Can blockchain upgrade the soccer transfer market?

Not only since the recent mega deals of Neymar (~ 220 Million Euro), Coutinho (~ 160 Million Euro) or Dembele (~ 140 Million Euro) the transfers between the European top clubs in football generate extensive media coverage. Supposing this market is a closed system, these incomes should be taxed and reinvested. While the first is beneficial for the whole country, the latter is beneficial for smaller clubs since they can sell young players for higher prices. So high prices and high player salaries should not be a problem, like Zlatan Ibrahimovic stated when entering the PSG squad.

Reality teaches us the market is not a closed system.

Most of the time money has to be paid to the player’s adviser and clubs, players and last but not least player’s adviser do their best to avoid being taxed (c.f. Messi’s accusal of tax fraud). So we find a situation where the government cannot trust the clubs, like two mafia families cannot trust each other and thus cannot cooperate in collecting protection money. This is a classical situation where the blockchain technology can facilitate or enable business relations. As a consequence one can think of using a blockchain to keep track of all transactions within this market.

How could such a blockchain concept look like? One could make a coin for each player with a given, predefined amount of coins, e.g. 1,000,000. The club where the player is trained at an age of e.g. 16 creates these coins and owns them initially. When the individual player is being transferred to another club, the buyer has to buy at least 51% of the player’s coins from the seller and the seller has not to sell 100% of the coins. Now interesting patterns in further transfers of this player can arise.

Example:

Suppose we have player Adam with 49% of the A-coins owned by club Beta123 and 51% by club Gamma456. A third club Delta789 wants to buy Adam. In the traditional market Delta789 has to make an offer only to Gamma456 and “buy 100% of Adam” from Delta789. Now 2% of the A-coins can be bought from Gamma456 and the other 49% from Beta123. This situation is shown in the following table for arbitrary X (X≥2%), being the percentage bought from Gamma456:

traditional market blockchain market
t = 0t = 1t = 0t = 1
Beta1230%0%Beta12349%X - 2%
Gamma456100%0%Gamma45651%51% - X
Delta7890%100%Delta7890%51%

As a result the monopoly of the current club is weakened, which may lead to more reasonable prices. Additionally clubs can now “pre-sell” players in order to overcome financial distress. This is also a chance for the future buyers in the market, since they can partially “pre-buy” a promising talent for a lower price and “diversify” their portfolio of players without having to pay salary to them.

Going even further one could think of outsiders like you and me buying coins of players in order of believing in future higher prices. This would create a market situation where the market value of a player is not subject to the sole belief of buyer and seller but it is the aggregated belief of the whole market. This situation is arguably a textbook example of a bubble, no or very small intrinsic value, prices are only driven by future expectations about higher prices. In order to fix this one would have to combine the coin with things like dividends, which may be paid when the transfer is fixed. This would give the coin an intrinsic value in the sense of a Gordon Growth Model.

This article is not about presenting a concept that is set in stone. It is about thinking of the possibility of using a blockchain in order to open the market to investors and create benefits for the small clubs without disadvantaging the big clubs.

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