Scottish Journal of Political Economy, Vol. 54, No.

3, July 2007 r 2007 The Author Journal compilation r 2007 Scottish Economic Society. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA

THE FOOTBALL PLAYERS LABOR MARKET: EMPIRICAL EVIDENCE FROM THE MAJOR EUROPEAN LEAGUES
Bernd Frickn

Abstract

The growing economic importance of professional football and the recent fundamental changes in the regulatory regime governing the football players labor market together with the availability of detailed information on player salaries, transfer fees and contract lengths have convinced an increasing number of economists from all over Europe to devote their attention to the operation of that particular market. The following paper reviews the available evidence on the various dimensions of that market (remuneration, transfers, contracts and mobility) and points out some promising directions for further research.

Introduction

European football is unquestionably the worlds most popular sport (Matheson, 2003). Apart from Europe it is the national sport of most of the countries in Latin America and Africa. Even in Asia, football is catching up rapidly. Not surprisingly, therefore, the market values (measured, e.g., in terms of aggregated individual transfer values of the players under contract) of the largest football clubs in Europe are close to those of the most valuable sports franchises in the United States.1 It appears from Table 1 that average team values vary between 55 and 116 million h with the most expensive teams (FC Chelsea London, Real Madrid, FC

The title by no means suggests that this paper is comparable with Rottenbergs (1956) pathbreaking analysis. It is, however, thought to honor his achievements (for a discussion see also Sloane, 2006 as well as Siegfried and Sanderson, 2006) as well as the works of Peter Sloane (1969, 1971) who was the rst European economist to direct our attention to professional football. n Department of Management, University of Paderborn 1 Compare, for example, the gures presented in Deloitte and Touches Football Money League (formerly known as the Annual Rich List) including the top 20 European football clubs and the information provided by Forbes (until 1998 by Financial World) on the valuation of professional sports teams in the United States.

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Table 1 Market values of rst division teams in the Big 5 European leagues 2005/20062006/2007 (in h1,000) Average transfer value per team 112,880 116,353 86,332 71,921 82,695 96,924 62,642 65,915 54,159 54,991

Country England

Season 2005/06 2006/07

Aggregated transfer value 2,257,600 2,327,050 1,726,635 1,438,420 1,653,905 1,938,475 1,127,550 1,186,075 1,083,175 1,100,000

Minimum 36,550 FC Sunderland 20,800 Watford FC 17,300 Ascoli Calcio 14,000 Ascoli Calcio 3,400 FC Cadiz 19,225 Gim. de Taragona 21,800 MSV Duisburg 16,750 Energie Cottbus 8,100 FC Nancy 12,275 AFC Valenciennes

Maximum 366,075 FC Chelsea 404,775 FC Chelsea 319,500 Juventus Turina 271,050 Inter Milano 328,250 Real Madrid 355,850 FC Barcelona 192,725 Bayern Munich 182,150 Bayern Munich 156,375 Olympique Lyon 166,425 Olympique Lyon

Italy

2005/06 2006/07

Spain

2005/06 2006/07

Germany

2005/06 2006/07

France

2005/06 2006/07

Notes: a Relegated at the end of the 2005/2006 season due to involvement in a league-wide bribery scandal. Source: http://www.transfermarkt.de

Barcelona) reaching levels far beyond h300 million each.2, 3 At the same time, however, each of the ve leagues under consideration also includes a number of small teams that sometimes not even reach two-digit gures (such as FC Nancy in France and FC Cadiz in Spain).4 As, in Europe, access to the rst division in professional football depends mainly on sporting performance and not on the size of the market the variance in team values is considerably higher than in the US Major Leagues, where franchise rights tend to be sold to investors from large metropolitan areas only. Irrespective of these differences individual player salaries and endorsement contracts for football celebrities are now at par with
2 The Turkish Super Lig is number six in terms of the aggregated market value of its teams. Their value, however, is less than half of that of the French teams. In terms of sporting performance in the Champions League and in the UEFA-Cup, the Portuguese league is ranked on sixth place in Europe. During the last 5 years the Portuguese teams have only been slightly less successful than the German clubs (for the development of the 5-year-moving average of club performances see UEFA 2006). 3 Average roster size of rst division football teams is about 25. 4 It is no accident that the names of the poor teams change while those of the rich teams remain the same: Given the close relationship between market values and sporting performance, the poor teams are very likely to be relegated at the end of the season.

