With Gareth Bale's recent transfer costing Real Madrid €100 million, it seems as if he is the most expensive player in the world by far. However, there are so many factors that wasn't taken into account when valuing the €100 million. Therefore, this article is aimed at challenging Bale’s true value as compared to Cristiano Ronaldo’s 94 million euros move from United to Real Madrid.
Before I proceed, let me introduce to you the meaning of ‘real value’. A simple analogy would be in 1963, $0.50 would probably enable you to purchase a quarter pounder at McDonalds. However, today, in 2013, the similar $0.50 in nominal value is not enough to buy the similar kind of burger. This is due to inflation. To put it bluntly, the nominal value of the $0.50 coin may appear similar, however, it's purchasing power over the years has eroded. What this means is that the $0.50 today is worth less than the $0.50 we have 50 years ago.
Now, to put this theory into perspective, Cristiano Ronaldo’s move to Real Madrid was recorded at a nominal value of €94,000,000. So, the debate now would be, is the €94,000,000 spent that time more than the €100,000,000 spent on Gareth Bale today?
Since this is not a finance website, workings will not be done here. Nevertheless, using this website, I generated a result that Ronaldo cost $131.5m at that time. Then, I converted it into today’s rate and what I got was $143,182,173.70, or £91.7m pounds today, £5.7 million more than Gareth Bale.
Now, backtracking the similar method used to calculate Ronaldo, had Bale moved that time, it would be £74.6 million pounds, still £5.4 million short of Ronaldo.
As a result, it is quite obvious that Cristiano Ronaldo is still more expensive than Gareth Bale.
While laymen with no finance back ground may see it otherwise, the fact is that the time value of money was not accounted for and that had it been done, CR7 will still be the most expensive player in the world.
Nevertheless, there are many ‘noises’ in this calculation. Several variables include the ‘basket of goods’ used to calculate the inflation rate of football players, the exchange rate ($-£-€) in 2009 and 2013 is different, and that the calculator may have taken in unnecessary data into it. However, the main point made is that Gareth Bale’s 86 million pounds is not the most expensive in the world if being adjusted to the net present value.
In conclusion, valuing a footballer is not as easy as it seems. While I am tempted to calculate Luis Figo (€60.0m) and Zinedine Zidane’s(€73.5m) real value, I think I made my point clear that there is a huge flaw in valuing players based on their nominal value only.
Who knows if by using this formula, Zidane may be the most expensive player in the world once more. In addition, with 4/10 top transfers in history being recorded this year,(Bale, Cavani, Falcao and Neymar), the inflation rate for this year would be exceptionally high. As a result, this erodes the value of players who have transferred this year, disguising the transfer market to its true value over time.
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