The Gareth Bale transfer saga drags on, as Real Madrid consider buying Tottenham Hotspur’s star player for a world record transfer fee of around £100m.
For those of us who have studied the process of bargaining and negotiation to figure out exactly which strategies work and which do not, this represents a fascinating case study.
Real, the super-rich Spanish giants, are lined up against Tottenham and their Chairman, Daniel Levy, a notoriously tough negotiator who has no immediate need to sell Bale unless the price is right. To assess who is likely to get the best of the deal, we need to understand some of the strategies the two clubs might use.
What factors determine the outcome of these negotiations? What are the sources of bargaining power? What strategies can help improve one’s bargaining power? What variables determine whether parties to a dispute will reach a negotiated settlement, or engage in war? These are the sort of questions that are addressed by the art and science of bargaining.
Consider the following situation. Spurs have a player (Gareth Bale), whom they would be willing to transfer at a minimum price of, say, £60m; that is, they value Bale at £60m. Another football club, Real Madrid, is willing to pay up to, say, £120m in transfer fee for Bale; that is, they value him at £120 million.
If trade occurs – that is, if Spurs allows Bale to leave and join Real – at a transfer fee that lies between £60 million and £120 million, then both Spurs (the “seller”) and Real (the “buyer”) would become better off. This means that in this situation these two clubs have a common interest to trade. At the same time, however, they have conflicting interests over the transfer fee at which to trade: Spurs, the seller, would like to trade at a high fee, while Real, the buyer, would like to trade at a low fee.
This is the “bargaining situation” that Spurs and Real have found themselves in recent weeks. They would like to strike a deal, and indeed, they have been in tough negotiations, making offers and counteroffers.
Patience is power
One factor that provides the parties with appropriate incentives to compromise, and reach a deal, is that bargaining (or haggling) is time consuming and time is valuable. The transfer window deadline at the end of August can lead to impatience on either side, and is one of the key factors behind both sides compromising and agreeing a fee.
A key principle is that a party’s bargaining power is higher the less impatient he or she is relative to the other negotiator. Thus, the transfer fee at which Spurs’ Chairman Daniel Levy releases Bale will be higher the less impatient he is relative to Real’s President, Florentino Perez. Indeed, patience confers bargaining power.
Who dares wins
The biggest risk takers are the most powerful negotiators, and their bargaining power is higher the more comfortable they are with risk relative to the other negotiator. These transfers are inherently risky, and talks might breakdown for all sorts of unforeseen reasons. What if a medical inspection suddenly reveals Bale has a long-term injury?
Perhaps Levy is pretty relaxed and risk-loving, while Perez is pretty risk-averse. In the past, Perez has tended to wrap up his summer transfers as early as possible, whereas Levy has been happy to leave signings until the last minute. This usually works – Dutch forward Rafael Van der Vaart was famously signed just minutes before the window closed in 2010 – but there is always a risk. Spurs missed out on Portuguese midfielder Joao Moutinho last summecommasr after the paperwork wasn’t completed in time.
Weakness becomes strength
The commitment tactic involves a negotiator taking action prior to and/or during the negotiations that partially commit her to some favourable bargaining position. Bargaining power is higher the larger the cost of revoking commitment; it is as though “weakness” (the high cost of backtracking) becomes a source of bargaining strength.
Levy was adamant earlier in the summer that Bale was not for sale, and Real will be aware that he would be seen as backtracking if the transfer goes ahead. His deployment of this same tactic with Croatian midfielder Luka Modric may have helped push up the price of his transfer between the same clubs last summer.
However, the most obvious use of the commitment strategy has been in this year’s other big transfer story, with Liverpool owner John W Henry declaring boldy this week that Luis Suarez would not be sold “at any cost”. While Henry might look silly if he does decide to sell Suarez, this stance is sure to improve his bargaining position and thus the selling price.
So these are just some of the ideas and factors that could be used to help interpret and understand the negotiations between Levy and Perez over Bale. If transfer does go ahead, and a world record is set, Levy’s patience and the fact he is willing to take risks and make big commitments will have been a large factor. And if it doesn’t? Well, then Levy and Perez are likely to begin positioning themselves for 2014’s negotiations.
The issue left unanswered of course is why in the world would Gareth Bale’s value to Real Madrid be £120 million. But that is another story.
(Professor of Economics, University of Warwick)
This article was originally published on The Conversation.