Is Raheem Sterling Overpriced? Football Inflation and the Transfer Window

(Ed. note: This week, VICE Sports previews the start of the 2015 Premier League Season. You can find all the stories here.)

Rio Ferdinand, the former Manchester United defender, had a point when he recently said English footballers were so overpriced it was a "joke," comparing the £50 million valuation of Raheem Sterling against the £38 million that City paid for Sergio Aguero in 2011.

Yet I can show that in '2015 money' Aguero actually cost £65.6 million. Indeed, in 2015 money Ferdinand himself cost Leeds £52.1 million in 2000 and Man United a staggering £82 million in 2002. Once adjusted for football inflation, Ferdinand's two big-money moves rank 17th and 3rd, respectively, in the most expensive transfers in the Premier League era. That makes him the only player to feature twice in the top 20.

For more than five years, I've been working with Graeme Riley on the Transfer Price Index (TPI), which measures the average price paid for a Premier League footballer each season, and then measures the change in that figure—in other words, football inflation.

Since 1992, while standard inflation in the UK hasn't even doubled, there has been an eleven-fold increase in the average cost of a footballer. So when Alan Shearer moved to Blackburn in 1992 for a British record of £3.3 million, our TPI system rates that at £37.3 million; whereas using standard inflation it becomes just £5.9 million. Which seems closer to your perception of the current price for one of the country's best strikers? (Good luck buying an elite striker, aged 22, for £5.9 million.)

Football inflation runs much faster than standard inflation, not least because each new TV deal pumps tons more money into the game. For proof, look at the following graphic, which shows TPI versus standard inflation, and then look at the incredible similarity between the rise in money from the broadcasters and the increase in the average cost of a player. The spikes and dips are virtually identical.

The average price of a Premier League footballer doesn't always rise. Indeed, between 2008 and 2013 it fell more often than it rose, perhaps as the global economic crash took effect, coupled with the impending introduction of FFP, which, clubs knew, meant that they that had to earn money to be able to spend it. The Transfer Price Index shows that prices also fell in 2003, when the new TV deal negotiated for 2004-07 was worth less than the previous one, as it looked like the bottom may be falling out of the market. The next two TV deals were somewhat better, if unremarkably so; only the two most recent deals have blown everything out of the water. The average price of a Premier League footballer has virtually doubled since 2012.

Teams

Converting all transfers to current day money allows us to compare teams across different seasons. After all, in theory, if a club buys all the best players in 2013 they will have a cheaper team, in uninflated terms, than a club buying all the best players in 2015; but if you judge both in 2015 money, you can get a better picture of the level of investment. The more time that has elapsed, the bigger the difference: Manchester City's 2011 deal with Aguero for £38 million is worth £65.6 million today. Even at that price he seems a good value, and that's what it would now take City or a rival to procure an equivalent talent, if he was tied to a full contract.

Clubs that spent big during periods of deflation, or in depressed markets, seem more expensive in 2015 money. When Chelsea and Manchester United were spending £20 to £30 million on individuals between 2002 and 2004, they were doing so at a time when most other clubs were struggling financially, on account of the impending reduction in the TV deal. It was 2008 before prices got back to their previous levels, coincidentally – or rather, not at all coincidentally – when a new, more lucrative TV deal took effect. Transfer prices rose massively in 2013 in accordance with another new deal, and now, in the summer of 2015, clubs know that the biggest ever increase is guaranteed ahead of the 2016-17 season, from £3.018 billion to £5.136 billion.

Obviously every transfer involves its own unique set of player valuations from both the buyer and the seller, and these can at times seem somewhat arbitrary; it's all about what the player is worth to both clubs, and not just a perceived open-market value. However, the sums of money with which clubs can negotiate is rising. Therefore the selling club can hold out for more money, knowing that the buying club is suddenly richer. For all the apparent arbitrariness, the average price of a player clearly rises and falls in keeping with the money sloshing about the game.

So right now, everyone has to recalibrate what a £50 million player looks like. A £50 million player from 2010 (Fernando Torres) is now a £72 million player. Both Torres and Ferdinand were 23, and long-established internationals. Now a 20-year-old with a lot of promise (Raheem Sterling) costs £50 million.

