A few weeks ago, Sir Elton John, international pop star, sent a message to Scott Duxbury, chief executive of Watford football club.

“Tom Heaton. I’d still buy him. Foster’s not consistent. Love, Elton.”

Earlier that day, Watford had lost 4-0 to English Premier League rivals Bournemouth on a dismal, drizzly day at their home ground of Vicarage Road. Sir Elton, a life-long fan who previously owned the club, reacted to the poor result as supporters often do; apportioning blame, calling for drastic changes.

No matter that the team had recently made a great start to the season, winning their first four games. One heavy defeat was all it took to suggest replacing Ben Foster, Watford’s vastly experienced new goalkeeper, with Heaton, a highly rated recent England international. “That’s the emotion,” laughs Duxbury as he recounts the story to me.

Duxbury responded — Sir Elton texts most days and always gets a reply — but politely declined the advice. Watford are one of the Premier League’s poorest clubs. Until a remarkable climb up the league in the late 1970s, they had spent most of their history in English football’s lower divisions.

Vicarage Road’s 21,000 capacity is little more than a quarter of Manchester United’s Old Trafford. They cannot afford to purchase established stars as fans prefer. The Watford way is to buy cheaper, little-known players, then sell them at a profit.

Watford captain Troy Deeney celebrates after scoring in their 3-1 win over Burnley this season

Simple in theory. Difficult in practice. All 20 Premier League teams deploy global scouting networks to unearth hidden gems, sifting through thousands of footballers eager to play in the wealthiest club competition in world football. But judging ability is tricky. Some traits, such as speed and strength, are measurable. But other variables, such as the ability to control a ball under pressure, are near impossible to assess empirically. Scouts deploy no fixed tests. They watch matches, then attempt to decipher which players have what it takes.

If we just simply replicate what the bigger clubs are doing, we’re going to fail, because we don’t have their resources

Watford employ 12 senior scouts who travel the world, as well as a wider network of junior scouts, consultants and coaches, who live in different countries and provide recommendations. It’s a big operation for a club of their size, but those with more money can afford more spotters. Manchester United, the richest club in the world, employ 50 full-time scouts globally.

Yet, Watford are the most active at searching for and trading talent. Since their most recent promotion to the Premier League in 2015, they have, on average, acquired and sold more players than any other side in England’s top division.

The rapid turnover appears to cause little disruption. Only a couple of months into a long season, Watford are already more than halfway to reaching an internal target. “No team’s ever been relegated with 11 wins,” says Duxbury.

Watford’s Vicarage Road ground has about a quarter of the capacity of Manchester United’s Old Trafford © Matt Moran

He aspires to scale greater heights, of course. But for a club with Watford’s limited resources survival is the primary objective (the bottom three teams each season are relegated). Only then can they benefit from a share of the Premier League’s broadcasting contracts, worth a combined £8bn. In the three seasons since promotion, Watford have secured 12 victories on one occasion and 11 wins in the other two. Enough. And only just.

“If we simply replicate what the bigger clubs are doing, we’re going to fail, because we don’t have their resources,” says Duxbury. “We have to do something different. We can’t match them pound for pound.”

Instead, Watford have successfully gamed football’s multibillion-pound transfer market: buying low, selling high, while maintaining a team of 11 players capable of scoring 11 wins against richer rivals. The question is how?

Scouts have been used to identify players for decades. In his award-winning 2013 book The Nowhere Men, football writer Michael Calvin followed the lives of English talent spotters. The lucky few are on a salary but live in perennial fear of the sack, frequently turfed out along with a team’s manager when results go south.

Most, however, are obsessive freelancers who travel thousands of miles a season, are paid little more than 40 pence a mile for petrol, and are sustained by a diet of bacon sandwiches. Should a club hire a player on their recommendation, a scout earns a bonus of a few hundred pounds.

