It’s no secret that championship teams are built in the boardroom as much as on the field, and that while the pointy end of the sport is always on the pitch for Bayern Munich, some of the crucial battles are fought in boardrooms...and over breakfast. With the historically significant signing of English striker Harry Kane finally coming to a successful conclusion we will be taking a deep dive into the process that brought him here.
Negotiation, like football, is both an art and a science, and plenty of ink has been spilled in trying to determine just what tactics work in negotiating and which don’t. The science side of negotiation has been advancing rapidly lately with effective approaches being discerned, primarily from the fields of psychology and, more specifically behavioural economics. While classical economics is focussed on what the “rational actor” should do in any particular situation, behavioural economics recognizes that almost no person or group behaves rationally all of the time, and tries to find the patterns in the chaos of human behaviour.
The key is to recognize that just because a behaviour is irrational, does not mean that it is unpredictable. For example, if I know that when I say “cheese” an irrational negotiator will drop his price by 5%, or if I say “milk” he will raise it by 5%, I can completely control the negotiation by pushing my counterpart’s irrational buttons at the right time. While the example is simplistic, the takeaway is important, irrational behaviour that is predictable (and much is) can allow you to better control negotiations.
There is only one fancy term that will be used in this series, and that is ZOPA. That stands for Zone of Potential Agreement. That is the range of prices where a deal can get done. It is the foundation for most negotiations.
To explain it with a simple example, let’s say I go the the flea market wanting to buy an antique lamp. I am willing to pay a maximum of $125 for the the lamp. The guy at the antique stall has the lamp I want and is willing to sell it for a minimum of $100. We may not know it when we are starting out but there is a ZOPA of $100-$125.
If you want to think it terms of winning and losing, the goal of any negotiation is to capture as much of the ZOPA for yourself as possible. Out of that range I would obviously prefer to pay $100 and the vendor would like to charge $125. The question now becomes what can I do to maximize my chances of capturing as much of the ZOPA as possible for myself when I don’t know what the ZOPA is? The answer is that I apply what I know about behavioural economics to each offer I make to provoke helpful responses from my counterpart.
The Number one Rule of Negotiating
This is where we learn the number one rule of negotiating, and it is simple. Fear is about twice as powerful as greed. This has been studied seventeen ways to Sunday and we know that for the vast majority of people in most situations, fear is twice as powerful as greed. That means that the fear of losing $10 delivers about as twice as much emotional impact or power than does the desire to gain $10.
Irrational? Yes. Predictable? Also yes.
And this gives us a whole raft of corollary techniques that we will see play out over the course of the Bayern-Spurs negotiation for Harry Kane.
Enough with the theory, let’s take a look at the round by round negotiations, why each step was taken and how they advanced each party’s position, from the point of view of Bayern management.
The purpose of an offer
The other thing you need to tuck into the back of your mind when we start examining this process is that offers have more functions than just putting your numbers out for your counterpart to assess. Offers can be designed to do a multitude of things, gather information, transmit information, stall, distract, anchor, redefine, etc. At the level this transaction was going on at each offer probably had several purposes. We will try to discern those as well.
Now let’s get stuck in and look at the first two rounds of offers.
Round One — the approach and first offer
The first offer is an important one, and one of the most challenging to make. You need an offer that will not tip your hand, and shows confidence rather than weakness, but it must also be at a level that is difficult to ignore.
So how do you decide just how far from your goal price to set the first offer? Well there a number of ways to do that, but one popular theory that we will use for this analysis is called the Ackerman method. There is some debate on who Ackerman was but the method is widely used and very successful.
It works like this. Once you decide what your goal or maximum price is your make a series of offers essentially at 65%, 85%, 95% and 100% of your goal price to give yourself the best chance of getting the deal done. Thus in traditional Ackerman negotiating your first offer should be around 65% of your top number (and if the seller is making the first proposal you just mirror the math - 135%, 115%, 105%, 100%).
Bayern’s first offer was €70 million plus add ons. For simplicity’s sake let’s just use the seventy million. How does one read this first offer (which nobody at Bayern ever thought for an instant Spurs would accept)? Simple, the message is, “we might be willing to pay about 107 million or so euros for Kane.”
Round Two - A
This is where things get a little odd. Tottenham does not make a counter offer to the €70 million, rather they simply decline it.
Now Bayern are in a bind. They have not gained any information, and now have to consider making two offers in a row unanswered. In negotiating this is known as the cardinal sin of “bidding against yourself” and it is a massive no-no. Negotiators are hard wired to avoid two bids in a row at all costs. But Bayern wanted the player and facing a number of externally imposed time restraints decide they will make a further offer. They effectively bid against themselves.
Bayern’s next offer is €80 million. They make their offer and hold their breath.
Round Two - B
Fortunately Tottenham responds and makes it known that the valuation they have placed on the player is £120 million pounds or about €140 million, double Bayern’s first offer.
So how do we read this?
Quite often in negotiations, the second offer is made in the bracketing format. That is, the responding offer is equidistant from the potential selling point the vendor has set, as the buyer’s last bid is from that same selling point.
SImple example. If I want to sell my lamp for $100 and the purchaser’s last offer was $60, I counter offer at $140, thus ‘bracketing’ my target price of $100 (their offer and my offer are now both $40 from my goal sale price- the goal price is bracketed).
So what do Bayern read from the €140 million offer? Well when they do a bracketing analysis on the tabled positions ([80+140]/2) they likely conclude that Levy might be willing to let Kane move for a transfer fee of...(holy crap) €110 million.
This is spitting distance to Bayern’s potential number of €107 million.
At this point Bayern’s negotiating team believes that a ZOPA does exist and that if the negotiations are executed properly there is a deal to be had. This is confirmed by media reports that start saying Bayern is confident that an agreement can be reached for a transfer when the publicly reported positions are still €60 million apart!
So that wraps up the opening rounds of the negotiations with things looking good.
Please swing back to join us for the next installment when we will take a short detour to look at Uli’s old school interruption to the negotiations, followed by some analysis of Levy as a negotiator, lumberjacking technique, an explanation as to why Dreeson enjoyed his role as a masochist, and how Bayern used a closing approach developed in kidnapping negotiations to build the golden bridge that got the deal done.