Smarter recruiting: Negotiations and contracts
Sometimes it's the little things that make signing a player possible – a new car, a relationship with a sponsor, a nice air freshener in the changing room... but these trivialities only exist within the greater framework of negotiations and contracts. Club directors have their own ways of dealing with these concerns, but there is some fundamental logic that underpins the formalities of signing and selling players. Here's a quick rundown.
Negotiating. In most cases, negotiations with players, agents, and clubs are what economists would call a repeated game. We won't just be negotiating with these people one time; chances are, we'll run into them again and again over the years. So we have to consider how our credibility and reputation may change as a result of each deal.
As an example, a club may need to miss out on a few players to tell the market that it will not overpay, or that it will never accept revised terms on deadline day. This is especially true for negotiators who are new to the market. They need to establish a reputation as soon as possible to avoid inefficient outcomes.
Credibility is also important. If a club says it will pay no more than a fixed amount for a player, and then it does pay more – as Manchester United did with Ander Herrera – its credibility is damaged for all to see. In these situations, a club may have to find a way of committing itself to a maximum fee, so that its negotiating partner can see that exceeding the maximum would be too damaging. For example, a club might publicly tell the media its maximum fee, so that paying more would lead to substantial embarrassment.
In fact, the public eye can be a useful tool. To put pressure on its negotiating partner, a club eager to close a deal might openly declare the fee it was willing to pay for a player – and then add that the fee would go down by a certain amount with each passing day. The same goes for a player arriving on a free transfer; a signing bonus may essentially replace the transfer fee, and the bonus may drop as negotiations drag on. When the club makes this kind of credible commitment, both sides know the constraints of the deal.
Wage structure. Clubs usually benefit from having a simple and transparent wage structure. For instance, a club might set four tiers of wages for senior players based on historical performance, experience, and talent. Players coming to the club would know where they stood from the beginning. For a player like Arsenal's Bukayo Saka to move from one tier to another as part of a contract renegotiation, all involved would have to agree that the change was deserved. In other words, a player would have to argue successfully that his or her contribution to the squad was at least as valuable as that of the players on the next tier.
Wages within a structure are thus set by a sort of notional consensus rather than an endless series of one-on-one negotiations. Moreover, changes in wages can be made across the board rather than individually, so that conforming to a budget and long-term planning are much more straightforward. When the structure changes, players move onto the new wage levels as they renew their contracts.
Pay for performance. Players can be rewarded for their performances on an individual or team level. In theory, bonuses for individual achievements have the advantage of being directly traceable to a single member of the squad; no one can take credit for what someone else has done. Yet in a team sport, outcomes are rarely credited to just one player.
A striker playing in front of an attacking midfielder who serves up chances on a platter will always score more goals. A goalkeeper playing behind the league's best back line will always record more clean sheets. And rewarding a single outcome can create unusual incentives for a player, anyway. A striker with a goal bonus might never pass the ball; at the very least, we'd want to offer a similar premium for assists.
Bonuses for appearances can solve some of these problems, since appearances show a coach's confidence that the player is making a worthwhile contribution on the pitch. Minutes played are probably a better measure of this confidence, however, and even they can reflect situations that have little to do with a player's performance. If a club is carrying two RBs and one is injured, then the other will naturally play more minutes, even if the coach preferred the first one. Indeed, the best individual bonuses might be the ones based on a consensus that takes into account a player's overall role at a club, such as a player of the season award voted on by the squad.
We shouldn't discard the importance of squad-based bonuses, either. Rewarding the whole squad for good results can create a useful dynamic whereby players enforce discipline amongst themselves; at the very least, there's likely to be an increase in peer pressure during training. Squad-based bonuses might allow underperforming players to be passengers, but weighting the bonuses can help to mitigate this issue.
Let's say a club has set an overall bonus pool corresponding to certain results. If the results are achieved, the club could split part of the pool equally – to ensure that bench players who still contributed in training were rewarded – and then divvy up the rest according to minutes played.
Most clubs will want to link pay to performance as much as possible, especially if their own revenues depend on results. Then the overall wage bill can be directly connected to different levels of revenue. Yet this practice shifts risk to players, who are less capable of assuming risk than clubs. A player only has one source of income, whereas a club has a diverse portfolio of players. Confident players may still prefer pay for performance, but clubs need to be careful of engendering an atmosphere that puts players under too much pressure – they should still spend most of their time thinking about their game, not their pay slips.
Options, sell-on clauses, buyout clauses, and the like. These clauses can add complications that do not always benefit a club, and so they should be compensated accordingly. For instance, a buyout clause only has value to the player. It prevents a club from negotiating for a higher price once the player's value has risen to a pre-specified level, and the club also loses a measure of control over when a player will leave – as Atletico Madrid found out when Barcelona offered the €100m required to sign Antoine Griezmann. So all other things equal, a player seeking a buyout clause would have to accept lower wages or other benefits than one who wasn't.
Sell-on clauses force a club to share the risk inherent in a player's future value rather than taking a fixed share of that value up front. Usually a risk-averse club will prefer an immediate payment; after all, the selling club can't even control the timing of payoffs from a sell-on clause. These clauses can still benefit a selling club if its directors believe that the true extent of a player's talent is greater than the buying club might suspect. But how likely is that, since the buying club must be quite eager to bring the player in?
The true benefit of sell-on clauses lies elsewhere. By retaining some of the rights to its former players, a club can create a much broader portfolio, perhaps including dozens of players no longer in its squad. This way the club diversifies its risks from player-trading, even though the club can't always decide when to cash in.
Options – whether to renew a contract, make a loan permanent, or for some other action – only have value to the holders. Sometimes the value is small, as with an option to buy a player at an extremely high price, but the value is still with the holder. So whoever grants an option should be compensated with other benefits or concessions, not just for the material cost of having an option exercised but also for the inconvenience of dealing with unplanned changes in players' situations.
Relegation and promotion clauses. Another neglected aspect of contracts is the need for clauses based on divisional changes. All but a few clubs in every league should probably have relegation clauses in their players' contracts. If the unthinkable happens, a club's budget will need to be protected from the precipitous drop in revenue. Relegation clauses can apply to transfer fees, too – a club might do well to pay a slightly higher fee, if that fee would be greatly reduced in the event of relegation.
Promotion clauses are also a good idea. No sporting director wants a line of agents queuing outside as soon as promotion is confirmed, all eager to renegotiate their players' contracts. By setting any bonuses and wage increases in advance – for both staff and players – a club can avoid getting bogged down in these talks at the very time it will be busiest planning for the next season.
[Photo: Antoine Dellenbach]
