The European soccer transfer market is a good example of a market where sentiment often outweighs fundamentals. Research by London’s Cass Business School shows that transfer fees have only a 16% correlation with success on the pitch. They found that salaries were the key driver, accounting for 92% of variation in league position.
Spain’s Real Madrid is a prime example of a club obsessed with transfers. Between 2003-6, they bought very expensive ‘galacticos’, but won no trophies. Now their President from those years, Florentino Perez, has returned. His first moves this week were to buy Ronaldo for £80m and Kaka for €65m. The blog sees this as further evidence that sentiment has become relatively bullish, and will maintain its support for Manchester United, with or without Ronaldo.
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