From Madrid to Mecca: Wage Premiums in a Specialized Labor Market

Abstract

We estimate a 400% wage premium for football players transferring from top European leagues to Saudi Arabia in the summer of 2023 compared to those with similar observable characteristics transferring to different clubs within the same leagues. The results are robust to using propensity score matching and other specifications addressing endogeneity. Our analysis does not find evidence for culture driving the premium. Instead, it may be driven by several disamenities, including reputation concerns over Saudi Arabia's human rights record, lower-quality competition, and reduced global media exposure.

Keywords

Compensating wage differentials European football Saudi Arabia specialized labor markets

Get full access to this article

View all access options for this article.

References

Aggarwal

Kearney

Lucey

(2012). Gravity and culture in foreign portfolio investment. Journal of Banking & Finance, 36(2), 525–538. https://doi.org/10.1016/j.jbankfin.2011.08.007

Ahern

K. R.

Daminelli

Fracassi

(2015). Lost in translation? The effect of cultural values on mergers around the world⋆. Journal of Financial Economics, 117(1), 165–189. https://doi.org/10.1016/j.jfineco.2012.08.006

Anderson

C. W.

Fedenia

Hirschey

Skiba

(2011). Cultural influences on home bias and international diversification by institutional investors. Journal of Banking & Finance, 35(4), 916–934. https://doi.org/10.1016/j.jbankfin.2010.09.006

Bell

A. R.

Brooks

(2024). Are English football players overvalued? Applied Economics, 56(21), 2568–2584. https://doi.org/10.1080/00036846.2023.2192032

Beugelsdijk

Frijns

(2010). A cultural explanation of the foreign bias in international asset allocation. Journal of Banking & Finance, 34(9), 2121–2131. https://doi.org/10.1016/j.jbankfin.2010.01.020

Birnbaum

. (2023, October 13). Outrageous Saudi contracts and a major MLS signing realigned the soccer universe this year. But a roster of marquee names—including Ronaldo, Messi and Neymar—remain on top of the financial table. Forbes: https://www.forbes.com/sites/justinbirnbaum/2023/10/13/the-worlds-highest-paid-soccer-players-2023/

Brown

(1980). Equalizing differences in the labor market. Quarterly Journal of Economics, 94(1), 113–134. https://doi.org/10.2307/1884607

Bryson

Frick

Simmons

(2013). The returns to scarce talent: Footedness and player remuneration in European soccer. Journal of Sports Economics, 14(6), 606–628. https://doi.org/10.1177/1527002511435118

Butler

Coates

(2022). Position premium in Major league soccer. International Journal of Sport Finance, 17(4), 201–214. https://doi.org/10.32731/ijsf/174.112022.02

10.

Campbell

. (2024, January 15). Alen Halilovic, 10 years since Barca move: Regrets, Fabregas advice, ‘happiness’ at Sittard. The Athletic. https://www.nytimes.com/athletic/5140261/2024/01/16/halilovic-barcelona-regrets-interview/

11.

Coates

Bernd

Jewell

(2016). Superstar salaries and soccer success: The impact of designated players in Major league soccer. Journal of Sports Economics, 17(7), 716–735. https://doi.org/10.1177/1527002514547297

12.

Coates

Parshakov

(2022). The wisdom of crowds and transfer market values. European Journal of Operational Research, 301(2), 523–534. https://doi.org/10.1016/j.ejor.2021.10.046

13.

Dehejia

R. H.

Wahba

(2002). Propensity score-matching methods for nonexperimental causal studies. The Review of Economics and Statistics, 84(1), 151–161. https://doi.org/10.1162/003465302317331982

14.

Depken

C. A.

Frei

. (2023). Player Nationality and Transfer Fee Premiums in Association Football. Working Paper.https://doi.org/10.2139/ssrn.4335733

15.

Destelle

. (2024, January 19). Football: comment les pays européens jouent avec la fiscalité pour attirer les meilleurs joueurs. francetvinfo.fr: https://www.francetvinfo.fr/sports/foot/football-comment-les-pays-europeens-jouent-avec-la-fiscalite-pour-attirer-les-meilleurs-joueurs_6313998.html

16.

Duerden

. (2023, June 8). Why has Saudi sovereign fund taken over kingdom’s football clubs? Aljazeera. https://www.aljazeera.com/sports/2023/6/8/why-has-saudi-sovereign-wealth-fund-taken-over-football-clubs

17.

Duncan

G. J.

Holmlund

(1983). Was adam smith right after all? Another test of the theory of compensating wage differentials. Journal of Labor Economics, 1(4), 366–379. https://doi.org/10.1086/298018

18.

Falk

Lameli

Ruhose

(2018). Cultural biases in migration: Estimating non-monetary migration costs. Papers in Regional Science, 97(2), 411–439. https://doi.org/10.1111/pirs.12243

19.

Farnell

Butler

Rossi

Simmons

Berri

Yassine Bamba

(2024). Is there a nationality wage premium in European football? Sports Economics Review, 7(1), 1–9. https://doi.org/10.1016/j.serev.2024.100040

20.

FootballTransfers . (2023, August 12). Toni Kroos slams Saudi Arabia. Real Madrid Transfer News. https://www.footballtransfers.com/en/transfer-news/sa-pro-league/2023/08/real-madrid-transfer-news-toni-kroos-slams-saudi-arabia

21.