"Tomkins' Law"

I recently took all the TPI data and, by creating a coefficient, analysed what transfers can be termed successful, what can be labelled neutral, and worst of all, what deals resulted in flops. My previous rule of thumb – a guesstimate based on looking back at 50 years of Liverpool's transfers – was that half of all deals aren't particularly successful, either in terms of the number of games the player features in or whether a profit or loss was made.

I now believe based on over 3,000 transfers, that approximately 40 percent of all deals are better than neutral. (People started dubbing this Tomkins' Law, without me having to bribe them.) The success rate rises only to around 50 or 60 percent on the most expensive players. (As a note here, the only deals I assess are ones in which the player has later been sold, because anyone still at their club has the chance to change perceptions. Once a player leaves the club, you can draw a line under the deal and assess it.)

Indeed, if Angel Di Maria leaves Man United for Paris Saint-Germain this summer, he'll go down as a flop – not many games played, big financial loss – and that will mean that of the sixteen most expensive Premier League buys in 2015 money, eight have been clear failures. (Di Maria currently ranks 12th in cost, even though he holds the British record, because £58.9 million in 2014 was not as much as £30 million was in 2002, or £15 million was in 1996. In real terms, Di Maria wasn't as costly as Wayne Rooney, Rio Ferdinand, Andriy Shevchenko, or even Shaun Wright-Phillips.)

Part of Chelsea's advantage between 2003 and 2006 in particular was that Roman Abramovich's vast wealth bore no relation to the TV deal, at a time when everyone else was relying on it (although Manchester United had built a massive commercial empire). Mourinho's squad the first time around remains the costliest in Premier League history, because Chelsea's spending was so far beyond everyone else's. Second time around, the Portuguese has achieved success on a more modest budget – albeit still well above those of all other clubs, barring the two Manchester giants.

£XIs

A few years ago, I coined the term £XI: the average cost of each team's XI in all 38 league games, adjusted for football inflation. At the Transfer Price Index, we noticed that this was a much more accurate reflector of a team's eventual finishing position than its squad cost; it's essentially what makes it into the starting XI each week.

TPI's co-creator, Graeme Riley, used the term "wastage" when he realised that, on average, most clubs' £XI is only half that of their overall squad value; in other words, in the course of the season half of the squad cost will be either on the bench or in the stands. This average applies to pretty much all clubs, no matter where they finish, and it's an increasing trend.

When Arsene Wenger won his first two league titles with Arsenal, in 1998 and 2002, he did so – which some may find surprising – with the costliest £XI in the Premier League. Admittedly this was when the £XIs of the top five or six clubs were fairly similar, but even so, it shows that for all his genius, he still had the most expensive side. This was no longer the case by 2004, when Wenger yet again won the title with what remains his best-ever team. At that point, Chelsea's spending had started, although they didn't have the right manager in Claudio Ranieri, and the initial round of investment at Stamford Bridge was somewhat chaotic.

Since then, Arsenal have never even been close to having the costliest £XI, in part due to building a new stadium. By 2006, their £XI wasn't even half of what Chelsea were fielding, and suddenly Arsenal weren't winning the league anymore, or even getting close. A manager with three Premier League titles under his belt couldn't wave a magic wand, now that his team had been pushed down the financial table. My sense remains that Wenger would have two or three league titles with Manchester City and their budget, and that Roberto Mancini and Manuel Pellegrini wouldn't have won the league with Arsenal.

It's also interesting to note that 2004 was the last time a relatively inexpensive side won the league. The last 11 titles have all been won with £XIs in excess of £236 million (in 2015 money), peaking with the £379 million Chelsea side in 2006. Last year, Arsenal's £XI was just £162 million, £3 million more than Liverpool's. Both Arsenal and Liverpool have tended to hover between £130 and £160 million in the past decade, although unless there's some big activity at the Emirates, Liverpool appear set to move back above Arsenal in the £XI rankings for 2015-16.

Last year, I called this £236 million-plus figure the Title Zone. Only three clubs have posted £XIs this high, and they are Chelsea, Manchester United, and Manchester City – the only champions since 2004. Even though their big spending started in 2008, City did not challenge for the title until they entered this zone, in 2011.

