The Efficient Market for Cristiano Ronaldo

Cristiano Ronaldo, perhaps the best soccer player in the world and still only 24 years old, was sold by Manchester United to Real Madrid for 94 million euros (that’s just the transfer fee, and has nothing to do with his salary). Ronaldo:

“I think it’s a fair price. If Manchester and Real agreed on the price, there is nothing to add.”

Eugene Fama could not have put it any better. Perhaps Ronaldo has an investment banking career in his future.

Update: tkt points out in the comments that Zinedine Zidane was actually more expensive in real terms. If I recall correctly his transfer fee was over 70 million euros in 2001, so that’s almost certainly right.

By James Kwak

14 thoughts on “The Efficient Market for Cristiano Ronaldo

  1. Only one logical conclusion can be deduced from this Mr. Kwak. Less time hitting the law books and more time on the soccer field, or as the Brits say “on the pitch”.

  2. At least where it comes to entertainers the costs are (mostly) paid by those who voluntarily use that entertainment, and it’s a small amount compared to the amounts looted in bank crimes.

    Still I wonder, if somehow an entity like major league baseball were facing “collapse”, what would be its chances of successfully lobbying for some kind of bailout, on grounds that circuses are socially necessary or whatever.

    That would simply be extending the logic by which taxpayers already subsidize stadiums although it’s well established that no economic benefits accrue to a city from this. The money spent on construction usually leaves the region, while the local ticket buyers are simply spending on that money they would’ve otherwise spent on something else. It’s not “extra” spending. And the only “permanent” jobs “created” are lousy unviable ones like vending peanuts. (E.g. Athens took a bath on its publicly funded Olympic facilities.)

  3. It’s interesting the way public opinion often comes down against the athlete, and yet nothing is ever said about the far richer owners of the teams.

    Everyone complains about Terrell Owens’ propensity to hold out for a better contract, but no notices that his excess marginal revenue product is just going to go to the billionaire owners of a football team.

    I’d argue with your point that the costs are generally paid for by the fans, though. As you pointed out yourself, taxpayers usually get the bill for the billion dollar playgrounds for the rich and richer. Just ask the city if New York. This is directly subsidizing athletes’ salaries.

    I’d also like to point out that, while a lot of people may not think that the sports industry is much more than a drop in the bucket, total baseball player salary alone for 2009 is somewhere around $2.5 billion dollars. A Forbes estimate of the net worth of the 30 MLB teams alone is around $15 billion.

    Against this backdrop, we have Congress exempting baseball from anti-trust laws; federal, state and local governments literally giving billions of dollars to owners for new stadiums, and the billionaire owners laughing all the way to the bank. It’s all very sordid.

    It is perhaps fitting that this our national pastime.

  4. If I’m not mistaken the discussion regarding his salary is already above 10 million euros per year and could go to 250,000 euros per week.

  5. What’s especially vile is the existence of professional sports at the college level. There the circus isn’t paid for by those who want it but rather subsidized by the college, i.e. the public. (I read that maybe two college football programs support themselves; none support even the athletic department, let alone contribute to general revenue, though that’s always the lie.)

    And this kind of parasitism goes on even as classes are cut and tuition skyrockets, while colleges are increasingly forced to prostitute themselves to corporate money.

    Very sordid indeed.

  6. > what would be its chances of successfully lobbying for some kind of bailout

    Here in Spain, a lot of clubs were engaged in the housing bubble helped by the local/regional governments. For example, Real Madrid sold valuable terrains (the old ‘Ciudad Deportiva’) under the previous term of Florentino¹, then built a new ‘Ciudad Deportiva’ in a newer area. Florentino Pérez himself was a well-known businessman:

    There was widespread corruption linked to the bubble at the local/regional level in Spain, and soccer clubs were not an exception.

    BTW, Zidane was more expensive than Cristiano Ronaldo when adjusted for inflation. Our sport commentators, which range between illiteracy and dumbness, just stare at the big numbers.

    ¹ Florentino quitted in 2006, but recently won the 2009 elections.

  7. what i find fascinating about the european system is that the bulk of the money goes to the owners and not the players.

    back when free agency first hit baseball, oakland a’s owner charlie finley tried to sell – let me see, i think it was joe rudi and rollie fingers to the red sox and someone else to the yanks, something along those lines – players and bowie kuhn ruled that out.

    as a result, all the money goes to the player via free agency-driven salary; in soccer, the big chunk goes to the club, and the player, while well paid (and undoubtedly paid off the books in many ways), doesn’t collect all the coin.

    (I do believe, though, that a player gets 10% of the transfer fee.)

    as for paying up when there is no competition (there wasn’t anyone else that was bidding on cristiano), well, tom hicks of the texas rangers, who committed a comparable purchase when he signed a-rod, has needed financial help from MLB.

  8. Couldn’t agree with you more, Russ. And of course in college sports, the athletes are not given any share in the profits, as the NCAA has literally monopolized the market for college athletics, under the laughable guise of keeping it an amateur association.

  9. The distinctions are profound howard.

    A big part is MLB has 30 owners and a collective bargaining agreement with its powerful player’s union, who most recently went on strike and cut short the 1994 MLB season. European footballers have EU law and the Bosman ruling, and a plethora of leagues with domestic clubs in nations throughout Europe (and the rest of the world). Quite a contrast.

    Manchester United signed Ronaldo for a 5 year deal in 2007. Real Madrid was not bidding against themselves, they were buying the most marketable soccer asset in the world from a club who had the rights to that player through 2012.

    Tom Hicks also owns half of the storied English side Liverpool, and the club is still burdened with the enourmous debt associated with Hicks and George Gillett’s purchase in 2007. The pair are not surprisingly bickering and beyond hated in Merseyside.

  10. Actually,if you adjust Zidanes 78m for inflation over that time it comes in ~91m…so Ronaldo is the most expensive in real terms (Real as in CPI, not the club).

    Still I would choose Zidane anyway…. at least he can use his head.

  11. Hopefully this link will produce a picture of C Ronaldo in Man U’s updated uniform. If it doesn’t, feel free to blame Alex Ferguson or AIG!


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