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the incomes of American Basketball, Baseball, and Football stars. Top players such as Ronaldinho, Thierry Henry, Andrey Shevchenko, Frank Lampard, Patrick Vieira, Michael Ballack, Ronaldo and David Beckham are earning between h10 and 20 million per year.5 Until recently, however, European football has received less attention from academic economists than any of the big four American team sports (football, basketball, baseball and (ice) hockey). The reasons for that lack of interest are manifold:  First, until recently individual player salaries were kept as a secret by the teams management and for a long time not even the teams wage bills were made available to the public (the only outlier being England; see Szymanski and Kuypers, 1999). Fortunately, there is at least one notable exception from the rule that individual wages are top secret. It is, surprisingly, Germany the country where data protection legislation and the still dominant club system in professional team sports helped the clubs to avoid publishing their salary gures for many years. In the more recent past, however, a nationwide Sunday newspaper (Welt am Sonntag) and a highly respected soccer magazine (Kicker) started to collect and publish the data i.e., required to analyze the (potential) determinants of individual player salaries. While still the only country where salary information is available for every single player in every season since the mid 1990s, the situation is improving in other European countries too.  Second, it is now a commonplace even among European economists that professional team sports offer a unique opportunity for labor market research: There is no research setting other than sports where we know the name, face, and life history of every production worker and supervisor in the industry. Total compensation packages and performance statistics for each individual are widely available, and we have a complete data set of workeremployer matches over the career of each production worker and supervisor in the industry. . . . Moreover, professional sports leagues have experienced major changes in labor market rules and structure . . . creating interesting natural experiments that offer opportunities for analysis (Kahn, 2000; p. 75; with similar arguments Rosen and Sanderson, 2001). It is, therefore, not surprising that in Europe we now observe a development that is similar to the one in the United States in the 1980s. With the availability of longitudinal data on individual players, the number of studies looking at the determinants of salaries and transfer fees and of contract and career duration has increased rapidly (and continues to do so).  Third, due to excessive restrictions on player mobility the market for football players had virtually nothing in common with the general labor
5 The 5-year contract that David Beckham signed in January 2007 with Los Angeles Galaxy of the US Major League Soccer is estimated at h250 million (including endorsements). This is by far the most lucrative contract that has even been agreed upon in professional football.

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market until the mid 1990s. With the verdict of the European Court of Justice in the case of Belgian player Jean-Marc Bosman vs. his club RFC ` Liege (published in December 1995) the situation has changed dramatically.6 Basically, that ruling has sent shockwaves across the national football leagues by challenging the two basic principles on which the national player markets had been operating for decades. On the one hand, football leagues had implemented strict protectionist controls on the number of foreign-born players allowed to appear in a particular match. On the other hand, a transfer fee had to be paid in case that a player wanted to change clubs even if his contract had expired. Both provisions have been declared incompatible with Article 48 of the Treaty of Rome, which relates to freedom of movement of labor. Not surprisingly, the ensuing liberalization of the player market had pronounced consequences for individual salaries, transfer fees, contract lengths and player mobility.

Thus, the availability of detailed information on player salaries, transfer fees and contract lengths together with the recent dramatic changes in the regulatory regime governing the football players now international labor market have convinced an increasing number of economists from all over Europe to devote more attention to that particular market. The following papers main focus is, therefore, on the various dimensions of that market and on the forces shaping its operation. It concentrates on the determinants of player remuneration (See Player remuneration in European football), transfer fees (See Transfer fees in European football), career duration (See Career durations in European football), contract length (See Contract lengths in European football) and discrimination (See Is discrimination an issue in European football?).7 Each of the sections starts with some descriptive ndings, followed by the results of selected econometric analyses which, in turn, will then be critically evaluated. However, as the number of empirical papers is rapidly increasing (we are far from experiencing decreasing marginal returns; additional studies are still urgently required) a review of the state of the art can never be complete. Finally, Section III summarizes the strengths and weaknesses of the available evidence and points out some promising directions for further research.
6 A number of theoretical papers have asked whether the verdict has reduced the teams incentives to invest in player training (see Campbell and Sloane, 1997; Simmons, 1997; Szymanski, 1999; Antonioni and Cubbin, 2000; Ericson, 2000; Dilger, 2001; Feess and Muehlheusser, 2003a, b; Tervio, 2004). 7 Although closely related to the players labor market, I do not review the existing literature on head coaches (see, inter alia, Breuer and Singer, 1996; Dawson et al., 2000; Koning, 2000; Poulsen, 2000; Hautsch et al., 2001; Audas et al., 2002; Salomo and Teichmann, 2002, Bruinshoofd and ter Weel, 2003; Dios and Forrest, 2007, Frick and Simmons, 2006; ter Weel, 2006). Moreover, I deliberately disregard the literature on team salaries and playing success (see, inter alia, Lehmann and Weigand, 1997; Szymanski and Smith, 1997; Szymanski and Kuypers, 1999; Forrest and Simmons, 2002, 2004, Hall et al., 2002; Frick, 2005) as it is only indirectly related to the labor market issues discussed here.

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Labor Market Structure and Labor Market Outcomes

