The four most historically expensive soccer players’ transfer fees have all come in the past two years. Paul Pogba was sold to Manchester United for £105 million, mirroring the amount FC Barcelona coughed up to send Ousmane Dembélé to its club. While both are talented young players, they have yet to fully prove their potential, and £105 million is a shockingly similar amount to a previous record set in 2010, when legendary player Cristiano Ronaldo was transferred to Real Madrid with a then-historical £94 million deal.

Even more mind-boggling are the more recent signings of Neymar to Paris Saint-Germain F.C. for £222 million and Phillipe Coutinho’s transfer to FC Barcelona for £163 million. More than double Ronaldo’s transfer fee, Neymar’s transfer fee has revolutionized the transfer market today as Ronaldo’s did in 2010.

With these gargantuan transfer fees, hyperinflation of soccer player transfers and signings has become the norm. The question then becomes, how can these soccer clubs afford these tremendous rates?

The short answer: cash from broadcasting rights.

There are many financial factors contributing to the increasing amount of income soccer clubs can spend on players. These include increased ticket prices, merchandising, ownership change, prize money, transfers and sponsorship. While most of these factors have limited room for growth, the dominant driving force behind the purchasing power lies in the sale of broadcasting rights over the past 25 years.

The astronomical change in broadcasting finance for the Premier League serves as a relevant example. According to Motez Bishara of CNN, Liverpool FC sold Welsh player Ian Rush for £3.2 million to Juventus 30 years ago, which had made him the most expensive English player in history at the time. Interestingly enough, the Premier League sold its annual broadcasting rights to the BBC and ITV for less than £3.2 million, according to the Guardian. These relatively miniscule figures made sense at the time, as media coverage of soccer back then was much different; there were a total of only 14 live league games broadcasted on television per season, 12 times less than the amount of games screened today.

From 1986 to 1988, the annual broadcasting rights agreement plateaued at £3.1 million. Today, Sky TV and BT Group have already come to terms with the Premier League for the upcoming three seasons, hammering out a deal that constitutes a combined fee of £1.7 billion per season, according to David Hellier of Bloomberg. The considerable surge in broadcasting rights cash is a testament to the heightened marketability of the league. In the Premier League, seasons now constitute 380 matches. With technological advancement, most matches are viewable on television or online, and exorbitant ad revenue means broadcasters can afford to dole out large amounts of cash to the Premier League. Given the increased global demand and coverage capabilities, the 168 games screened per season today will each cost more than £10 million.

Additionally, foreign countries are becoming increasingly involved in buying the rights to broadcast live games from the Premier League. In 2016, the Premier League agreed on a new deal for its television rights in China: a three-year contract worth approximately £560 million, per BBC. Compared to the levels of the late-1980s, broadcasting rights revenue to the Premier League has increased exponentially and helps explain the record-breaking transfer fees of the last few years.

The norm throughout soccer’s history has been that clubs spend around 30 percent of their revenue on transfers. Thus, transfer spending by clubs follows the amount of revenue that different clubs possess. As broadcasting rights are a significant source of income for clubs, spending will likely only increase across the board if these rights continue to surge.

Skeptics question what the outlook of soccer broadcasting rights revenue will look like past 2018. They wonder whether sponsorship can make a push in increasing revenue for soccer clubs, or whether or not it will plateau.

To answer these questions, it helps to consider how broadcasting rights are sold. To limit the likelihood of collusion amongst competitors, a first-price sealed-bid auction is used, forcing bidders to bid as high as possible to guarantee success. As a result, overbidding can take place. With a wider net of bidders entering into the picture for the 2019-2022 broadcasting rights agreement, it seems likely that the Premier League’s annual rights will exceed £2 billion per season. Consequently, clubs will receive more money and purchasing power in the transfer market.

In terms of sponsorships, large corporations pay clubs to sponsor their companies. Depending on the deal, clubs will place a company’s logo on the jerseys or give them appearances in advertisements and billboards. For example, Forbes reported that in 2014, Adidas agreed to a 10-year, £130 million per year deal with Manchester United, the second largest sponsorship agreement in the soccer world at the time. In the same year, Chevrolet and Manchester United came to a 7-year agreement worth £53 million per year.