Calvin — after shadowing people such as Mel Johnson, who spotted current international stars Gareth Bale and Raheem Sterling as teenagers — reckons scouts develop intuition that allows them to divine which players will make it to the top. “They feel it in their bones,” he says in a recent YouTube video series on the “art” of scouting. “They are football’s last romantics. They’re there at the birth of the dream.”

But outliers such as Sterling and Bale (who have each gone on to command combined transfer fees in excess of £100m) distract from the brutal realities. As Calvin suggests, fewer than one per cent of the 10,000 boys at English club academies go on to make a living from the game. Two-thirds of those awarded a professional contract at the age of 18 abandon the sport by 21. Football is a machine that grinds the dreams of thousands of boys. If a diamond is found in the dust, scouts take credit for the discovery.

This is not merely an English phenomenon. For his 2018 book The Away Game, author Sebastian Abbot followed Spaniard Josep Colomer who, as a coach at Barcelona, nurtured a youthful Lionel Messi before the Argentine developed into the world’s best player.

As a result, Colomer was recruited by the state of Qatar in 2007 to help to establish a programme called Football Dreams for the Doha-based Aspire Academy. Over the course of a decade, he held trials for five million children across Africa, Latin America and south-east Asia. A handful were selected for training at Aspire’s state-of-the-art facilities.

Watford head coach Javi Gracia © Matt Moran

The programme produced a youth team that beat a Brazilian under-17 side featuring Neymar and Philippe Coutinho, who would go on to become two of the most expensive players ever. Yet few made the big time. After spending more than $100m but failing to find the next Messi, Football Dreams was disbanded in 2016.

Assessing the quality of developed players is every bit as difficult. Omar Chaudhuri, an executive at 21st Club, a football consultancy, says the best way to judge whether a transfer is a success is the amount of time a new signing actually appears on the pitch. A manager is incentivised to pick the best possible team, so if new signings are good, they will play frequently. But Chaudhuri has found that in only half of transfers of “peak-age” players — those in their mid- to late-twenties — do they end up playing 50 per cent of minutes for the club they sign for.

“Recruitment is, in many ways, a bit of a lottery,” he says.

To find out what Watford do differently, I travelled to their training ground just off the northern edge of the M25 motorway, London’s ring road. A row of small buildings contains offices, a canteen, a gym and changing facilities, with windows that look out on to a handful of carefully manicured pitches and the Hertfordshire hills in the distance.

There, I meet two of Watford’s key leaders — Duxbury, 46, a square-shouldered Englishman in a pinstripe suit, and technical director Filippo Giraldi, a 43-year-old Italian with an unkempt air. It is lunchtime. As we chat, ravenous players filter in following a training session. The small room, packed with circular tables, fills with noise.

Watford chief executive Scott Duxbury (left) with technical director Filippo Giraldi

In an office locked away from the hubbub is Gino Pozzo, Watford’s owner. (He rarely gives interviews and declined to speak to the FT.) Pozzo, 52, is the mastermind behind Watford’s trading strategies. In 1986, his father Giampaolo bought Italian club Udinese with money from the family’s toolmaking company.

Udinese, a small-town club in the north-east of the country, play in Serie A, Italy’s top division. To create a team to take on local giants such as AC Milan and Juventus, they deployed scouts far and wide. Their greatest finds include Chilean striker Alexis Sánchez, who has gone on to play for European superpowers such as Barcelona, Arsenal and Manchester United. There is a long list of top footballers who have emerged through Udinese’s ranks, including Colombia’s Juan Cuadrado, Morocco’s Medhi Benatia and Slovenia’s Samir Handanović.

A lot of the bigger clubs, they will look at a player and they need a little more convincing, a little more proof . . . we’ll take a risk

In 2009, Pozzo led the family’s acquisition of Spanish club Granada (subsequently sold in 2016 to Chinese group Link International Sports for a reported €37m). In 2012, they arrived in England to buy Watford, where Gino is sole owner.

