubs, though, the revenue from transfers can be quite significant.
Argentina was the top exporter of talent last year, and generated an estimated $500 million in revenue from the sale of 2,204 players. With success in the transfer market like that comes a lot of problems, most notably the degradation of quality of the domestic league. However, if the day ever comes where MLS is producing 2,000 players a year to be sold, I welcome such problems.
The reality is MLS is producing a growing number of players who can play at a higher level and a lot of European leagues are able to offer opportunities to players that MLS cannot. MLS will always have a tough time holding on to its talent, but that’s the case for all but the big 4 leagues in the world. What’s unique to MLS is its failure to capitalize on player transfers.
In the last two years, MLS has only sold 3 players (Sacha Klejstan, Kenny Cooper and Bakary Soumare) and had 9 young, promising players leave for free. Using the estimates from transfermarkt.de as a proxy for potential transfer fees, MLS has missed out on $12.5 million in transfer fees. To put that in perspective, MLS earned an estimated $13 million from TV revenue last year.
| Player | From | To | Estimated Value |
|---|---|---|---|
| Chris Rolfe | Chicago Fire | Aalborg BK (Denmark) | $405,000 |
| Edson Buddle | LA Galaxy | FC Ingolstadt (Germany) | $675,000 |
| Herculez Gomez | Kansas City | Puebla (Mexico) | $2,025,000 |
| Hunter Freeman | Toronto FC | Start (Norway) | $371,250 |
| Michael Parkhurst | NE Revolution | Nordsjaelland (Denmark) | $607,500 |
| Ricardo Clark | Houston Dynamo | Eintracht Frankfurt (Germany) | $1,350000 |
| Robbie Findley | Real Salt Lake | Nottingham Forest (England) | $337,500 |
| Stuart Holden | Houston Dynamo | Bolton Wanderers (England) | $5,400,000 |
| Yura Movsisyan | Real Salt Lake | Randers FC (Denmark) | $1,687,500 |
| Total: | $12,453,750 | ||
Being able to sign a player for free allows a club to take more risks on who they sign, so it’s hard to say if MLS could have sold all of these players. However, 5 of these players were on the 2010 World Cup squad, so there is a lot of talent here that is leaving the league without compensation.
So what’s going on here? Why aren’t teams making money off of player transfers like the rest of the world? I think the key lies in MLS’s unique structure. The league owns the player contracts, not the teams, which sets up a unique incentive system. The league benefits from the sales of players (part of the transfer fee goes to SUM and part to the team in the form of allocation money). However, in the event a player leaves for free, the league is no worse off than it was before. No individual player generates enough revenue on their own to really impact the league’s financial operations. From the team’s perspective, there is a huge downside to losing a player for free. Players of the caliber of Holden and Clark are few and far between. Their impact is obvious as Houston went from Western Conference Finalists in 2009 to failing to qualify for the playoffs in 2010. The league can afford to play hardball with transfer negotiations because there is no incentive not to, but when teams own the contracts, they are more willing to sell a player rather than lose them with no compensation.
As the league matures, its structure needs to evolve with it. Having the league own the contracts is detrimental to the league. The talent drain is inevitable, but not being compensated for it is avoidable.
