Journal of Economic Studies 27,3 142 Journal of Economic Studies, Vol. 27 No. 3, 2000, pp. 142-164. # MCB University Press, 0144-3585 Testing for monopoly rents in the market for playing talent Evidence from English professional football Bill Gerrard Leeds University Business School, Leeds, UK, and Steve Dobson University of West Indies, Trinidad and University of Hull, UK Keywords Economics, Labour market, Professionals, Football, Monopolies, Profitability Abstract Using the team performance-club profit framework, a formal model is developed of the determination of the transfer fees paid by football clubs when players are traded for cash. It is argued that transfer fees can involve monopoly rents; the selling club extracts a share of the nonnegative differential between its reservation price and the buying club’s maximum bid-price. It is shown that a necessary condition for the presence of monopoly rents can be established by testing whether buying-club characteristics are jointly significant determinants of transfer fees after controlling for player characteristics, time effects and selling-club characteristics. Using a sample of 1,350 English professional football transfer fees covering the period June 1990 to August 1996, it is found that monopoly rents may exist but the degree of monopoly rents may differ with the size of the transfer fee. I. Introduction The trading of players between clubs is a feature of many professional team sports. Yet, despite a large body of literature on the economics of professional team sport, little attention has been paid to the formal analysis of the determination of transfer fees when players are traded for cash payments. This neglect is largely due to the literature being concerned mainly with North American professional team sports in which transfer fees are of little importance. However, cash payments between football clubs to secure the movement of players is a common feature of many professional team sports outside North America. The trading of players for cash between football clubs with the payment of transfer fees in English professional football dates back to the late nineteenth century. These transfer fees have risen considerably over the years. In 1905, Middlesborough paid Sunderland a record fee of £1,000 for The current issue and full text archive of this journal is available at http://www.emerald-library.com The authors wish to acknowledge the financial support provided by the Department of Economics, University of Hull for research assistance in the compilation of the database. Thanks are due to Matt Maydew, John Leeming and Trudy Culshaw for compiling the database. The authors also wish to thank Kevin Reilly, Bob Simmons, Peter Smith, Simon Vicary, participants in seminars at the Universities of Lancaster, Leeds, Nottingham Trent and Sheffield, and participants in the Royal Economic Society Annual Conference, Stoke-on-Trent, 1997, the Scottish Economic Society Centenary Conference, Stirling, 1997 and the North American Society of Sport Management Conference, San Antonio, 1997 for their helpful comments. The usual disclaimer applies.