ESTIMATES AND ANALYSIS
Estimation of players' net present value falls within the doctrine of the evaluation of the economic value of intangible assets. The economic rights on the player's performances are indeed assets that yield positive differences for income and corporate values and are transferable to other legal entities. OpenEconomics estimation model uses a wide set of demographic and statistical parameters, indicative of the historical performance of the player, his reputation in the market and his contract characteristics.
By combining these inputs with a plurality of qualitative and quantitative information, PlayRatings estimates, with weekly update and for each of the players of the monitored leagues a large number of indicators. Following, are reported the main indicators.
MARKET VALUE (MV)The Market Value (MV) quantifies the most likely Fair Value of the player from the standpoint of the market. It is equal to the discounted residual value of a standard contract between the player and a club in the same cluster of the current one. The MV represents the minimum price that a club similar to the current should be prepared to accept or pay for a standard contract. Each player is always associated with a single Market Value (MV).
The Market Value (MV) is updated every week. It is also the standard value utilized by PlayRatings in all aggregated tables and evaluations.
RESIDUAL VALUE (RV)The Residual Value (RV) quantifies the most likely Fair Value of the player from the stand point of the club is currently under contract, equal to the discounted residual value of the existing contract between a club and a player. Indeed, RV represents the minimum price that a club should be prepared to accept to terminate the contract with a player before its termination date, thus foregoing the revenues from the player's performances for the residual duration of the contract.
Each player is always associated with a single Residual Value. The estimate of the Residual Value (RV) is updated weekly. The residual duration of a contract strongly effects the Residual Value (RV). This is why it doesn't reflect the real market value of a player.
ENTRY VALUE (EV)The Entry Value (EV) represents the net present value of a new contract between a club and a player in case of transfer to a new club or the renewal of the current contract. It is the maximum price that a club should be willing to pay to buy the player for a standard period contract that is inversely proportional to the player’s age. Because this value changes depending on the type of buyer, PlayRatings estimates for each player a different EV for each potential buyer.
Each EV is estimated according to three different scenarios in terms of intensity of use in the new team (as usual, start and reserves). It should be noted that none of these estimated values is intended to represent a prediction of the actual transfer price of the player (Exchange Price). RV and EV estimates rather suggest an interval of values for a negotiation, rational and corrected for market distortions.
This interval brackets the transfer price that would be creating value for stakeholders (the clubs and the player). Outside of this range, at least one of the two clubs will be likely to undergo a loss, either because it underestimates the residual value of the contract (seller side) or because it overestimates the expected value after the purchase (buyer side).
This loss may also correspond to a stakeholder's choice to gamble on the future performance of the player or to deliberately alter the market signals as an aggressively competitive strategy. In addition to those three primary values (Market Value, Residual Value and Entry Value), PlayRatings estimates for each player two secondary values. These are indicative of the potential impact of a transaction on the player's salary, whether in case of contract renewal or in case of transfer to a new club.
The standard contract duration is inversley proportional to player's age.
By letting choose the buyer team, PlayRatings estimates a different Entry Value (EV) for each potential buyer. To find the EV for a specific buyer team, team and prospect have to be selected.
The entry value (EV) is also affected by the expected level of player's performance and turn-out. To this aim, PlayRatings estimates the entry value (EV) according to three different prospects:
(1) As usual: the team makes use of the player in the same way he is currently used.
(2) Starter: the team make use of the player as first choice.
(3) Bench: the player will be most likely a second line and will usually start from the bench.
The entry values (EV) are updated weekly.
RENEWAL SALARY ADJUSTMENTTypically, in case of renewal of a contract there is an increase of the player's expected value (Opportunity Value), also linked to the fact that, by renewing the player under contract, the club doesn't have to pay the purchase price for a substitute.
The assumption of PlayRatings is that the club is available to transfer to the player part of this Opportunity Value in the form of a salary increase. The amount of value transfer to the player depends essentially on bargaining power. Net of contingent and specific elements, SSA is usually linked, on one side, to the level of the player in comparison to the average performance of comparable players of his same role. On the other side, SSA is related to the economic and performing rank of the club (Club Cluster). The potential wage adjustment (the main item of negotiations for the renewal, together with any buyout clauses) is expressed in a percentage.
TRASFER SALARY ADJUSTMENTIf a player moves to a new club, normally there will be a salary adjustment (up or down) determined by the player performance cluster (as a result of the his performance compared to the average performance of other players in the same role and his personal characteristics) and the club cluster (statistically the wealthiest clubs pay more).
RATINGPlayRatings calculates for each player an economic performance Rating (RT). According to the traditional labeling used by the financial rating agencies, the AAA and the D are associated, respectively, to the player with the best and the worst economic performance, taking account of his role. The rating suggests the level of economic risk associated to a player and takes into account sport performance, personal characteristics and probability of recovering the Market Value (MV) for a potential buyer.
PlayRatings calculates a unique Rating value for each player every week.
VALUE COMPONENTSAll the Value indicators (MV, RV and EV) are estimated as sum of 8 components:
- Performance: (PF) is the value component related to the player's sport performance during the last three years. More recent performances have more importance. The estimate is updated every week.
- Effectiveness: (EF) is the value component related to the performance/cost ration in relation with the average performance/cost ratio in the same team. The estimate is updated every week.
- Availability: (AV) is the value component related to the player's availability = (played matches) / (season matches). The estimate is updated every week.
- Contract: (CT) is the value component related to residual duration of the contract. The longer is the contract, the highest is the value. The estimate is updated every week.
- National: (NT) is the value component related to the presence of the player in the national team. The estimate is updated every week.
- Age: (AG) is the value component related to the player's age (and indirectly to his experience). The youngest is the player, the highest is the value because of the potential increase or decrease in the sport performance during the contract in relation to the age. The estimate is updated every year.
- Reputation: (RP) is the value component related to the player's reputation. The higher is the reputation, the higher is the value. The estimate is updated every week.
- Prospect: (PT) is the value component related to the player's potential growth. It is estimated using the Real Option theory and the Monte Carlo simulation for sensitivity analysis of the performance on the basis of the historical variation in the performance of the player. The estimate is updated every week.
ASSUMPTIONSAll the indicators are estimated on the assumption of continuity of the player's performance.
The Entry Value is estimated on a standard contract periods from one to five years, according to the player's age.
The current value and the historical variability of the multiple determinants of the player's value, for MV, RV and EV, are the result of the mathematical combination of several indicators.
These include the performance value (itself the result of the combination of 16 variables ), the average salary of the cluster to which the player belongs, the role he plays, his age (and therefore - indirectly - his experience), his reputation and the combination of the values related to the "waiting", "assignment" and "renewal" options.
These options are quantified according to the most advanced models of economic evaluation and incorporate the assessment of risks and opportunities related to future performance and market events.
All economic additional evaluations aggregated by team, role and league, and based on multiple aggregation criteria of the players' Entry Value in performance continuity, for a team in the same cluster of the one which holds the contract.