The move to acquire clubs has given the Pozzos’ operation greater scale. A larger scouting network is able to cover more ground. Players often move between the teams. “We try to have independence between [Udinese and Watford],” says Giraldi. “But once we make a plan, we share it . . . We don’t want a guy from Watford and one from Udinese watching the same game, that would be stupid.”

Other organisations maintain a similar constellation of clubs. Abu Dhabi-controlled City Football Group, which owns Manchester City, also has sides in the US and Australia, while energy drinks manufacturer Red Bull owns teams in Austria and Germany. Those regimes are motivated, at least in part, by marketing the brands of the owners. The Pozzos are focused solely on football.

Despite being a relatively small club, Udinese have spent 24 consecutive seasons in Italy’s Serie A © Getty

Though there is a desire to develop other parts of Watford’s business, from expanding their stadium and seeking sponsorship deals, the obsession is trading players. All major decisions are made by a triumvirate of Pozzo, Duxbury and Giraldi. In the past, dictatorial managers such as Manchester United’s Sir Alex Ferguson or Arsenal’s Arsène Wenger, controlled most aspects of a club’s operations, including transfers. Not any more. At clubs such as Liverpool and Manchester City, the idea is that recruitment is carried out by an executive team that remain in place even if the manager who picks the team changes.

“It never stops,” says Duxbury. “Without being crude, in the morning when I’m getting ready for the day ahead and I’m maybe having my toilet break, I’m texting Filippo, saying, ‘Have you heard about this player?’”

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There are modern efforts to improve scouting through the use of data analytics. Clubs such as Liverpool and Arsenal have invested millions of pounds building in-house teams. But Watford largely eschew such methods, Giraldi says. Though they employ an outside firm to provide some data analysis on players, the club rely on the subjective judgments of their scouts. “We always watch with our eyes first,” he says.

Yet, there is scant evidence that even the best scouts can guarantee sure-fire hits. Instead, Watford appear to deploy a series of trading strategies that mean their recruitment choices are smarter and more bankable than their rivals:

1. Take quick, but calculated, risks

At 4.50pm on August 9 2018, 10 minutes before the closure of the summer transfer window, a period in which players can be traded between clubs, Duxbury received a call.

He was told that Domingos Quina, an 18-year-old Portuguese midfielder with West Ham United, was in the car park of Watford’s training ground and wanted a move to Watford. The club’s scouts had been tracking the player for months but believed he was beyond reach. Duxbury recalls: “I said to Filippo, ‘Is he any good?’ [Giraldi] went, “Yes, he’s phenomenal, Scott, but it’s got to be a joke, how on earth can we do this?’

“I phone West Ham. It’s not a joke. He’s got a year left of his contract. They just want to do a deal because they know they’re going to lose him in January, [so] we have a guy in a car park with 10 minutes to go before the window closes.”

Watford owner Gino Pozzo (left) and his father Giampaolo (centre) with then technical director Gianluca Nani in 2013 © Getty

Duxbury spoke to Pozzo, who instantly gave the green light. “We close the deal and we’ve signed a player that in the Carabao Cup [one of England’s two main cup competitions] scored a wonder goal, then in midweek for Portugal [under-19s], scored another wonder goal. If you didn’t have that speed of decision-making, he wouldn’t be here now.”

The ability to make such speedy decisions stems from extensive planning. Watford’s scouts are instructed to get to know a player’s agents, even his parents, to better understand their desires in advance of any transfer. The club have 100 potential contracts already drawn up should the opportunity to sign a targeted player arise.

“The secret is that we will move quicker,” says Duxbury. “A lot of the bigger clubs, they will look at a player and they need a little more convincing, a little more proof . . . we’ll take a risk.”

2. Everyone is dispensable.

Being a small club has advantages. Scouts deliver their reports directly to the ruling trio rather than through other layers of management. Then, Pozzo, Giraldi and Duxbury draw up lists of around four desirable players in each position, as well as tallies of younger targets that could eventually graduate into the side.