Player remuneration in European football Contrary to the situation in the United States, the European football clubs have few incentives to join together to hold down player salaries,8 because most of the individual clubs try to maximize utility (i.e., sporting success) instead of prots (Sloane, 1969; Kesenne, 2007).9 Therefore, increasing revenues from ticket sales, merchandising activities and especially the sale of broadcasting rights have induced a massive increase in player salaries in all of the major European football leagues. In Germany, for example, team wage bills doubled between 1992/1993 and 1996/1997 and again doubled between 1996/1997 and 2000/2001 (see Huebl and Swieter, 2002; p. 111). The increase in individual player salaries mirrors these developments (see Figure 1). In 1995/1996 (1996/1997) average player salaries reached h550,000 (h572,000). When, in the late 1990s, the league sold the TV rights to the Kirch group, average salaries increased considerably (from h800,000 in 1999/2000 to h1,144 million in 2002/2003). Following the collapse of the Kirch group, salaries went down (to h951,000 in 2004/2005) before they started to increase again (once more following conclusion of a new TV contract). At the start of the 2006/2007 season, average salaries have surpassed the h1 million barrier again. A number of papers using data from just one season have identied player age and experience, the number of international caps, the number of goals scored in previous seasons and player position as the major determinants of player salaries. While the rst three variables have a signicantly positive, but decreasing impact, this is not the case with regard to career goals, where a linear impact can be observed (see Table 2). With respect to player position, it appears that the degree of specialization signicantly affects remuneration. Goalkeepers are usually the most specialized players, i.e., they cannot be used in any other position and, therefore, earn rather low salaries. Midelders, on the other hand, are the least specialized players who can be used in the offense as well as the defense. Thus, most studies nd that midelders earn a signicant premium. Summarizing, most of the available studies rely on a small number of individual performance measures when trying to explain the observable variation in player salaries (mainly age, experience, number of league and international appearances, number of goals scored and player position). Apart from the small number of exogenous variables, most of the statistics used are rather indirect measures that only imperfectly reect a players value to his team. A rst exception from that rule is Lehmann (2000) who nds that the number of assists and tackles won (more direct measures of a players
8 This also applies to other team sports, such as Handball, Basketball, Volleyball and Ice Hockey. 9 The ensuing rat race has, in turn, led to massive nancial problems in most, if not all, of the European leagues (with regard to the ve leagues under consideration in this paper see Ascari and Gagnepain, 2006; Baroncelli and Lago, 2006; Buraimo et al., 2006; Frick and Prinz, 2006; Gouget and Primault, 2006).

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1600

1400

1200

1000

800

600

400

200 1996

1997

1999

2000

2001

2002

2003

2004

2005

2006

Figure 1. The development of player salaries in the German Bundesliga 1995/19962005/2006. Figures in nominal Euros: upper line, forwards; second line, midelders; third line, defenders; bottom line, goalkeepers Source: Kicker (special issues), 19952006; own calculations (gures not available for 1998).

performance) have a statistically signicant inuence on individual salaries while the number of times a player is replaced during a season has a signicantly negative impact on his earnings. Moreover, Lehmann and Schulze (2005) as well as Franck and Nuesch (2006) document existence of a superstar effect by including the number of Google hits as a measure of a players popularity in their wage equations. Recently, three different extensions of the traditional estimation framework have emerged in the literature:  First, only one of the available studies uses longitudinal data. As Frick (2006) demonstrates, player age, career games played and international appearances have a positive, yet decreasing impact on salaries. The impression gained from Figure 1 goalkeepers are at the lower end of the salary distribution is reinforced by the estimation results: defenders earn about 10% more, midelders have a 15% premium and forwards enjoy an even higher pay premium (130% compared with the goalies note, however, that the position dummies also control for goal-scoring ability).  Second, Frick and Simmons (2007) not only include rather indirect productivity measures but also analyze the impact of a particular (and presumably highly valued) capability of professional soccer players to handle the ball perfectly with both feet on the individuals remuneration. They use a large cross-section data set with information on more than 2500 players who at the beginning of the 2005/2006 season were under contract by one of the rst division teams in either England, France,
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Table 2 The determinants of player salaries in European football

Author(s) and year of publication Dependent variable/ estimation technique Signicant ndings Log of gross annual salary (modied market values); random- and xed-effects estimates Log of market value; OLS regressions

Data

Frick (2006)

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Garcia-delBarrio and Pujol (2005, 2006) Log of gross annual salary; OLS (with robust standard errors) and quantile regressions

1,025 players appearing in the German Bundesliga in the seasons 2001/20022005/2006 (2,385 player-year-observations) 369 players appearing in the Spanish Primera Division in 2001/ 2002

B E R ND F R I C K

Lehmann and Schulze (2005)

359 players appearing at least in one match in the German Bundesliga during the seasons 1998/19991999/2000

Feess, Frick and Muehlheusser (2004)

604 players appearing in the German Bundesliga in the seasons 1994/19951999/2000

Log of standardized annual salary; random effects estimation

Lucifora and Simmons (2003)

533 players (excluding goalkeepers) appearing in the Italian Serie A or Serie B at the beginning of the 1995/1996 season

Log of gross salary, net of bonuses and signing-on fees; OLS regression

Positive: age, career games, international caps, defender, midelder, forward (ref. category: goalkeeper), eastern European, western European, south American (ref. region of origin: German) Negative: age2, career games2, international caps2, tenure Positive: Google hits, aggregate performance index, international caps, European cup matches, European player (ref.: Spanish), midelder, forward (ref.: goalie) Negative: international caps2, European cup matches2, NonEuropean player, defender Positive: age, goalkeeper, forward, goal rate interacted with forward dummy, assist rate interacted with midelder dummy, tackle rate interacted with defender dummy, number of Google hits Negative: age2, goal rate interacted with forward dummy2, assist rate interacted with midelder dummy2, tackle rate interacted with defender dummy2, number of Google hits2 Positive: contract duration, contract duration interacted with Bosman-dummy, age, career games played, member of national team, western European, other countries (ref.: eastern European), midelder, forward (ref.: goalie), team qualied for European cup competition, capacity utilization Negative: age2, career games played2, semi-professional (dummy) Positive: age, games in Serie A and/or Serie B in season 1994/1995, prior career games in Serie A and/or Serie B, goal rate (linear and squared), international caps, superstar status (measured by deviation from goal rate)

