Introducing: Absolute Unit

An exploration into how a football club can build a world class player recruitment process by borrowing from financial valuation theory

The general manager had a problem. His club had put up a respectable 60 points in this year’s domestic league… again. That was good enough for sixth place, but the Board wanted to qualify for the prestigious “Continental Cup” and all of the additional revenue that came with it, which meant they needed to finish in the top four. The GM pulled out his calculator and did some quick math. Looked like the average fourth-place points haul was 70. His club would need to gain 10 points somewhere — but like what do you tell the staff, “More points please?”

They needed to upgrade a few key positions, and with his job on the line the GM wanted more structure and rigor around the team’s transfer strategy. What he needed was a guiding metric to keep everyone singing from the same hymn sheet — a common language to converse in, a north star they could align their instruments on to ensure every key decision they made moved them closer to grabbing those 10 additional points. After some consultation with his staff and with his peers in the industry, and after, um, subscribing to this newsletter, the GM determined that the language of soccer must be: goals.

Those 60 points his club kept hovering around equated to a goal difference of around +12. To grab another 10 points and finish fourth, he calculated the team would need to reach +27 GD through some combination of scoring more and conceding less. If what he needed was to improve his team’s performance, and if a team’s performance is primarily a function of their goal scoring and conceding, then from here on out, every important decision would be based on how much it was expected to improve (or worsen) his team’s baseline of +12 GD.

But where to go from here?

Welcome to “Absolute Unit.”

This newsletter is a step by step exploration into an integrated framework for anchoring a team’s squad-building decisions in the time-tested principles and theory of corporate finance. In the weeks to come, we’ll walk through how and why the fictional GM above settled on “Goal Difference” as his department’s global unit of account for discussing soccer, and we’ll apply basic finance valuation principles and borrow some concepts from data analytics to form the theoretical foundation of a robust player evaluation process that any club could pursue. Items on the agenda include:

• finding a measurable unit of value for soccer that can match the usefulness of the currencies (USD, Euro etc) used in the financial world,

• emphasizing the importance of not only the chief decision maker using this “currency,” but also for the domain experts in his staff to generate insights and recommendations that are translated into this same rubric,

• how the imperfections of financial accounting data do not preclude it from serving as the foundational element of business analysis, and what that means for the usefulness of imperfect soccer event data and advanced analytics,

• how the player recruitment function works just like the capital budgeting process in a firm,

• how we can measure a player’s contribution to their team’s performance in terms of “goal difference” even though 99% of their actions are not direct attempts to score or prevent a score,

• how, once we’ve measured a player’s performance in terms of “goal difference", we can convert historical results into forward looking projections by learning how financial analysts convert accounting data into cash flow forecasts, and

• how a GM must apply capital rationing concepts to optimize their team’s goal difference with a fixed supply of economic resources approved by club owners.

When I talk about leveraging “principles of corporate finance,” let me clarify. This is not a blog about the dollars and cents, the profits and losses of football clubs. If you want that, I recommend the legendary Swiss Ramble. And this is not about complicated league accounting and roster rules (been there, done that). This series is about applying the rules of thumb that have governed the way business managers and investors think about value and money to the more exciting non-money things, specifically to a soccer team’s performance on the field, and to the contributions individual players make to that team performance. As we move forward, we’ll periodically check in on the fictional GM and soccer operations department introduced above as they focus their efforts on rebuilding a team capable of qualifying next year for the continental cup.

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