Others follow a similar method. Premier League champions Manchester City have created a database of 300,000 players, with the club identifying just three targets in each position they consider the best in the world. But with less money to spend, Watford seek a different calculation: buying undervalued players.

One example is Richarlison de Andrade, the Brazilian forward sold to Everton this summer for a reported £35.2m. He had been bought just a season earlier for £11.5m from Brazil’s Fluminense but Duxbury says he was actually the club’s second choice for a new attacking player. The asking price for their preferred target went “to a level we weren’t comfortable with”.

The Brazilian Richarlison was bought from Fluminense by Watford for £11.1m in January 2016 and sold to Everton for £35.2m in July this year © Getty

“I never fall in love with a player,” adds Giraldi. “If you look at the world in front of you, there is somewhere a better player than [the one] you are chasing.”

The same approach applies to managers. Watford have been criticised for their propensity to fire managers. In Pozzo’s six years of ownership, the club have hired nine head coaches. “Coaches, they have a limited shelf life,” says Duxbury. “They’ll either be very successful and maybe go on to another bigger club or they won’t work out and they’ll move on. We don’t want that disruption when a coach leaves a football club.”

Those who take the seat in Watford’s dugout understand their task is to work with the players they are given. “It’s the situation here, and when you [join] Watford, you know what you are going to find,” says current head coach Javi Gracia, 48, who took over in January. “I have to try to offer the best performance we have and to get better results.”

3. Hire foreign players, resist pay raises.

According to their recent accounts, the club’s “net spend” — the difference between outlays on transfers minus fees received from selling players — has been about £30m a season since re-entering the Premier League. To keep up with their peers, Watford are increasing their spending on acquisitions.

Yet a better way to understand how the club play the transfer market is to look at their wage bill — the fifth lowest in the division. This is a risky strategy. Academic research suggests the best predictor of a team’s league placing is its wage bill. Football is an efficient market: the more a club spends, the better the results.

[It’s about] getting the experience I need to hopefully go on to bigger things

But what if Watford simply underpay their players relative to their true worth? Compared with their rivals, the club do not tend to buy locally. Of the 28 teams to have played in the Premier League in the past three years, only four have bought a lower percentage of players from the British Isles, according to 21st Club.

Foreign imports, says Giraldi, offer better value for money: “If you want to be economically efficient, [buy players in] South America . . . in Argentina, Chile, Colombia, Paraguay, Uruguay, you can still find very, very good players who have the right attitude to play in Europe.

“And when I say cheap, in terms of transfer fee, it can be similar, but in terms of salary, [there is] a massive difference. If you sign a good English player, you will start easily from ten [thousand pounds] per week . . . If you sign a South American, you can start at ten [thousand pounds] a month.”

Overseas players are attracted to Watford as it gives them an invaluable shop window into Europe’s top leagues, a platform from which they can convince bigger clubs to acquire them. Increasingly, however, emerging English prospects, who can potentially earn higher salaries elsewhere, are also seeing the benefit.

Watford's Nathaniel Chalobah, who was recently called up by the England national team

“For a young player, being at a big club, if you’re just sat there and not playing, not getting the opportunity, you’re not showcasing your talent,” says Nathaniel Chalobah, a 23-year-old midfielder who joined the club last year from Chelsea, one of England’s richest and most successful clubs. “For me personally, it’s more trying to improve as a player by getting the experience that I need to get and hopefully go on to bigger things.” Chalobah was recently called up by the England national team.

Far from discouraging the desire to leave the club, Duxbury says such ambition can be harnessed. “Whether it’s Chalobah or whoever, they will go when we’re ready for them to go because it’ll be a huge transfer fee,” he says. “I want them to achieve the best that they could possibly do in their career. If that’s playing for Real Madrid or Paris Saint-Germain, that’s mutually compatible with our ambition because we will improve as a football club, they will improve as a player, and the merry-go-round will continue.”