Table 2 (Continued )

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Author(s) and year of publication Dependent variable/ estimation technique Signicant ndings

Data

Huebl and Swieter (2002) Log of gross annual salary; OLS regression

574 players appearing in the German Bundesliga in the seasons 1994/19951999/2000

Log of gross annual salary; OLS, random effects- and 2SLS-estimate

Lehmann (2000)

463 players appearing in the German Bundesliga in 1999/2000

T H E F O O T B A L L P L A Y E R S L A B O R MA R K E T

Lehmann and Weigand (1999)

468 players appearing in the German Bundesliga in the season 1998/1999

Log of gross annual salary; OLS regression

Negative: age2, games played in 1994 in Serie A and/or Serie B2, prior career games in Serie A and/or Serie B2 Positive: age, defender, midelder, forward (ref.: goalie), career games, team change, contract duration, international caps, team qualied for European cup competition, log sponsoring revenues Negative: age2, career games2 Positive: goals scored, games played last season, western European, eastern European, other countries (ref.: German) tackles, assists, log sponsoring revenues Negative: substitutions Positive: goals scored, career games, western European, eastern European, other countries, log attendance, log sponsoring revenues; team qualied for European cup competition Negative: goalkeeper, defender, forward (ref.: midelder)

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Germany, Italy or Spain. A descriptive analysis of the data reveals that the majority of the players are right footed (62%); the percentage of leftfooted players is 22%. Only 16% of the players in the ve leagues are equally strong with both feet. Controlling for age, height, player position (dummies for midelder and forward; reference group: defender) and national league (dummies for Serie A, Primera Division, Premier League and Ligue 1; reference league: Bundesliga) it appears that both-feet players enjoy a pay premium of more than 50%. Moreover, left-footed players also receive a statistically signicant premium of 15%. These premiums are identical across the ve European leagues (the respective interaction terms are statistically insignicant). This nding is compatible with the idea that due to the liberalization of the national player markets induced by the Bosman ruling in late 1995 a European salary model for players has emerged in the meantime.  Finally, Huebl and Swieter (2002) as well as Feess et al. (2004) nd that contract duration has other things equal a signicantly positive inuence on annual player salaries. This is not surprising as contract length is an increasing function of a players potential (i.e., better players are signed to longer contracts which can be termed the selection effect). At the same time, however, a players performance will be lower, the longer his contract (i.e., guaranteed multi-year contracts reduce player effort a phenomenon that can be termed the moral hazard effect). If long-term contracts are indeed used to reward the better players, it remains to be seen whether the selection effect is larger than the moral hazard effect or whether the latter outweighs the former (see Contract lengths in European football below).

Transfer fees in European football As in any team sport, the trading of players between clubs has always been commonplace in football. Contrary to the major leagues in the United States, however, where players are usually traded for other players or for future draft picks, players in European football are usually traded for cash settlements. Average transfer fees in the Bundesliga, for example, have increased from h350,000400,000 (in the seasons 1981/19821986/1987) to more than h4 million in 2001/2002 before they declined again to less than h2 million in 2006/2007.10 Moreover, the percentage of player moves involving payment of a transfer fee has declined from more than 95% in the 1980s and until the mid 1990s to less than 40% in the more recent past. Clearly, this development is to be attributed to the Bosman ruling stipulating that for a player who wants to change clubs after his contract has expired, no transfer fee has to be paid. This does not mean, however, that out-of-contract players are cheaper than players who still have a valid contract when moving from one team to another. In the former case, the
10 The development was (and continues to be) very similar in, for example, the United Kingdom (see Dobson and Gerrard, 1999).

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4500 4000 3500 3000 2500 2000 1500 1000 500 0 1981/82

1986/87

1991/92

1996/97

2001/02

2006/07

Figure 2. The development of transfer fees in the German Bundesliga, 1981/19822006/2007. Nominal gures in h1,000; upper line: transfers with fee40; lower line: all transfers.

new team usually pays a signing bonus to the player. Although these signing fees are usually not disclosed, anecdotal evidence suggests that their level is comparable with the transfer fees that are being paid for observationally similar players still under contract at the time they move from one club to another (Figure 2). The observable variation in transfer fees11 can largely be explained by the same variables that also affect player salaries. Player age, career games played, and international caps all have a positive yet decreasing inuence on the amount of money paid for the services of a player (see Table 3). Moreover, characteristics of the buying as well as the selling club have also been shown to inuence transfer fees. The more successful the buying and/or the selling club is (either in economic or in sporting terms), the higher the transfer fee that the two clubs agree upon. Again, there are some extensions to the traditional framework of analysis that deserve to be mentioned in this context:  First, as transfer fees are quite often a matter of dispute between selling and buying club, most European leagues have implemented some kind of an arbitration procedure. Controlling for arbitrated settlements (Carmichael and Thomas, 1993; Reilly and Witt, 1995; Speight and Thomas, 1997a, b), however, produces mixed results. Some studies nd that arbitrated fees are higher than those on which buyer and seller agree while others nd that they are signicantly lower.  Second, as the probability of being traded to a new club is not identical for all players, the estimation procedure employed in almost all of the
11 In Germany, for example, the respective standard deviation is in every single year (1981/ 19822006/2007) higher than the mean, suggesting that the variation is indeed quite large.

