Sport Economics & The Design of Competitions

Sport Economics & The Design of Competitions

Executive Summary

The current assessment critically assesses the organizational structure of the English Premier League (EPL), by analysing the uncertainty in the outcomes of the matches and season by evaluating its competitiveness and its balance.

The Premier League is the highest profit earning football league in England because of its statutory intervention such as revenue sharing by broadcast, third-party player ownership, and financial rule. Premier League is having the highest audience form from the last ten seasons and the profit generated is very high. It is one of the highest profits generating football league. Premier Leagues is a profit-maximizing league rather than a utility-maximizing. The Premier League is one of the high set football leagues due to indicators of the competitively balanced league. However, the current assessment outline the imbalance in the financial management of clubs, further, a different recommendation will be provided to improve the broadcast revenue sharing, for example, distribution of VIP boxes, tickets and financial regulations such as the creation of salary scale for different clubs in the Premier League.

Table of Contents

Introduction 1

  1. Competitive balance in the Premier League 2

2.1 Brief introduction and history of the Premier League 2

2.2 Uncertainty of outcome 2

2.3 Regulatory intervention 3

2.4 Profit maximization 5

  1. Recommendations 6

Conclusion 7

References 8

Books and Journals 8

Online 9

 

 

 

9

 

Introduction

The current assessment will discuss the effectiveness of the organization and the structure of a football or any sports league. The critical evaluation will include common topics related to the uncertainty of results in sports and ruthless stability.

The main factor for uncertainty in the outcomes of the sport is imbalanced competition. A balance competition is essential to get customers’ attention towards the league on a massive scale. There is a requirement of equal talent distribution if there is uncertainty in outcomes. The fate of results is necessary as if the customers are willing to pay for the ticket for the game. Competitive balance is required, for example, the balance in profit maximization, revenue sharing, salary caps, and regulatory intervention.

The Premier League or the EPL is often referred to as English Premier League outside of England. On top of the list the Premier League in the system of English football league. The sport is contested by 20 clubs, and it is operated on a system of promotion and relegation with the EFL. The season of this league runs from August to May, where each club plays 38 matches with all the 19 teams home and away from home. The games are generally played on weekend days to ensure large numbers of football lover comes to watch the game. This league generates high profits, and the league is linked to financial regulation. Thus, the clubs in the league are not allowed to spend more money than their income level. The league was founded on 20 February 1992 and from that Manchester United club has won 13 titles.

 

Figure 1: Premier League Logo

 

  1. Competitive balance in the Premier League

The assessment explores the competitive balance or stability in the English Football League during the Premier League era. This era is compared with the preceding twenty-eight-year periods. Proven by the following elaboration shows that the current competition level imbalance is not new exceptional. An explanation proffered that there are unequal resources between different clubs in the leagues (Freestone and Manoli, 2017).

2.1 Brief introduction and history of the Premier League

The Premier League is also known as The Premiership, and it is considered the pride of football in the UK. The football league is relatively young, and the reason to start this was a decline in the sport and interest in the UK during the era of 80s. Due to the disaster occurred in the 1985 European Cup Tournament, football stadiums were neglected, and the English clubs were banned from taking part in the competition in Europe. The FA Premier League was formed in February 1992, and the first games were played in August in the same year. Initially, the league had 22 clubs (Webb, 2017).

However, currently, there are 20 teams in the Premier League. The FA Premier League was officially changed in 2007 as The Premier League. The Premier League is also known as Barclays Premier League because it is sponsored by Barclays Bank. Currently, the Premier League is on the top level in the system of the football league. The Premier League season runs from August to May, and there are 20 teams, and each of them playing 38 matches with the other 19 teams. However, a total of 40 teams have participated in this competition, but only 4 out of them have won the title. Manchester United has won the highest number of titles; it boasts a total of 13 Premier League titles.

2.2 Uncertainty of outcome

Uncertainty of outcomes is required if the leagues want their consumers to pay admission to the league’s matches. Therefore, high access in the games is likely to be the outcome of the balanced league.  Despite the increase of the marketing activities internationally by the different sports clubs research evolution exploring the role of sport or match outcome uncertainty in the demand of the spectators has been solely conducted within the governmental context. In this context, very small is well known about the spectators of the sport on TV internationally watching the sport from abroad. There are around 571 English Premier League sports that were broadcast in Germany in the season of 2011-2012 and 2015-20176 to explore whether abroad customer television demand for football matches is affected by game outcome uncertainty. The result of the analysis showed a significant relationship between the need for German EPL and game outcome uncertainty (Schreyer et al., 2018).

