Economics: Why Grant Holt is Worth £30m

Posted by on May 25, 2012 in General | 2 comments

Looking at the Grant Holt transfer situation from a simplistic economic viewpoint, Holt supplies a scarce, in demand skill. If he can receive a higher wage rate elsewhere, rational labour supply theory would suggest he will leave, unless he can reach the desired equilibrium wage rate at his current employer (the mighty Canaries). As there is only one Grant Holt, his supply of labour is perfectly inelastic. Meaning, other workers (ie: every man on the street!) are willing to supply their labour at his current given wage rate, but he is the only one that has the ability to do so.

In terms of the fee of compensation to the club if he were to leave, looking at Grant Holt as a financial asset, his Present Valuation would be represented by future projected cashflows, denoted from the value of say 15 premier league goals (assuming he will score 15 goals a season, in which I have no doubt he will attain), divided by 1 plus the opportunity cost of capital, which is would be roughly 2% in current market conditions, to the power of the number of years that the cashflow would be provided, which we would assume would be 2, as Holt has 2 years left on his current contract.

Examining the value of Holt’s goals in more detail, he scored  30% of Norwich’s goals which I believe can more than be accountable for roughly 30% of Norwich’s points tally of 47, so let’s say 16 points. It has been suggested that Holt’s goals earned Norwich 24 points this season, however I am making the assumption that all goals represent equal value, regardless of the importance. These 47 points earned Norwich 12th place in the Premier League, which is estimated to be worth approximately £54m in prize money and television rights etc. Therefore the value of Holt’s goals would provide an estimated future cashflow of £16m per year, for 2 years. Once the cashflow is discounted by the opportunity cost of capital, the present value of Grant Holt, if he were to be sold today, would therefore equal £16m/(1+0.02) + £16m/(1+0.02)^2 , which would give us £31.06m. This would suggest that Holt’s present value is worth over £31m and that the club should therefore do everything in their power to retain his services, unless the club can attain a fee of this amount.

Unfortunately, there are many other factors, such as Holt’s family, that would mitigate the majority of this theory, not to mention the fact that no transfer fee in history has ever been made by rational financial valuation! I just hope that the legend can stay and if he is forced to leave, the club don’t massively under value his contribution to a fantastic first season in the Prem. Only time will tell.

Oliver Ducker

2 Comments

  1. You’ve ignored that Holt’s replacement\s would most likely score greater than 0 goals. And so say the differential between him and the next best alternative was 5 goals a season then you don’t get a £30m valuation.

    • I was thinking exactly the same, there is no accounting for the differential. This horribly flaws the outcome! It in effect measures the value against if ncfc had to play each game with Heskey upfront!

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