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Table 3 The determinants of transfer fees in European football a

Author(s) and year of publication Signicant ndings Log of transfer fee in constant 1996 prices; OLS regression

Data

Dependent variable/ estimation technique

Eschweiler and Vieth (2004)

254 transfers in the German Bundesliga in the seasons 1997/ 19982002/2003

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Feess, Frick and Muehlheusser (2004)

239 transfers in the German Bundesliga in the seasons 1994/ 19951999/2000

Log of standardized transfer fee; OLS regression as well as Heckman twostep estimation (with n 5 604)

B E R ND F R I C K

Frick and Lehmann (2001)

1,211 (out of 1,269) transfers in the German Bundesliga in the seasons 1983/19841999/2000

Log of transfer fee in constant 1985 prices; OLS regression

Dobson, Gerrard and Howe (2000)

114 (out of 198) transfers in semi-professional (non-league) English football, 19881997

Log of transfer fee; OLS regression

Positive: log sponsoring revenues and log attendance of buying club; buying/selling club qualied for European cup competition, defender, midelder, forward (ref.: goalie), age, FIFA-coefcient of country of origin, international caps Negative: age2, international caps2 Positive: remaining contract years, remaining contract years interacted with Post-Bosman regime, age, career games played, international caps, forward, buying club qualied for European cup competition, player is from south America Negative: age2, career games played2, player is a semiprofessional Positive: age, career games played, career goals scored, international caps, selling club from western Europe, south America, time trend Negative: age2, career games played2, international caps2, selling club from German third division, north America, Asia Positive: age, goals scored previous season, average attendance of selling club in previous season, number of seats in buying clubs stadium, average attendance of buying club in previous season Negative: age2, league position of selling club in previous season, goal difference of selling club in previous season, stadium capacity of buying club

Table 3 (Continued )
Dependent variable/ estimation technique Signicant ndings Log of transfer fee; Heckman two-step procedure to control for selection bias Log of transfer fee in constant 1990 prices; OLS regression

Author(s) and year of publication

Data

Carmichael, Forrest and Simmons (1999)

240 mover as opposed to 1,789 stayer in the English football leagues in 1993/1994

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Dobson and Gerrard (1999)

1,350 english football League transfer fees (out of 2,215 moves), June 1990August 1996

T H E F O O T B A L L P L A Y E R S L A B O R MA R K E T

Speight and Thomas (1997a)b Log of transfer fee in constant 1990 prices; OLS regression, joint estimate (all cases) as well as separate estimates (arbitrated vs. negotiated cases)

217 arbitrated settlements on disputed transfers referred to the Football League Appeals Committee, 1978/19791991/ 1992 and 187 transfers settled by negotiation during 1990/ 1991 season Log of arbitrated fee, nal buyer offer and nal seller offer in constant 1989 prices

Speight and Thomas (1997b)c

164 arbitrated settlements of disputed transfer fees for outof-contract players in English football league, 1985/1986 1989/1990

433

Positive: age, games played for current club, games played for other clubs, goals scored in league matches, goals scored in cup matches, international caps Negative: age2, selling club playing in second, third or fourth division Positive: age, career games played, career goal scoring rate, games previous season, goals previous season, international caps, under 21-international caps, goal difference of buying club previous season, buying club playing in rst or second division, goal difference of selling club last season Negative: age2, number of previous clubs, career games played2, league position of buying club previous season, league position of selling club previous season Positive: age, games played previous season, average attendance of buying club in previous season, buying team playing in rst, second or third division (ref. league: fourth division), average attendance of selling club in previous season, league position of selling club, selling club playing in rst or second division Negative: age2, league position of selling club previous season squared, arbitrated settlement (dummy) Positive: age, international caps, career goals scored, number of games played in previous season, average attendance of buying club, goal difference of buying club previous season Negative: age2, selling clubs goal difference, league position of buying club previous season, buying club playing in third or fourth division

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Table 3 (Continued )
Dependent variable/ estimation technique Log of transfer fee; OLS regression Signicant ndings

Author(s) and year of publication

Data

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Reilly and Witt (1995)

202 transfers in the English football leagues in 1991/1992

B E R ND F R I C K

Carmichael and Thomas (1993)c Log of transfer fee; OLS regression

214 transfers in the English football league in the season 1990/1991

Positive: appearances last season, goals scored current season, age, forward, full international, seller is a rst, second or third division club; buyer is a rst, second or third division club (ref.: club is from fourth division) Negative: number of previous clubs Positive: average attendance of buying club in previous season, goal difference of buying club in previous season, buying club playing in rst, second, or third division (ref. league: fourth division), goal difference of selling team in previous season, selling team playing in rst or second division, career games played, arbitrated fee (dummy) Negative: league position of buying club in previous season squared, league position of selling club in previous season squared, player age squared

For ease of presentation, signicant interaction effects are not reported in column major ndings. Results from estimations with selling clubs last offer and buying clubs last offer are virtually identical and are not displayed here for sake of brevity. Table includes only results from preferred estimation.

