http://www.economist.com/world/britain/displaystory.cfm?story_id=9267864&CFID=7155171&CFTOKEN=74800451 Spoils to the victors
May 31st 2007
From The Economist print edition
New owners, more revenuesâ??and a change in the Euroworks?
ONE could hardly think of an unlikelier trophy for a billionaire businessman than Newcastle United Football Club, which has won no significant competition for decades. But stranger things have been happening in English football than the £133m bid for the club announced on May 24th by Mike Ashley, a sportswear mogul.
A slew of other prominent businessmen are also queuing up to buy football clubs. Thaksin Shinawatra, a deposed Thai prime minister, has made an indicative bid for Manchester City, and Southampton has recently received an offer from Paul Allen, one of the founders of Microsoft.
Why the continuing love affair with English clubs? Figures released on May 31st by Deloitte, an accounting firm, provide one answer: the revenues of Premier League clubs are likely to be almost £1.8 billion in the coming season, up from about £1.4 billion in the one just finished. In the past, such jumps in income have gone mostly to players, with little, if any, left over for club owners.
And for good reason: the market for talent in football is remarkably efficient. On the whole, those clubs that pay the most to players tend to win more games. And to the victors go the spoils. Teams that rank higher in the various leagues earn far more through marketing deals than those that they have beaten.
But two changes seem to be taking place in English football, says Dan Jones, who heads the sports group at Deloitte. The first is that English clubs have done a better job of marketing themselves and securing good broadcast deals than rivals elsewhere. In the next season Premier League clubs are likely to earn nearly £700m more than those in the next most lucrative European league, Italy's Serie A. The top English teams can now afford to pay so much for talent that, barring a very few rich clubs elsewhere such as Barcelona or Real Madrid, they are competing mostly with each other.
The second change is an influx of new owners such as Malcolm Glazer, an American who paid £790m to take over Manchester United in 2005. They are replacing an old guard who ran clubs for love and glory. Many of the newcomers have big debts, forcing them to focus on profit.
Such thinking has sports bureaucrats worried. A report on European football for the European Commission last year fretted that â??football should not be a contest between corporate leviathans with the outcome dictated by whoever has the deepest pocketsâ?. It urged cost controls such as a payroll tax on rich clubs to finance poorer ones. The aim is to retain a â??competitive balanceâ? so that fans do not lose interest in the game, thinking that their club has no shot at victory.
Stefan Szymanski, who teaches economics at Imperial College London, reckons one outcome of a proposal the European Commission is debating now could be the adoption of an American sports model that forces teams to share revenue and lets the worst of them pick some of the best new talent. That would make owning lower-ranking clubs more profitable. Perhaps Mr Ashley's purchase is not so odd after all.