The Premier League constitutes the highest level of football in England. It is considered one of the most popular and most followed football leagues across the globe. The Premier League in its current format consists of 20 teams, and there were 22 clubs when The Premier League was formed. Among the best five league ties in Europe, the football leagues include Italy, England, France, Germany, and Spain. The Premier League generates the highest revenue. The projected income at the end of the 2018-19 seasons was around 5.60 billion Euros. It could be said that the outcome uncertainty as of each game and season as consumers are ready to pay for admission in every game because of competitive league balance or stability (Schreyer et al., 2018). 

One of the factors for consumers willing to pay admission for each match is its ticket prices, as the ticket prices for Premier League have nominal ticket prices in Europe. The average ticket price of each Premier League match is between £20 and £40. The ticket prices vary from game to match some may be low, or some may be comparatively high, mostly Manchester United, Liverpool, and Chelsea ticket prices are high. Another reason for the Premier League’s high attendance is the clubs involved in the league, and the clubs are owned by its members and stakeholders. For example, Arsenal club owner is Stan Kroenke, Aston Villa owner is Nassef Sawiris, and Wesley Edens, Chelsea owner is Roman Abramovich. The Premier League three of the clubs are owned by billionaires and 11 clubs are owned by international sponsors, and some of its players also play in the Bundesliga League which has also enhanced the attendance of the consumers in the Premier League matches (Schreyer et al., 2018).

2.3 Regulatory intervention

The regulatory intervention allows a competitive balance in the league so that the club to earn profits. The clubs in European football leagues are known for their institutionalize culture management which prioritizes favourable outcomes over economic performance. This creates a highly competitive context as there are most clubs operated with this, which produce debt and deficiency. To retain the clubs for the long term, the Union of European Football Association (UEFA) has established a regulatory framework and monitor the process that is tied with the accounting data to assess the financial performance of the clubs. The aim of this is to determine the URFA framework, where has any impact on management policies of the clubs concerning their accounting quality (Dimitropoulos et al., 2016).

The broadcast list of Premier League on Television broadcasters provides the league coverage which is the most followed and watched football league in the world. Sky Sports is the main broadcaster of the Premier League in the UK, which broadcast 128 games out of 200 in the UK. All the 200 matches of the football league are broadcast across the globe, the remaining matches are not televised live in the UK, but all are broadcaster elsewhere outside Europe across the world. The Broadcast rights of the English Premier League rise to £5.136bn and is sharing the revenue from the broadcast.

The Broadcast right of the English Premier League in 2016-19 was sold for £5.136bn., including the sold rights for TV broadcast, digital audio, and most matches also sold overseas. English speaking countries can carry out what is known as World feed, or International feed audio excluding the UK, the commentary for the full match is provided by the Premier League.  In Asia and other selected countries across the globe, a fully produced studio broadcast is provided by the Premier Leagues, which is called Premier League Production (Dimitropoulos et al., 2016).

The Premier League shares its revenue with all the clubs. Details of the revenue earned are distributed with 20 teams, with £2.45billion is shared among 20 clubs. It pays high to be on television and distribute the premier League revenue based on numbers of clubs and the numbers of live matches. It is guaranteed to pay its 50% of TV revenue earned equally. As a consequence, small clubs have more income, and they are more profitable compared to others (Butler and Massey, 2019). This model could be a future representation for other football leagues such as La Liga and Bundesliga. The new revenue sharing regulation of the Premier League could be a future model for other leagues in competitive balance. Through the sharing of broadcast revenue, all the clubs seem to be more profitable.

2.4 Profit maximization

After many decades of debates on profit maximization with the economic professionals, the profit maximization theory remains disputed. Economic professional today would argue that maximizing profit is the main focus of the organization’s manager, in today’s times where some managers may pursue profit maximization, and some may not have the debate associated with natural adaption. Going back as far as Alchian (1950), that, some of the economists and economic professions argued that organizations in which decision making is done concentrating on profit maximization would survive for the long term. It is argued that football leagues with relegation and promotion, such as The Premier League are not profit-maximizing but, utility-maximizing and it is stated that this should be the real objective (Garcia and Szymanski, 2006).

A league that achieves a high level of profit is likely to have more competitive balance in the league. The theory of economic professional sports league is based on the assumption that the club’s owner’s main objectives are aligned towards either utility maximization or profit maximization, related to the win than profit. The utility maximization further divided to reflect off any attendance financial constraint; this can be a hard or soft constraint, in which the club owners do not rigidly impose the constraint, as preferring the necessity for enhancing the remuneration for the players in chasing to win or matches (Dimitropoulos et al., 2016). Fort (2015) stated that an important route for sports economics is an estimation of the potential trade between the win and maximizing the profit.