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50 45 40 35

435

Percentage

30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Number of Years

Figure 3. The duration of football players careers in the German Bundesliga, 1963/19642002/2003.

available studies is likely to produce biased coefcients (see Carmichael et al., 1999). Controlling for these individual differences in the probability of transfer via a two-step procedure delivers results that are comparable with the ones produced by simple OLS- or Tobit-estimates. However, it also appears that players who can command higher transfer fees are more likely to be transferred.  Third, particularly since the mid 1990s, that is, as the passage of the Bosman ruling, the number of remaining contract years is likely to be a major determinant of the transfer fees paid (this is due to the fact that under the new regime the old team cannot command a transfer fee any longer when the players contract has expired). Unfortunately, only one of the available studies has included that variable when estimating a hedonic price equation. Although their results are as expected, the study by Feess et al. (2004) may suffer from a sample selection bias as they have used a rather small sample of transferred players (n 5 239). It cannot be ruled out entirely that the cases where contract duration and transfer fee have been published in the popular press are not a random sample of all transfers that have occurred over the period under investigation. Career durations in European football Player careers in professional football are of a rather short duration: average career duration (dened as the total number of years an individual has been playing in the German Bundesliga, ignoring exits and re-entries) is 4 years while average spell length (dened as the number of years without any interruption) is 3.4 years. Nearly half of all spells and more than one third of the carers last for just one season (see Figure 3 as well as Frick et al., 2007).
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Only a minority of o10% of all careers/spells exceed 9 years. Thus, due to its competitiveness, the environment is from the players point of view a risky one. It is not surprising, however, that the duration of player careers is signicantly inuenced by a number of individual, team and environmental characteristics. First, individual performance has a statistically signicant impact on spell as well as on career duration. While age has a statistically positive inuence on the probability of being eliminated from the Bundesliga, the number of games played and the number of goals scored per season both have a statistically negative inuence. Moreover, sanctions in the form of yellow or red cards have no inuence on the probability of being eliminated. As expected, defenders, midelders and forwards have signicantly shorter spells and careers than goalkeepers. Perhaps surprisingly, defenders survive considerably longer than midelders and especially forwards (especially in case of the latter group, evaluation is particularly easy, because number of goals scored is an obvious and objective measure of performance). Moreover, players from Eastern Europe, Western Europe and South Americans face a signicantly higher risk of being eliminated from the Bundesliga. This, however, is certainly not necessarily indicative of discrimination in the sense that either managers or spectators prefer players of German origin. Rather, especially players from Western Europe and South America may leave the Bundesliga because they sign more lucrative contracts with teams in Spain, Italy, England and France. This explanation, however, does not apply in the case of players from Eastern Europe, who may indeed suffer from discrimination (see Is discrimination an issue in European football? below). With regard to team and environmental characteristics, the following results are worth mentioning:  The poorer the performance of the team (in terms of league position at the end of the season), the higher the individual players risk of termination (an increase in the nal position by one rank increases the probability of being cut by almost 10%).  When looking at the impact of the Bosman ruling and the ensuing liberalization of the player market on individual careers, Frick et al. (2007) nd that the respective coefcients are negatively signed and highly signicant, indicating that a liberalized player market does not reduce, but rather increases the career durations of Bundesliga players. Given the inux of cheap labor especially from Eastern Europe, Africa and Asia this is a surprising nding. A possible explanation for this observation might be that the additional labor supply deters shirking behavior within the incumbent workforce (see Contract lengths in European football below). One major decit of the available studies is that they do not take into account the different reasons for terminating an employment relationship. As players may either leave their former club voluntarily or involuntarily, it is necessary to estimate competing risk models that take into consideration different events such as retirement, upward mobility (signing a contract with a team in a more
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prestigious league), downward mobility (signing a contract with a second- or third-division team) and lateral mobility (moving to another team in the same league) (for a rst approach in this direction see Goddard and Wilson, 2003, 2004). Moreover, the available data in principle allows testing Rottenbergs (1956) invariance hypothesis as well as Daly and Moores (1981) transactions cost approach. In case the invariance hypothesis holds we should observe that player mobility is unaffected by changes in the legal environment, such as the Bosman ruling of the European Court of Justice in December 1995. If, however, transactions costs are reduced by restricting player mobility, then excess mobility detrimental to the value of the league may be the consequence of such a liberal regime.

Contract lengths in European football A rst descriptive nding (Huebl and Swieter, 2002 as well as Feess et al., 2004) is that average contract length has increased by about 6 months (or 20%) after the Bosman ruling. While in the pre-Bosman era contract duration was, on average, 2.5 years it is now close to 3 years. This, in turn implies that every single season about one-third of the players is negotiating a new contract (Figure 4). Feess et al. (2007) use an unbalanced panel with detailed information on some 1,800 player-year observations from the German Bundesliga in the seasons 1996/19972002/2003 and nd that player performance (measured not only by the usual performance statistics, such as goals scored and number of appearances, but also by an overall player rating from Kicker) signicantly increases in the last year of the contract. Moreover, the variance in player performance is also signicantly lower in the last year. Depending on the specication of the model, a players performance increases by 23% per year as his contract elapses.12 This is by no means trivial. As players can be and are indeed monitored day by day not only by their coaches but also by millions of sports fans, such an increase in performance is certainly surprising. It mirrors a players possibilities to increase his effort as he expects to benet from being more devoted to his job. Equally interesting in the context of that paper is yet another question: do these contract-related changes in individual performance affect team performance? If the performance measures used are important to the clubs, team outcomes should follow the individual players performance, i.e., to rise when many players are in the last year of their contract and to fall when many have signed new (multi-year) contracts. Thus, to examine whether changes in individual player performance actually affect team performance, the authors estimate a xed effects model with the average team grade as the endogenous variable and the number of points at the end of the season as the dependent variable. Taking into account that an individual players performance improves
12 Moreover, Feess et al. (2004) nd that the degree of moral hazard is lower in the postBosman as compared with the pre-Bosman regime.