However, while sponsorships are a significant source of revenue for clubs, these deals last for considerably longer periods of time. It is difficult for sponsorships to generate an immediate and exponential surge in club revenue as changes in broadcasting rights cash does. While it is important to note that sponsorship revenue has been a steady source of income, increasing over the years at a respectable rate, the crux of soccer teams’ increased spending power in the player transfer market will continue to largely depend on changes in broadcasting rights.

With the likely continuation of exponential growth in broadcasting rights cash, the soccer world may be looking at its first £400-million player transfer in the near future. The first £300-million player will likely be sold and purchased as early as the 2019-2022 timeframe, when the new broadcasting rights agreement will take effect. Elsewhere in the world of professional sports, NBA basketball shares the same trend as European soccer’s biggest leagues in terms of player cost. The NBA’s recent $24 billion TV deal, which expires in 2024-2025, has meant gargantuan contracts for even average basketball players. The tremendous inflow of broadcasting rights cash in the basketball points to similar success for soccer, which arguably has an even more impressive international reach and higher financial ceiling.

Background on the Eurozone Crisis

When the concept of a central currency was introduced to the European Union, EU leaders had an optimistic outlook and disregarded the potential risks. The initial results were positive. Investor confidence in the member nation economies increased as they started attaching the security associated with German bonds to all other bonds of the Eurozone nations. Germany’s low interest rates became associated with the bonds of other member nations. Smaller countries with weaker economies, such as Greece and Ireland, were able to borrow money freely. With their economies doing well, none of the countries suspected anything to go wrong. Smaller countries increased their debts through new government entitlement programs and unnecessary expenditures, which they could not feasibly pay back.

This cheap borrowing fueled a housing bubble, which burst in 2008. Countries with large sectors of their economies dependent on the real estate market, such as Spain and Ireland, saw their revenues plummet, and their governments incurred huge losses and debts. When Greece’s government shifted in 2009 and hidden debts surfaced, investor confidence dropped and the flow of money into Greece greatly decreased. This propagated the economic collapse of these countries, and the costs of saving their economies steadily rose.

What happened with Cyprus?

Initially, Cyprus had a healthy economy, where the government had a budget surplus, the banking system was functional, and investments were pouring into the country. Yet, when Demetris Christofias, a member of the Communist party, was elected president in 2008, there was a shift in policies. With a healthy economy to support them, the government started spending more money and promising new government programs for Cypriots. These risky expenditures led to a decrease in capital inflow and foreign investors became wary of the new government policies.

The EU meeting in October 2011 strategized to solve Greece’s debt problems by wiping out nearly 80% of their debt held by the public sector. Cypriot banks were holding a lot of Greek debt, and incurred losses of approximately 5 billion dollars. With these losses and their loss of the international capital markets, Cypriot banks found it nearly impossible to meet the 9% capital requirements that were enacted by EU leaders.

Cyprus leaders decided it was time to look outwards for aid. The International Monetary Fund imposed terms for Cyprus to receive a 1 billion Euro bail out. IMF managing director Christine Lagarde supports austerity measures while ensuring “the poorest Cypriots would be protected from the worst of the cuts.” As a result, Cyprus imposed a one-off 9.99% tax on deposits greater than 100,000 Euros. Other austerity measures such as public sector cuts and tax increases “are estimated to save around 5% of GDP.”

What this means for the Eurozone

Cyprus is a model for what happens when a government values reelection over market security. Because of their unwillingness to restructure their financial markets, Cyprus will now have to enact politically unfavorable austerity measures to save their economy and debts. The one-off deposit taxes are punishment imposed by the IMF and ECB onto Cyprus for its risky financial endeavors. Yet, most of the fees will not target the real perpetrators of the crisis. The Telegraph of April 29, 2013 notes, “Here, it’s not oligarchs but middle-class entrepreneurs who have been devastated by the crisis.” The wealthiest, such as the Russian oligarchs, have intricate monetary distribution and thus only kept a small portion of their money in Cyprus banks and were not as greatly affected.

