Updated: Jun 26, 2020
One of the primary driving forces in a player's value is transfer speculation. The media hype, prospective improvement in PB and the change of scene to a more reputable club all contribute to a player's value increasing. These three elements are the crucial trifecta in evaluating a players value when he's rumoured to be on the move.
Some traders don't think about this. They cut the analysis and simplify it without considering the dividend potential of the long-term future.
'Why are you investing in this player?", I ask. I hope for a response naming something along the lines of the trifecta.
"Might be transferred", I get in reply. A blunt, yet painfully valid reason.
The over simplicity isn't always a problem. It's a trend that visually is evident. A player is mentioned in the papers to be transferred and their value goes up hand in hand. Traders now associate 'transfer hype' with 'increased value'. This short-circuits - a player on the move is worth more. In the case of Jadon Sancho, it's fantastic. Any media mentions related to transfers just reinforce why he's been a great investment. He actually wins media dividends for reasons other than his performance. It's the same with Ighalo, Grealish, Havertz and other widely anticipated on-going signings.
But a very small fraction of players do earn dividends from this. The perceived value of transfer media hype is far lower than we'd think. Unless the player is going to Manchester United, there's not all that much in dividends to be won solely on the basis of transfer. For example, Jude Bellingham has only won £0.01 in media dividends despite being the wonderkid that United and Chelsea have earmarked this year. He's not eligible for PB, and his performances aren't truly generating buzz, it's the hype that's fuelled his value to where it is now. That hype has so far reimbursed traders with a penny.
Plenty of the big names get to where they are in transfer hype through performance. Sancho is hyped for a reason. It's proven in his stats. Havertz has had all eyes on him since Bundesliga returned - he's performed well under the microscope of traders. It's a combination of proven performance (earning PB dividends) that results in sufficient transfer hype to generate Media Dividends. So media dividends due to transfer hype can't really be a factor in justifying investment alone.
The primary concern traders should be asking themselves is this - How many traders have bought this player on the basis of transfer alone? Unfortunately you'll not get a definitive answer anywhere. But if you believe that transfer speculation has been the primary reason then the player has been inflated with a time-bomb.
Just consider it for a minute. Over 6 months, a player is performing increasingly impressive. They earn the odd matchday dividend and their stats are strong. The following 6 months they continue to develop, but are also then mentioned in transfer speculation. Over the course of the latter 6 months, a proportion of people investing have invested on the sole basis of 'transfer'. No mention of prospective reputation or improving PB. They just invest because he might be transferred. The traders in the first 6 months on-boarded on the basis of performance and hoped his value would improve as he developed. Transfer was potentially a factor, but certainly was not a dominant reason for onboarding in the early days.
The last 6 months of investing occurred throughout transfer speculation. What happens at transfer? How many of the traders see a transfer as a green light to cash out? How many of the original traders in the first 6 months see the rocket-rise in value up until the signing as a good time to cash out profits. All the 'hype' of a transfer pops like a balloon. The player dips in value. When a hyped player dips, traders jump ship - mimicking one another. Cash out profits whilst you can.
Signings have historically been volatile to players who've been over-valued by transfer speculation.
Christian Pulisic joined Chelsea as a potential star, hyped to a value of £3 at the start of the season. He didn't settle immediately so dropped 33% in the first three months in London.
Daniel James arrived at Manchester United as a promising winger hyped by a big transfer. Sure enough, when he couldn't settle to become the 'next big thing' in his first few weeks, he crashed and is now valued at just over half of what he was at the start of the campaign.
When Erling Haaland signed for Dortmund, his price actually crashed around 20% to below £4. Plenty of traders offloaded, only to see him find his feet and rise over 100% in the following months.
Timo Werner is in the very delicate spot right now. He's risen and risen over the last 6 months. A transfer to Chelsea is all but concrete. But how many hold their nerve? How many believe Werner's value is £6.50 as a striker at Chelsea?
When the media dips after his signing, how many traders will offload for their tidy profit? Will we see a repeat of what happened to Haaland - where a 20% crash occurred before he'd played a minute for his new side? Will we see a Pulisic/James situation, where a slow start caused a crash between 33-50%.
It will all depend on whether the ball starts rolling down the hill. If traders see prices falling, downward momentum is gained and it's only a matter of time until they reasonably sell up and take their profits elsewhere. Werner was sat below £4 at Christmas. Unless he finds his feet quickly at Chelsea to become a spotlight in the media, he's going to struggle to hold a value of £6.50. If he becomes a sensation then the Haaland model suggests he could double in value. It's hugely unlikely he'll repeat what Haaland did at Dortmund. Furthermore, Werner is older. Chelsea are building a great squad, but that doesn't mean Werner's price is going to rocket if he personally doesn't become a success at Stamford Bridge.
Traders looking to SELL, beware. How many likeminded individuals are holding the same players as you? It will quickly become a Mexican standoff when the signing is confirmed.
How many are offloading when it's a done deal? How many are hanging around to see how his first few games are played? How many believe he's worth more than the current buy price?
To traders considering BUYING a player on the move - ask yourself why? As long as you believe he will have greater media coverage, improve his PB/stats and find himself in the spotlight more through moving to a more reputable club then that's fine. The trifecta. That's what some Haaland traders stuck by when the market crashed and they are certainly laughing now. If you're buying a player late into the transfer speculation for the reason of 'transfer'. then save yourself some money. You're entering a very volatile territory to navigate at a profit and seem oblivious to how quickly traders that are holding a profit will shut that window of opportunity back in your face. If you're buying a player that's doubled in price over the last 6 months throughout transfer speculation, then you'd bet your bottom dollar that a mass of traders have their finger on the trigger to sell up and take profits. His value could go south. Be prepared to see negative values and hope that he finds his feet at the new club.