This debate, deal with an aim to professionals clubs, is important as its assumptions can impact prediction and this will likely affect regulatory tools that are used to optimize the league design. While some of the studies have tried to connect two objectives, few have attempted to understand the objectives of the organization of the professional clubs or teams.  One of the studies explains that the previous approaches strongly focused on the background of the economy, while the managerial concept may be more helpful in clarifying the objectives of the organization. The economic approach assumes that deliverable strategy will be registered, recognizing that strategies can form different ways, and they are of great importance in a professional sports team. Hence, the trade-off for the result between the win and profit could be a strategy outcome formulation or may result in disordered in its execution (Fort, 2015). It’s simply the clubs spend no more than as per their income.

Szymanski argued that through regulatory intervention such as TV broadcast and audio sports revenue distribution budget regulation and youth academy and a league allowed the clubs to be more profitable. Therefore, the Premier League could be more competitively balanced. This shows that The Premier League maximizes its profit and thus, the bits of help in achieving competitive balance (Garcia and Szymanski, 2006).

  1. Recommendations

The chapter shows that the Premier League seemed to be competitively balanced, but it is a fact that the Manchester United club has won 13 Premiership titles in a total of 28 years of the league, which point out equality and competitive imbalance in the league. There was a gap between Manchester United club and other clubs that shows an imbalance in the league. The main reason for this imbalance in the league is that the clubs earn income through their sponsors (Garcia and Szymanski, 2006).

In this context, a proper solution can be an overall revenue distribution among the clubs, just like in the NBA. The Premier League can prescribe the sponsor’s rights for the teams or clubs and the league and seasons. Thereafter equally share the revenue earned through ticket, VIP boxes, and broadcasting through television and audio sport among all the teams based on their last year’s performance and position in the Premier League, various facilities and cost of wages, or any other factors. This will support in reducing the inequality among clubs and members caused by their sponsors and also support in enhancing the club’s financial scope. This would increase scope in terms of finance for small clubs; all these will result in a proper competitive balance in the league.

Further, it is recommended that ticket policies can be slightly changed to attract large numbers of consumers, where tickets for domestic consumers must be 60% for the home team and away team consumers 40%. This would increase consumers for smaller clubs and also bring a competitive balance in the league (Oberstone, 2009).

Another solution can be revenue distribution by selling VIP boxes. The Premier League could sell its VIP boxes to sponsors and high economic class consumers and share all the income with clubs. This will increase the financial scope for small clubs and also reduce inequality and financial imbalance.

 

Conclusion

In conclusion, the Premier League is well balanced and has a clear potential of becoming a good balance and followed football league across the globe. The Premier League has improved its strategies. There was a competitive imbalance in the early-stage as Manchester United has won 13 Premiership titles in 28 years, but now with the improvement in strategies the league has moved towards a more competitively balanced league, and this has ensured more outcome uncertainty for each match, per season for long term. The English Premier League is well known and followed football league across the world and has generated the highest profit past few seasons. Imbalance in financial scope due to unequal revenue sharing from sponsors, but equal sharing of revenue increases clubs’ financial scope.

 

References

Books and Journals

Butler, R., and Massey, P., 2019. Has competition in the market for subscription sports broadcasting benefited consumers? The case of the English Premier League. Journal of Sports Economics, 20(4), pp.603-624.

Dimitropoulos, P., Leventis, S., and Dedoulis, E., 2016. Managing the European football industry: UEFA’s regulatory intervention and the impact on accounting quality. European Sport Management Quarterly, 16(4), pp.459-486.

Fort, R., 2015. Managerial objectives: A retrospective on utility maximization in pro team sports. Scottish Journal of Political Economy, 62(1), pp.75-89.

Freestone, C.J., and Manoli, A.E., 2017. Financial fair play and competitive balance in the Premier League. Sport, Business, and Management: An International Journal.

Garcia-del-Barro, P., and Szymanski, S., 2006. Goal! Profit maximization and win maximization in football leagues. International Association of Sports Economists, pp.06-21.

Overstone, J., 2009. Differentiating the top English premier league football clubs from the rest of the pack: Identifying the keys to success. Journal of Quantitative Analysis in Sports, 5(3).

Schreyer, D., Schmidt, S.L., and Torgler, B., 2018. Game outcome uncertainty in the English Premier League: Do German fans care?. Journal of Sports Economics, 19(5), pp.625-644.

Stefan Szymanski (2001). “Income Inequality, Competitive Balance, And The Attractiveness of Team Sports: Some Evidence And A Natural Experiment From English Soccer”. The Economic Journal. 111 (February). F69, via Online library Wiley.

Webb, T., 2017. Elite soccer referees: officiating in the premier league, La Liga, and Serie A. Taylor & Francis.

 

 

Online

Sportsbusinessdaily. 2012. NBA revenue. [Online]. [9 October 2020]. Available from:http://www.sportsbusinessdaily.com/Journal/Issues/2012/01/23/Leaguesand-Governing-Bodies/NBA-revenue.aspx.

Premier League. 2020. [Online]. [9 October 2020]. Available from:https://www.premierleague.com/

 

 

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