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35 30 25

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Percentage

20 15 10 5 0 0 1 2 3 4 5 6

Number of Years Remaining

Figure 4. Distribution of remaining contract durations in the Bundesliga, 1997/19982002/2003.

considerably in the last contract year, the potential improvement in the teams performance can be easily calculated. On average, four players are up for contract negotiations each season.13 If that gure increases by two, the team will secure slightly more than one additional points. If half of the roster (instead of one quarter) is in the last contract year, the team will win two additional points.14 Given the usually close competition, these differences matter indeed. In some of the seasons already under consideration one point more would have resulted in either avoiding relegation or in securing qualication for a European cup competition. Unfortunately, the number of studies on the performance effects of contract duration is still very small. It is especially this area where further empirical studies are urgently required. As information on contract duration has been and still remains difcult to obtain, progress in this area will be slow. Is discrimination an issue in European football? Especially since the mid 1990s, the percentage of foreign-born players has been increasing in most, if not all, all of the European football leagues (today, even Russian teams hire players from Brazil or from Africa). Figure 5 documents the decline of the percentage of German-born players in the Bundesliga over the past 4 decades. It appears that at the beginning of the new millennium that share has dropped below 50%. Although this is prima facie evidence against the hypothesis that either managers, domestic players and/or fans are discriminating
13 These are regular players only, i.e., those appearing in at least 25% of the matches played over the course of a season. 14 A larger share of players negotiating a new contract can, of course, also be problematic for the teams managers, because they may nd themselves in a hold-up situation where particularly the stars can credibly threaten to sign with another team.

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100

439

90

80

Percentage

70

60

50

40 1964

1974

1984

1994

2004

Season

Figure 5. Percentage of German-born players in the Bundesliga, 1963/19642005/2006. upper line, weighted by number of appearances; lower line, unweighted.

against foreigners, it is at best a necessary, but certainly not a sufcient condition. Discrimination is said to occur when individual characteristics of a player (such as his race or nationality) that are clearly irrelevant for his productivity have an inuence on pay, transfer fees, playing time and career duration. A number of studies summarized in Table 4 have analyzed various aspects of discrimination. Although the evidence is not completely conclusive, discrimination is apparently not a problem. Moreover, according to the studies quoted in Table 2 above, foreign players in the Bundesliga are not paid less, but very often are paid more than otherwise similar German athletes: Frick (2006) for example nds that players from Eastern Europe earn about 15% higher salaries than comparable German athletes while players from Western Europe have a 30% higher pay and the ball artists from South America enjoy a 50% premium. These ndings are not only in accordance with the argument that on a highly competitive (labor) market discrimination is unlikely to persist, they also suggest that all the players are paid according to their marginal product. Players attracting additional spectators and inducing these additional spectators to buy merchandising products have a higher remuneration even after their contribution to the performance on the pitch has been controlled for. Similarly, country of origin usually has no inuence on the transfer fees paid once individual player characteristics are controlled for. Neither Frick and Lehmann (2001) nor Reilly and Witt (1995) who explicitly address the question nd any evidence of discrimination against, for example, black players or players from eastern Europe.
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Table 4 Discrimination in the European football leagues

Author(s) and year of publication Dependent variable/ estimation technique Signicant ndings

Data

Pedace (2005)

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Wilson and Ying (2003)

86 English teams (seasons 1996/19972000/2001 (n 5 455 team-yearobservations) English, French. German, Italian and Spanish rst division, seasons 1996/ 19971999/2000 (n 5 380 team-year-observations)

Team performance Gate attendance Fixed- and random-effects estimation Average number of points won per game Home attendance 2SLS- and OLS-estimation

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Preston and Szymanski (2000)

38 English clubs (seasons 19781993; 570 team-yearobservations)

An increased presence of players from South America is detrimental to team performance, but increases average attendance. No other nationality group exerts a comparable impact on either sporting performance or on attendance A larger share of players from the Balkans region of eastern Europe, from Brazil and from the non-domestic four European countries all have a statistically signicant positive effect on team performance. A larger share of players from the states that originated from the former Soviet Union decreases home attendance while a larger share of players from western Europe increases fan interest Number of black appearances has a signicantly positive inuence on team performance, but no statistically signicant impact on gate attendance. This implies that discrimination against black players does not have its source in fan preferences

Szymanski (2000)

38 English clubs (1978 1993; 624 club-yearobservations)

Kalter (1999)