The IMF also asks for Cyprus to cut their social welfare programs and increase their low corporate income tax, both measures which in the long run will allow for a budget surplus, but in the short run, hurt both their citizens and foreign investors. One investment banker asked, “Why should I leave my money in Cyprus?” With the debt being placed onto bank depositors, it’s most likely that less people would want to place their money into Cyprus banks, mainly because they are worried that another bailout and deposit tax will happen again.

While being a part of the Eurozone allows for benefits such as easier transaction flows and financial security for smaller countries, these advantages also lead to irresponsible lending practices as seen by the current crisis. Smaller countries believe that larger countries will bail them out as needed, which is true as demonstrated by Germany’s bail out package to Cyprus. Possessing this mentality of financial security is useful to a certain extent—making risky investments is the way an institution can invest in new innovations and make unexpected returns. Yet, there has to be a limit at some point. Having a centralized currency reduces the flexibility each individual country has in solving their fiscal crisis. Because individual governments can no longer alter the value of their currency, imposing wage reduction measures in order to save employment and devaluating currency to encourage exports were no longer possible. Governments have to turn to unfavorable austerity measures, while hoping for bailouts from the International Monetary Fund and EU. What the EU needs the most now is solidarity to weather the crisis and institutional memory to ensure that another Cyprus or Greece doesn’t happen again.

More than half of the world’s adult population lack access to formal financial services. Bhagwan Chowdhry, UCLA Anderson Professor of Finance, proposes a FAB idea to tackle the issue. Financial Access at Birth (FAB) is a social and economic innovation that seeks financial inclusion. According to Center for Financial Inclusion at ACCION International, where FAB is housed, “Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, and rural populations.”

The Economist, CNN, Forbes, Fast Company, Smart Money, and others, featured FAB because of its compelling aim to give every child at birth a unique universal ID that connects to a saving account with a small initial deposit. The account created and the financial identity secured will create an infrastructure as a humanitarian delivery channel. This delivery channel can be used for providing information, health, education, and emergency aid to the last-mile population.

The Paganucci Fellows Program – a summer internship for Dartmouth students held at the Tuck School of Business – has taken on the role of conducting a feasibility study on FAB in Ghana, a potential first location for FAB. This program empowers five Dartmouth undergraduates who wish to make a difference in the world with the unique opportunity to utilize resources and mentorship at Tuck. The stated goal of the program is to “support Tuck’s efforts to study complex social issues and the ways in which businesses can create positive social and financial value; in effect, the ‘double bottom line’.” As a team, Paganucci Fellows are pursuing a global development consulting project to fuel their passion for international development and to acquire skills that will help pursuing future endeavors in social services.

In the process of conducting the feasibility study on FAB in Ghana, the Paganucci Fellows have defined key questions that the FAB model must resolve prior to implementing a pilot program. The team is also working on a website launch strategy as FAB rolls out a public relations campaign in association with its appearance in the final season of the popular HBO series Entourage this August. Paganucci Fellows are also responsible for developing a strategy and preliminary invitation lists for the global consultations that FAB plans to conduct beginning in Fall 2011.

So far the research has been conducted using web-based secondary sources and a series of interviews based in Hanover. Some of the interviewees include Ghanaian students (both in Ghana and at Dartmouth), Dartmouth and Tuck Professors, World Bank employees, and NGO founders in Ghana – Dana Dakin, founder of WomensTrust, and Ben Schwartz, Dartmouth College ‘06, founder of World Partners in Education. These interviews have been informative about the context in Ghana regarding FAB and have helped the team to prepare a preliminary feasibility analysis for the country.

The Paganucci Fellows hope to resolve some of their questions in Ghana in order to ensure that FAB rolls out in its most effective and efficient form. The team is hopeful that the journey can be one of the first few steps for the budding FAB to improve the quality of millions of lives.