Sometimes I feel a little sorry for Wayne Rooney. Every time there is a debate about pay, somebody pops up and says “But look at Wayne Rooney. He earns £250,000 a week just for kicking a football. There is no way that he is worth that!”
But Wayne Rooney is worth that. And until our great leaders understand this plain fact, I have little confidence in their ability to navigate our economic future. Let me explain. Because I think it clarifies a critical issue for private investors – just how much is a fund manager worth to you?
Nobody forced them into that shirt
I can think of few markets that are more open and more freely competitive than football. It is a straight deal between the clubs and the customers. The former charge as much as they possibly can for tickets and shirts and TV rights. And the customers are entirely free to pay these prices or walk away.
Despite their complaints and the fact that anyone over the age of 30 looks ridiculous in a football shirt, the customers pay the price. They don’t have to. Nobody is compelling them. They can walk away and turn off the telly if they want to. But they don’t and inevitably most of their cash ends up in the pockets of the sport’s stars.
I see nothing wrong in this whatsoever. It is a free market between willing sellers and willing buyers and Wayne Rooney is on £250,000 a week because this free market exchange has determined that he is worth it.
Consider these two men…
Now let us look at it from another angle. Wayne Rooney has created £250,000 per week of value. And this is a really important point. Our economy desperately needs to create value. Every time I hear politicians they stress the need for ‘growth’. But what they should be talking about is ‘value creation’.
Consider two men. Each of them has a shovel, a pile of bricks and some bags of cement. The first man uses his shovel to dig a big hole in the ground. Into this he dumps the bricks and then covers them with cement.
The second man manages to build a house with his shovel, bricks and cement. Both men have had the same raw materials. Both have worked equally hard. But one has created something that is useless, a hole in the ground that is full of bricks, while the other has created something of real value.
The point is that the cost of producing this thing is irrelevant. Today we hear a lot of talk about manufacturing. Many believe that making tangible products from raw materials and the sweat of the working man is somehow superior to services – which could be anything from putting on a theatrical show to running a bank.
Why I’d pay Wayne Rooney before a fund manager
So, if you are in sharp form today, you may ask why I continually criticise the financial services industry. Judging by the huge amounts of money that we more or less voluntarily hand over to this monster, surely it is creating that amount of value?
To which I would answer that the industry’s charging is deliberately obscure, that our freedom to choose between providers is limited, and that there is a tacit agreement amongst the industry’s players to maintain high charges and compete, if necessary, on other criteria.
I don’t make these accusations lightly. As a former fund manager myself, I’ve seen just how much value some of these people create for their clients. And it just baffles me that more private investors don’t seek to take control of their own money themselves.
I mean we pay fund managers something like £7.3bn in fees every year. And these fees can be enormously painful for private investors over time – as I explained in my 3-minute rant.
What we want as consumers are things that we really value. And while you are unlikely to replace Wayne Rooney in the United line-up this year (sorry), you have every chance of creating value by simply taking control of your own money.
If you find that prospect daunting, then allow me to do the hard work for you. I travel the length and breadth of the country to bring you the most exciting penny share stories each week.