422 players under contract in German Bundesliga in season 1997/98

Log odds of nal league position Gate attendance Arellano and Bond panel estimation Log odds of nal league position First differences with instrumental variables Log of number of replica shirts sold Tobit-estimation

Clubs with above average proportions of black players achieve a systematically better league position than their wage bill justies. Clubs hiring no black players had to pay a 5% premium in terms of their wage bill to maintain their league position compared to a non-discriminating team Controlling for individual and team characteristics, players originating from eastern Europe sell signicantly fewer replica shirts while players from south Americans sell signicantly more than observationally similar Germans, i.e., fan preferences are a likely source of discrimination

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Finally, Frick et al. (2007) suggest that there is no discrimination against players from specic areas of the world with regard to the duration of their individual careers. The positive and statistically signicant coefcients for Eastern Europeans, Western Europeans and South Americans may at rst sight suggest that players from these regions face a higher risk of being eliminated from the Bundesliga. This, however, is certainly not necessarily indicative of discrimination in the sense that either managers or spectators prefer players of German origin. Rather, especially players from Western Europe and South America often leave the Bundesliga because they sign more lucrative contracts with teams in Spain, Italy, England and France. This explanation, however, does not apply in the case of players from Eastern Europe, who may indeed suffer from discrimination. Kalter (1999), for example, has recently shown that the number of replica shirts sold is signicantly inuenced by the players origin: while shirts with the names of players from Eastern Europe do not sell well, those with the names of South American players are bestsellers. Thus, the nding that teams may discriminate against players from Eastern Europe should be subject to further research. The most pertinent question in this context is whether teams pay a penalty for their managements or their supporters taste for discrimination (for empirical evidence on this point see, e.g., Szymanski, 2000). III Summary and Implications for Further Research

Since the mid 1990s, the labor market for football players has been subject to an already large and still increasing number of empirical studies. This growth can be attributed to a number of different yet closely related developments. First, the football industry has in the last 15 years enjoyed an unprecedented growth, which turned it into an economically relevant part of the service sector in general and the entertainment industry in particular. Second, the labor market for football players has experienced changes in its regulatory framework that are unparalleled in other labor markets. Starting with the Bosman ruling of the European Court of Justice (issued in late 1995) and the ensuing liberalization economists have started to look at that particular labor market as a kind of a laboratory that deserves more attention. Third, the increasing availability of detailed information on player salaries, transfer fees, contract lengths and career durations made thorough empirical analyses feasible that until recently could only be conducted by economists working with data from the Major Leagues in the United States. As transfer fees have been disclosed for quite a while already, European economists have rst tried to explain the observable variance by estimating hedonic price equations including as endogenous variables player characteristics as well as characteristics of the buying and the selling clubs. Later on, a number of papers appeared that applied a very similar framework to explain the variance in player salaries (these studies, however, usually suffered from small sample sizes and/or less reliable salary information). More recently, papers on the
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determination of contract lengths as well as on player mobility and career durations have been added to that list. These developments notwithstanding, a number of questions have not yet been dealt with adequately.  In principle, a large number of additional measures to explain the observable variance in player salaries are available to the researcher, but have not yet been used in empirical analyses. Each player appearing in a regular season match in the German Bundesliga for at least 30 min is graded by the journalists of a highly respected soccer magazine (Kicker) with a school grade. Given the relative paucity of individual performance measures, such a composite index should be used in further analyses. Moreover, as it is not yet clear, whether aggregate career performance or performance in the previous season matters most for player salaries (as well as for transfer fees) future studies should include both (i.e., career games played as well as games played last season, career goals scored as well as goals scored last season, etc.).  Apart from only one exception, none of the available studies on the determinants of transfer fees takes into account the fact that remaining contract duration is likely to be of major importance. This decit is certainly due to the fact that the duration of individual player contracts is usually not disclosed. Assembling that information for a representative sample of players is very time consuming and, therefore, costly.  The empirical analysis of individual career durations is still in its infant stage. Although most of the required information is easily accessible, more elaborate models that distinguish between voluntary and involuntary separations have yet to be estimated. Moreover, as that data is usually available for rather long periods of time (several decades), it is also possible to analyze changes in the relative importance of player and team characteristics as well as changes in the regulatory regime.  The duration of individual player contracts apparently varies with the peculiarities of the regulatory regime. Following the Bosman ruling average contract length increased by about 20%. It is very likely, that under the new Monti-regime, which stipulates a maximum duration of 5 years, the average has declined again. As contract duration is an important part of an incentive compatible remuneration package, the behavioral consequences of alternative contract lengths deserve closer investigation.  Although the high (and still increasing) shares of foreign players seem to suggest that discrimination is not an issue in European football, several ndings warrant further investigation. If, for example, players from Eastern Europe have other things equal shorter careers and sell fewer replica shirts while having no adverse effects on ticket demand, discrimination may or may not exist. Clearly, further analyses using additional data (such as player of the match or team of the day information) are required.
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Finally, we certainly need more comparative studies that carefully control for the peculiarities of the national labor markets.15 However, given the liberalization of the player market and the internationalization of the individual teams in each of the leagues under consideration one would expect virtually identical coefcient in hedonic salary and/or transfer fee equations using data from different leagues. References
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Date of receipt of nal manuscript: 10 March 2007

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