Is Gareth Bale worth 100m euros?
Over the summer the major pre-occupation for football supporters, has been the “transfer season” or transfer window as it is known. This is the period when clubs can buy and sell players.
Spurs made all the big news, selling, loaning or simply making redundant 24 players made up of 9 nationalities and buying 11 players – also made up of 9 nationalities. That is a huge turnover and Altair has obviously offered its services to Spurs to help with team-building. We also run a great recruitment service, so they may want to contact us next time they are looking to buy. Exiting players from the squad can also be difficult, but we have offered to help with HR advice, negotiating terms and out-placement.
The club spent somewhere in the region of £107m. However they received £111m for the players they sold. Good business? The centrepiece of all these transactions was the sale of a modest, clean living but brilliant young Welshman to Real Madrid for £86m. Is Gareth Bale worth £86m?
Is a collection of eccentric Picasso brush-strokes worth £20m? Elementary economics would tell you that price is a factor of supply and demand and you can apply those principles to the Gareth Bale question. There is only one of him and a lot of rich clubs wanted him to play for them. The truth is these are abnormal markets, where notions of value are reliant on individual preferences and social context distorts price.
The housing market can function in this way also. I have a client who told me that he was at a property auction in Belfast recently where good condition, three-bed houses were selling for £5k – which is a fraction of the cost it took to build them. He tells me that Northern Ireland property auctions are now dominated by overseas investors, buying up spare property at bargain basement prices. At the other end of the market, a parking space in Knightsbridge was recently on the market for £300k. It was pictured in the marketing literature playing host to a Mini Cooper. The space was valued at 20 times more than the car it was accommodating.
All the main commentators are observing sustained growth in house prices over the last three months – good news if you own a home, bad news if you are trying to get on the ladder, particularly in London and the South East. We know that given the inability to access home ownership many otherwise first time buyers are opting to rent, which is stimulating a frenzy of buy-to-let purchases. I spoke with a director in West London recently and he commented that whilst the market may be thawing, he had already witnessed some instances of “over-heating”. Developers paying too much for land too early and aspirant young owners over-committing to over-priced properties.
It’s all madness! Is a car park space in Knightsbridge really worth £300k? Is a Picasso worth £20m? Is Gareth Bale worth £86m? Whatever the economist’s answer, the rational answer has to be “No”. These judgments of value and worth are consistently distorted in ways that do not correspond to economic rationality.
Are you are facing difficult questions about volatile, unusual, dodgy or unpredictable markets? Call Altair. We can help.
Chris Wood is an Altair partner, with expertise in development and regeneration. Chris can be contacted on 07932 693292 and firstname.lastname@example.org