I know I have a lot of American readers who do not know what football (soccer, for you) is. So, let me explain that in its simplest form, football is a game where 22 players chase a ball for 90 minutes, and in the end, the Germans win, as the philosopher Gary Lineker once put it.
Unfortunately, over the years, football has become a big business like so many sports and by now, many football clubs are owned not just by billionaires like sports teams in the United States, but entire countries. The country of Qatar owns a majority stake in Paris St. Germain and FC Malaga, the royal family of Abu Dhabi owns Manchester City, the Russian government owns Gazprom, which in turn owns Zenith St. Petersburg and Putin’s buddy Roman Abramovich owns Chelsea FC.
If you paid attention to the above list, you will have noticed that all of the clubs I mentioned are owned by people and countries that finance themselves through the production of oil and gas. And if you know anything about football, you also know that many of these clubs tend to be amongst the biggest spenders for players, paying extraordinary sums for players that can never be recovered by selling these players on to other teams.
In other words, these teams are toys for ultra-rich families financed by oil.
But the owners of these clubs aren’t your average shmuck. They know that financing a club like PSG or Manchester City costs money. So when they buy new players for much more than they are worth, they have to finance these purchases. And what better way to finance these purchases by increasing the price of the oil you sell? A group of football fans that happened to be economists with too much time on their hands looked at the relationship between oil price fluctuations in the spot and futures markets and large transfers of football clubs owned by oil companies and countries. They found that in the days after a large transfer had been announced by these clubs, the oil spot price, but not the futures price increased. For every £1m in funds needed, the daily abnormal return of oil futures increases by 1.4%. The mechanism is one where spot prices rise unexpectedly in the aftermath of a transfer and then futures prices have to catch up with the spot market. In the end, it is who have to pay for petrol and other oil products that pay for the players of PSG, Manchester City or Chelsea, whether you are a fan of these clubs or not.
The authors of the study conclude that:
“Our findings suggest that the puzzle around why oil price fluctuations remains difficult to predict also needs to accommodate the possibility of a shock transmission mechanism between the football player-transfer market and the oil market. Such transmission mechanisms are likely to become increasingly important given the growing amount of oil money flowing into the major European leagues.”
I think that’s taking it too far, especially since reading through the details of the paper it seems likely to me that the study is just measuring noise. But who knows.
As a Manchester City fan I object to the association that being as a member of the Royal Family owns the club (along with a US Private Equity business - Silver Lake Partners (10%) and a Chinese Consortium (13%)) that it automatically is owned by the state, and being as this state is rich in oil then there is a direct connection between the spot price and player transfers. He makes his own investment decisions with HIS money, not the UAE's money. It's not a difficult concept to grasp, but so many do.
Correlation is not causation and vice versa. Seems like the people who did their research already had a theory and applied this to meet with their agenda. In the case of ownership above, is the argument that Silver Lake and CMC have no direct control over the price of oil that they are there for the free-ride and the spot price has to go up by at least 123% to make up the difference?