Show Me The Money: How the home-grown rule impacts on transfer spending

Show Me The Money: How the home-grown rule impacts on transfer spending

AFCB’s newest writer Aaron Gordon debuts with a fascinating piece on the economics of the Premier League’s infamous home-grown rule…

Daniel Brookes provided one of the “last true reasons to follow a football team,” and embrace the development of young players through a team’s system. Live with their trials and tribulations as they cost you some matches, and savor their successes as though they are your own when they finally come through in the clutch moment. They are the kinds of dizzying highs and crushing lows only sports can provide. And we are all addicts.

But there is much more to the story of player development, particularly with the recent home-grown rule change. Not only is there more to the story, but there is also a tremendous opportunity for Arsenal to exploit. As you are no doubt aware by now, eight of the twenty-five players have to be home-grown, which has its own various stipulations, with exceptions for players who are under 21 years of age.

The complexities of the rule are somewhat irrelevant for this discussion.  However, the purpose of the rule is quite central. Many theories have been floated, specifically surrounding an FA conspiracy to improve the English national team. But, I believe one of the main goals of this rule is to reduce transfer spending.

With this rule in effect, young, home grown talent will instantly become more valuable than “foreign” talent. With almost one-third of the roster guaranteed to home-grown players, those eight roster spots become increasingly valuable. To put it in simple economic terms, the quantity demanded for home-grown talent has been artificially increased by the FA, while the quantity demanded for foreign talent has been artificially decreased. All things being equal, home grown talent is now more valuable than foreign talent. The more home-grown talent a team has, the more roster flexibility they have.

Clearly, this will lead to more teams spending money on acquiring young, undeveloped players to build through their academy and make eligible for home-grown status. Consequently, fewer teams will be spending exorbitant sums on foreign, matured talent. Sure, there will still be the Man City’s and Chelsea’s of the world, but when demand goes down, price goes down. Less money will be spent on foreign transfers. We have already seen this, as transfer spending was down 22 percent this year. In a time where team debt is out of control, especially in the Premier League, reducing spending has to be a main focus of the football governing bodies.

City's spending habits are not in line with economic trends

I believe this presents an opportunity for Arsenal. The Gunners have long been dedicated to limiting transfer spending and building talent through the academy. They have lots of eligible home-grown talent, and already are able to put forth their desired roster on match day without alteration to appease the home-grown rule (injuries aside). With further home-grown talent in the pipeline, and other clubs hurting for home-grown “talent”, it gives Arsenal a very advantageous position. Suddenly, their strategy of development is quite in demand.

Other teams will surely begin to replicate Arsenal’s approach in the coming years, as it is clearly the most fiscally responsible approach to team-building. To achieve solvency, even the most successful and wealthy clubs will need to adopt an Arsenal-like approach to talent development, and forgo big spending on the transfer market. Even for the likes of Man City, economic analysis has proven that two consecutive years outside of the Champions League for top-spending clubs leads to insolvency. Still, it will take time to implement this strategy and have it result in wins.

In the meantime, Arsenal can take advantage of the market demand for home-grown talent and sell a prospect or two at an inflated price if they so desire. As a result of their roster flexibility, this could lead to buying foreign talent at a lower price due to the reduced quantity demanded discussed above. Or, Arsenal could pocket the surplus and be assured that, in the event the FA or UEFA ever pass regulations on team debt, they will be in the black.

This is a purely theoretical approach, as I am not a tactics expert. I do not know which talent Arsenal may wish to sell off or acquire, but surely the opportunity is there should they wish to indulge. It will not be there forever, because soon the market for home-grown talent will correct itself, and the advantage will no longer be in Arsenal’s favor. In the next few years, young talent will be in higher demand, and Wenger may find acquiring that young talent to develop more costly and risky than ever.

The time to take advantage of the market is within the year. Arsenal may need that cash in the coming years when talent development is very costly and transfer fees decline. Great foreign talent may be had in a few years at a reduced price, but it will still require cash. Saving up for market corrections and the ability to maximize options in the coming years may be a prudent step for Wenger and the Gunners.

Thoughts?

Have your say on Aaron’s article by leaving a comment.

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9 Responses to “Show Me The Money: How the home-grown rule impacts on transfer spending”

  1. bermudagunner
    September 10, 2010 at 12:31 pm #

    Very insightful article and i completely agree with what you are suggesting. This regulation provides a vast opportunity for Arsenal as a club (who have always held to the rule of developing young talent through the Academy) Great Article Aaron!!

  2. Richard Smith
    September 10, 2010 at 1:39 pm #

    I never thought of it in that way. Shows that however many different ways there are to look at something they are all right in one way or another. You can apply this view to balancing the books against winning trophies. No other club in the premier league would be in the position we’re still in after building a new stadium. It would have been nice to be winning trophies at the same time, but people who have their cake an eat it normally face the consequences afterwards.

  3. Andrew Weber
    September 10, 2010 at 1:51 pm #

    Great article Aaron, so happy to have you on board. I must admit that every time news emerges regarding anything remotely financial I tend to curl up in a ball and try to ignore it. Your presence will be much appreciated on AFCB, I’m quite sure of it.

  4. Andy Mack
    September 10, 2010 at 2:05 pm #

    Good article.
    On the new squad rules, what does ‘schooled/trained’ etc in the uk mean?
    If we get a 17 year old, keep him here for a year, then send him on loan to spain, sweden and germany for a year each, does that mean he’s home grown?

  5. Aaron Gordon
    September 10, 2010 at 4:40 pm #

    Thanks for all the kind words! I’m very excited to contribute to the great work Andrew Weber and his co-writers have already done here.

    Andy Mack: I asked that same question myself, and honestly I can’t get a clear answer. There are many conflicting reports on the matter. My guess would be only loans in England count towards home-grown development, but I can’t say for sure.

  6. Andy Mack
    September 10, 2010 at 5:32 pm #

    So a kid that could develop better in a continental enviroment, can’t!
    The more is see of this new squad rule, the more it looks like the ideas of an idiot.

  7. Fatema Farhat
    September 18, 2010 at 6:02 am #

    I have an economics degree and I for one can say that football and economics absolutely intrigues me. The irony for me is that football arouses emotions and passions that often don’t fit into neat economic models. (Im not overly rational) so I commend you on a great read whereby you can apply rationale to football.

    Looking forward to your work Aaron.

  8. Americanarsenal
    September 24, 2010 at 4:07 am #

    I think most arsenal fans would love if Wenger would spend more in the transfer market, its just that he doesnt. no matter what he says we never are big spenders.

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  1. Show Me The Money: How UEFA’s new financial rules will aid responsible Arsenal over the next decade - September 20, 2010

    […] sure, the lack of trophies has been very disconcerting. As one commenter on my last article said, “No other club in the premier league would be in the position we’re still in after building a […]

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