4. Exploit the rules.

The Pozzos are masters of regulatory arbitrage. One strategy is to use the “loan” market to their advantage. In 2006, Udinese signed a 17-year-old Alexis Sánchez for £2.7m from Chilean club Cobreloa but immediately loaned him to other South American sides. A couple of seasons later he was a battle-hardened attacker ready to play in Italy. After another three seasons with Udinese’s first team, Sanchez was sold to Barcelona for a reported fee of £23.4m.

Alexis Sánchez: the Pozzo-owned Udinese paid £2.7m in 2006 for the Chilean, who was sold to FC Barcelona for £23.4m in July 2011 © Getty

They brought a similarly savvy approach to Watford. Following the takeover, Watford signed 10 players on loan from Udinese to boost the team. In response, the English Football League (EFL), the body that regulates professional divisions below the Premier League, changed its rules so that clubs could no longer benefit from a huge influx of foreign loanees.

The club simply changed tack. In the UK, footballers from non-EU countries cannot gain work visas unless they satisfy certain eligibility requirements, such as playing for their national teams or racking up games in a major European league. Watford often acquire players who do not satisfy these immigration rules but loan them to Udinese or other teams to build the experience needed to gain a work permit. Other clubs deploy these tactics but few as often as Watford.

“If we think a player’s good enough, we will sign him regardless,” says Duxbury. “[Even if the club have] no possibility of playing him because he hasn’t got a work permit. We loan him out. We wait until he gets his national qualifying games, and then he can come to us.”

I never fall in love with a player. Somewhere, there is a better player than [the one] you are chasing

Between Udinese and Watford, the family own about 80 senior players, each representing a potential blockbuster transfer. But they also know most players found by scouts will not succeed. Instead, the Pozzo model is akin to venture capital investing. Place small sums into lots of high-risk ventures. Only one has to make the big time to achieve huge returns. Having sold Granada two years ago, the Pozzos are considering the purchase of a lower-league Spanish club to build their network once again.

Watford have also had their share of regulatory problems. Last year, the club were fined £3.95m after admitting that one of their senior executives submitted a forged bank letter in filings related to Gino Pozzo’s takeover. Raffaele Riva resigned as executive chairman over the incident. A subsequent EFL inquiry found that the owner was unaware of the document and the club had not gained a competitive advantage.

The Pozzos have faced more serious allegations. This year, Italian newspaper La Repubblica reported that tax officials in Italy and Spain were investigating the family’s clubs, alleging a complex ownership structure including offshore companies helped to funnel revenues from Udinese and Granada away from local tax authorities, all to provide more funding to Watford. The family have vehemently denied the allegations. Duxbury calls them “absolute nonsense”.

For now, at least, Watford’s player trading strategy is working. The likelihood is that any team that are consistently among the lowest spending in the division will eventually have a bad season. But no club in the Pozzo family stable has been relegated for more than 20 years. Watford look set for another season in England’s top tier following an outstanding start to this term.

To what end? Simply put, staying in the Premier League is valuable. Since 2015, the club’s annual revenues have grown by more than £100m. A greater windfall is possible. This year, Watford rejected an offer from an American media company to buy a 35.7 per cent stake in the club for £125m, valuing it at a whopping £350m. The deal would have been quite a return for Pozzo, given he paid £500,000 to buy Watford six years ago as well clearing the club’s debts of about £10m.

Duxbury declines to speak about the details, saying that the owner has no reason to sell. “The Pozzos have their own family wealth,” he says. “We don’t have an owner taking money out [or] as a vehicle for him to make money.”

Still, the longer they stay in the Premier League, the richer the club get. Watford can now afford the price tags attached to better-known players. Even so, the Watford way is not to be tampered with.

“I’d take it as a point of failure,” says Duxbury. “If I’m the club that’s buying a player for £40m because you’ve heard of him on Match of the Day, something’s gone wrong.”

Murad Ahmed is the FT’s sports correspondent

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