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Thursday, 10 August 2017

Opportunity Cost; Neymar’s Buy-Out Clause Fee of £200 million And Financial Fair Play - By Kunle Ogedengbe

Image result for Neymar’s buy-out clause fee of £200 million (€222 million/$263 million).
Globally, the top issue in sports and tangentially politics and diplomacy is the activation of Neymar’s buy-out clause fee of £200 million (€222 million/$263 million). The amount is more than double the ever-paid highest fee for a player, Paul Pogba’s return to Manchester United in 2016 which stood at £89.3 million.

Manchester United’s manager, Jose Mourinho has stated that £200 million is not expensive for Neymar possibly because he has commercial values that can be leveraged upon and he is one of the best players in the world while adding that the problem is not only that the amount will dislocate the market as its consequences will cause problems for the football market and players’ pricing. To Arsene Wenger, the Arsenal manager, expectedly, the amount is "beyond calculations and rationality."

But the £200 million is not necessarily the amount for the services of Neymar from Barcelona but to release him from his commitment to Barcelona which should now open the door to negotiate its worth in financial terms to Barcelona before he could be allowed to sign for Paris Saint-Germain (PSG). The £200 million is the opportunity cost of having Neymar away from his contract with Barcelona not his worth as a player which should underline his transfer fee.

What is opportunity cost? 

In elementary economics, this refers to the value of commodity or service paid to achieve or forgo another commodity or service. Not the value of the acquired commodity or service.

By implication, in this scenario, the opportunity cost is £200 million; it refers to the value of commodity or service paid (£200 million) to achieve or forgo another commodity or service (Neymar’s commitment to Barcelona); not the real/transfer value of Neymar’s service or the value of the acquired commodity or service (Neymar).

The £200 million is buy-out clause/amount from the contract, not the cost for Neymar’s services which Barcelona should still get. Barcelona should get it because they will no longer enjoy the services of Neymar. The £200 million is to convince Barcelona to sale, not the value of the player, not the transfer fee. It should be noted that after paying the buy-out clause from the contract, the buyer may still refuse to go on with the transaction if subsequent term(s) is/are not acceptable to either or both parties. In such instance, the £200 million is not refundable. The £200 million is for the proposer to officially and legally have access to the player which they would have done before the unacceptable term(s).

The buy-out clause frees the player and make his services negotiable with the club. That is fair play as the elementary knowledge of economics dictates.

Businessdictionary.com defines opportunity cost as “a benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunitycost.”

A benefit, profit, or value  of something that must be given up (£200 million) to acquire (transfer fee/Neymar’s real fee to still be paid to Barcelona) or achieve something else (get the services of Neymar).

As noted earlier, even with the payment of the £200 million, PSG still reserves the right not to go ahead with the transaction if term(s), consequent upon negotiation after the door to negotiation is open upon payment of the buy-out clause, is/are not favourable. The buy-out clause is to legally allow negotiation since its non-payment cannot assure negotiation as the player is still binded by the contract with Barcelona.  And a player under contract cannot be negotiated with by other club(s) under FIFA rules. It was after the payment of the buy-out clause that negotiations on the true value of the player and personal terms can be agreed and that is (financial) fair play.

With the payment of the buy-out clause, and if PSG refuses to go ahead with the transaction, what becomes of Neymar? FIFA rule is to guide the player not to be stranded. If buy-out clause is not treated as opportunity cost, and the proposing party refuses to go ahead with the transaction, the player becomes stranded. Who says this cannot (deliberately) happen in football business, especially in a capitalist environment? If it happens to one or more player(s), its consequences on football in better imagined than experienced. That a player or more is(are) stranded and its consequences are not the objectives of FIFA rules.

If legally, the contract does not take the £200 million as opportunity cost, going forward, contracts should be worded that buy-out clause is opportunity cost and the real value of the player could then be negotiated between the (un)willing seller and the (un)willing buyer before personal terms are agreed between the buyer and the player. That is good calculation and rationality which supports elementary economics as economists, including Le Professeur (The Professor), Wenger submit.

If sports contract is so done, even if the proposer backs out, the player/athlete still has a club as (un)willing seller has not been paid transfer fee. That is stability. That stability is FIFA: “For the Game. For the World.”
Kunle Ogedengbe is the Country Representative - Nigeria of The Banker Magazine, Financial Times Group, London, UK.

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