Gronberg

T. J.

Reed

(1994). Estimating Workers’ marginal willingness to pay for job attributes using duration data. Journal of Human Resources, 29(3), 911–931. https://doi.org/10.2307/146258

22.

Herm

Callsen-Bracker

H.-M.

Kreis

(2014). When the crowd evaluates soccer Players’ market values: Accuracy and evaluation attributes of an online community. Sport Management Review, 17(4), 484–492. https://doi.org/10.1016/j.smr.2013.12.006

23.

Huntington-Klein

(2021). The Effect: An Introduction to Research Design and Causality. CRC Press.

24.

Hwang

H.-s

., Mortensen

D. T

., & Reed

(1998). Hedonic wages and labor market search. Journal of Labor Economics, 16(4), 815–847. https://doi.org/10.1086/209907

25.

Hwang

H.-s

., Reed

., & Hubbard

. (1992). Compensating wage differentials and unobserved productivity. Journal of Political Economy, 100(4), 835–858. https://doi.org/10.1086/261842

26.

Jancec

(2014). The costs of adapting to a new cultural environment: Examining immigrants’ outcomes. SSRN Working Paper.

27.

Jewell

T. R.

(2017). The effect of marquee players on sports demand: The case of U. S. Major League Soccer. Journal of Sports Economics, 18(3), 239–252. https://doi.org/10.1177/1527002514567922

28.

Jiménez

. (2024, January 20). Laporte: ‘Hay muchos jugadores descontentos en Arabia’. Diario AS. https://as.com/futbol/aymeric-laporte-hay-muchos-jugadores-descontentos-en-arabia-n/

29.

Kuethe

T. H.

Motamed

(2010). Returns to stardom: Evidence from U. S. Major league soccer. Journal of Sports Economics, 11(5), 567–579. https://doi.org/10.1177/1527002509354268

30.

Lavetti

(2023). Compensating wage differentials in labor markets: Empirical challenges and applications. Journal of Economic Perspectives, 37(3), 189–212. https://doi.org/10.1257/jep.37.3.189

31.

Lawson

R. A.

Sheehan

Stephenson

(2008). Vend it like Beckham: David Beckham's effect on MLS ticket sales. International Journal of Sport Finance, 3(4), 189–195.

32.

Lucas

R. E.

(1977). Hedonic wage equations and psychic wages in the returns to schooling. The American Economic Review, 67(4), 549–558.

33.

McInnes

. (2023, September 21). Mohammed bin Salman says he will ‘continue doing sport washing’ for Saudi Arabia. The Guardian. https://www.theguardian.com/world/2023/sep/21/mohammed-bin-salman-says-he-will-continue-doing-sport-washing-for-saudi-arabia

34.

Medcalfe

Smith

(2018). The effect of foreign players on pay and performance in Major league soccer. International Journal of Sport Finance, 13(4), 297–318.

35.

Muller

. (2022, March 28). ‘There is no such thing as a free signing’ – why transfer fees and player values are not the same. The Athletic. https://www.nytimes.com/athletic/3207803/2022/03/29/there-is-no-such-thing-as-a-free-signing-why-transfer-fees-and-player-values-are-not-the-same/

36.

Peeters

(2018). Testing the wisdom of crowds in the field: Transfermarkt valuations and international soccer results. International Journal of Forecasting, 34(1), 17–29. https://doi.org/10.1016/j.ijforecast.2017.08.002

37.

Prockl

Frick

. (2018). Information precision in online communities: Player valuations on www.transfermarkt.de. International Journal of Sport Finance, 13(4), 319–335.

38.

Roback

(1982). Wages. Rents, and the quality of life. Journal of Political Economy, 90(6), 1257–1278. https://doi.org/10.1086/261120

39.

Rosen

(1974). Hedonic prices and implicit markets: Product differentiation in pure competition. Journal of Political Economy, 82(1), 34–55. https://doi.org/10.1086/260169

40.

Rosen

(1986). The theory of equalizing differences. Handbook of Labor Economics, 1, 641–692. https://doi.org/10.1016/S1573-4463(86)01015-5

41.

Siegel

J. I.

Licht

A. N.

Schwartz

S. H.

(2012). Egalitarianism. Cultural distance, and foreign direct investment: A new approach. Organization Science, 24(4), 1174–1194. https://doi.org/10.1287/orsc.1120.0776

42.

Sjaastad

L. A.

(1962). The costs and returns of human migration. Journal of Political Economy, 70(5), 80–93. https://doi.org/10.1086/258726

43.

Soorkin

(2018). Ranking firms using revealed preference. The Quarterly Journal of Economics, 133(3), 1331–1393. https://doi.org/10.1093/qje/qjy001

44.

Tadesse

White

(2010). Cultural distance as a determinant of bilateral trade flows: Do immigrants counter the effect of cultural differences? Applied Economics Letters, 17, 147–152. https://doi.org/10.1080/13504850701719983

45.

Viscusi

Aldy

J. E.

(2003). The value of a statistical life: A critical review of market estimates throughout the world. Journal of Risk and Uncertainty, 27, 5–76. https://doi.org/10.1023/A:1025598106257

46.

Wilson

. (2024, January 17). Jordan Henderson has badly damaged his image – and that of the Saudi Pro League. The Guardian. https://www.theguardian.com/football/blog/2024/jan/17/jordan-henderson-has-badly-damaged-his-image-and-that-of-the-saudi-pro-league