Now, it's easy to say that this is just coincidental. If these clubs each bought a dozen rubbish players from the Third Division for ludicrous fees, they'd probably fall from the top spots. But obviously they don't do something that stupid. Even though they sign duds and successes at roughly equal rates over a longer period of time, they do so with a roster of (mostly) fully established international players, who have stellar pedigrees and all kind of positive attributes.

They then employ the best coaches and managers, who only want to work with the best players, and demand to be paid their own high salaries, which is beyond the means of the less rich clubs. They also have some of the best analytics and sports science departments, so that smaller clubs can't usurp them by being smarter.

Any of the Rich Three can have a bad season, especially under the wrong manager, but to date they've not all had bad seasons at the same time. If the aim was to just finish above Manchester United, then Liverpool and Arsenal would have titles in the past two seasons. But it's not just United anymore; this isn't 1997. When Chelsea were relatively disappointing in 2013-14, Manchester City were not. City were relatively disappointing last season, Chelsea were not. My hunch for this coming season is that City, Chelsea, and United will all be strong, given the squads they have assembled and their managerial stability.

What's more, over the past ten years, the average finishing position of each costliest £XI (which has been a mixture of Chelsea, City, and United) is first; the average finishing position of each second-costliest £XI (also a mixture of Chelsea, City, and United) is second; the average finishing position of each third-costliest £XI is third; and so on. Only below 10th does it not ring true, although the average finishing positions for the three cheapest £XIs are 18th, 19th, and 20th.

Until someone can win the Premier League title with a much cheaper £XI, either with clever tactics or with some uncanny use of analytics that procures hitherto unearthed gems, then my belief will remain that money is the key factor in success. Money alone doesn't guarantee success, but it allows everything to be put in place. Spend a massive amount of money reasonably well and have a better than competent manager (like Mancini and Pellegrini), and if you avoid excessive bad luck (lots of injuries to key players) you'll stand a chance of winning the title. Spend less money really well, and have a genius as a manager, and you'll probably finish third or fourth—just like Arsenal.

Who spent well, and when

As previously noted, when Roman Abramovich arrived he had an almost scattershot procurement policy for the first three years. Chelsea spent massively on Andriy Shevchenko (£82.9 million), Michael Essien (£78.4 million), Didier Drogba (£73.2 million), and Ricardo Carvalho (£60 million), but also spent in excess of £40 million each on Juan Veron, Adrian Mutu, Hernan Crespo, Shaun Wright-Phillips, Paulo Ferreira and Damien Duff, plus £33 million on Scott Parker (all prices after TPI inflation). More recently, Chelsea have been much wiser, with only Oscar (£40.5 million) and Eden Hazard (£51.9 million) costing in excess of £35 million in 2015 money. Juan Cuadrado appears a flop at just under £30 million, but otherwise Fabregas, Costa, Willian and Matic have contributed to a spate of buys that betters the 50-50 average. Chelsea have also managed to sell fringe or unwanted players for hefty fees.

By contrast, City appear to have spent badly since 2012. Their two titles were won on the back of players purchased mostly between 2008 and 2011: three freakishly cheap recruits – Joe Hart, Pablo Zabaleta and Vincent Kompany – and the wise additions of Aguero (£65.6m), David Silva (£36m), Samir Nasri (£39.7m) and others; with Joleon Lescott, at £38.3m, also helping them to their first modern-era title. They had a fair few expensive flops in that time, but the successes outweighed them.

However, between 2012 and 2015 they spent £247m on 15 players and you'd struggle to find more than three decent signings in that lot (20 percent), and one of those was the brief loan of Frank Lampard. At £42m, Mangala currently looks like an insane purchase, although he's still fairly young for a center-back.

City retained enough good players from before this period to be competitive last season, and invested enough money to push on – but in contrast to the earlier period, their recruitment let them down.

Last season's costliest £XI actually belonged to Manchester United. As with City, their investments proved poor in the short term. Di Maria looks set to be a costly mistake—who would have guessed that a year ago?—while another world-class talent, Radamel Falcao, cost £16 million in loan fees (plus his wages), and also flopped. Luke Shaw, at over £30 million, also offered little, but he's still a teenager.

Having just finished seventh, United couldn't challenge for the title in such a massive transitional period, even with the most expensive £XI. I'd expect them to be better this time around, in Louis van Gaal's second season. As things stand, they are still likely to possess the costliest £XI, but it obviously depends on who is fit and in form for each of the Rich Three.