Winner’s Curse and the English Premier League Transfer Window
Every summer, European clubs compete to sign the most talented players in what could be compared to a common value auction. “Common value” means that the value of item is the same for all bidders involved, although they may not be sure of what that exact value is. In September of last year, Premier League clubs voted for an earlier deadline to summer transfer signings in reaction to complaints that signings during the beginning of the season were too much of a disruption. The deadline was moved to August 9, just barely before the start of the Premier League season and several weeks before the European deadline of August 31st. The idea was that this would prevent the confusion and panic of last-minute signings during the first couple weeks of the season. But was this new policy really beneficial for the clubs?
Added to this summer’s transfer window was the excitement of the World Cup. As expected, there was a flurry of competition and signings after many promising performances this year in Russia. However, after the World Cup final on July 15th, the English clubs had barely 3 weeks left in the window to make their signings. The shorter time window meant pressure for earlier signings, as was the case for clubs like Liverpool. They signed Brazil’s Alisson -and good for them, because he’s an incredible goalkeeper and will be valuable to the team following the departure of Loris Karius to the Turkish league. This meant that his “individual value”- what he is worth specifically to Liverpool because of their circumstances, was particularly high. However, their world record fee of 65 million English pounds (around $85 million USD) bumped up the common value of goalkeepers for the entire English league. Watching someone else splurge on an item leads others to think it is more valuable. The notion of higher common value for goalkeepers led Chelsea to break the record again a few weeks later to sign Spanish keeper Kepa Arrizabalaga.
What may seem like two excellent signings for top tier clubs could actually be a good example of Winner’s Curse- the tendency to overbid on an item because of lack of information or other factors. Whether they are caught up in the excitement of signings or making a gamble on a player whose talent is still uncertain, teams always run the risk of spending more than they should. The transfer market gives managers the opportunity to rebuild their teams at a price, and some clubs will run transfer balances down to -$100 million in one transfer window. The payoff of the signing can only be determined based on the player’s performance over the next few seasons. Will Alisson and Arrizabalaga live up to the hype? Are superstar players’ buyout clauses really indicative of their true value (looking at you, Ronaldo)? Was PSG in their right mind to completely shatter the record transfer fee to sign Neymar Jr. from Barcelona (~$260million USD)? Only time will tell.
https://theconversation.com/premier-league-how-an-early-transfer-window-caused-clubs-to-pay-more-for-top-players-101835