Academic Economics in International Football Business

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Introduction

Over the last decade, there has been advancement within the sports industry internationally especially in relation to football. Many people have appreciated the football as a part and parcel of their life. This is evident from the fact that there has been emergence of large number of football clubs globally. Not only has football become a form of recreation for the people but there is a trend of transforming it into a form of business. The increased enthusiasm in football has led to the need of introducing a course that is aimed at studying international football as a business. As a business, it is paramount that there be good management of international football business for it to succeed. In studying international football business, various concepts are paramount for consideration. The discussion of this paper seeks at illustrating the contribution of academic economists to the study of international football business.

Academic economists contribute to the study of international business in various ways.

Analysis of the effect of increased Commercialization of football

Commercialization refers to the concept of creating increased publicity in relation to a product or service. In the study of international football business, academic economists help in the analysis of the effect of increased commercialization of football (John 2005). In Europe, there has been advancement in relation to publicity of football clubs. This has resulted into increased attendance during football matches. The contribution of the academic economists is that they help in the integration of the labor impact of football business to the households. According to academic economists, commercialization of international football business has a negative effect to the household’s budget. This is due to the fact that through the increased aggressive marketing strategies, many people will become captives of the football as a form of recreation. The effect is that the income of citizens within the lower income group will be stretched since their expenditure on watching football matches will increase (John 2005). This means that what was initially perceived as a game would result into negative impact within the society.

Nature of the market for international football business

Commercialization of football has resulted into increased changes in relation to ownership of major football clubs in Europe. This has resulted into these clubs sourcing for finance from the stock market in order to meet their development plans. This is due to the competitive nature of within the football industry. In order to do this, these clubs are resulting into floatation of shares in the stock market (John 2005).

According to the academic economists, this has a major impact in the stock market. In Europe, there are twenty one clubs that are listed in their respective stock market. This means that these clubs are being transformed into public limited companies. This has led to these clubs having shareholding as a form of the clubs ownership. The concept of football club shareholding results into conflict of interest between the various parties. These parties include the fans and the shareholders. This is due to the fact that increased commercialization has resulted into increased detachment of the football clubs from the society where they are situated. By gaining the clubs ownership, the shareholders intend to maximize their wealth. To the fans, they perceive that the football clubs were not formed with the objective of profit maximization but as a sporting club (Hamil 1999).

Effect on price of tickets

These economists also help in the integration of the effect of the charges levied to the fans as a result of increased commercialization. During the Premier league seasons, a number of television broadcasting companies in Europe pay huge amount of money to the football clubs in order to gain the rights to air the matches. This results into creation of huge amount of revenue for these clubs. The increase in revenue is not reflected in the price of the tickets as a subsidy. For instance, the European football club Chelsea has witnessed rapid rise in the price levied for a ticket from 7.5 European pounds in the year 1990 to 30 pounds today despite the increase in the revenue ( Sherwin 2005). The increase in the price of the ticket was based on the ground of appearance of more top players from foreign countries. The increased amount of money circulating in the economy results into an inflationary effect in relation to the wage.

Effect of increased competitive advantage

The academic economists helps us in understanding the mechanism that international football clubs integrate in order to develop their competitive advantage and the effect on the salary for the players. The charges from the fans in form of tickets and from the television broadcasting firms results into an increased amount of revenue for these firms. This results into increased competition amongst the football clubs for the top players. This is all aimed at ensuring that the clubs develop a competitive advantage against their rival clubs. The intense competition for the top players has an effect of increasing the salary paid to the players and the transfer fees. This sparks a war amongst the clubs in relation to the transfer fees and the players’ salary level. The effect is the creation of spiral inflation as each club tries to have a higher competitive advantage against the competitor clubs.

Development of policies to enable maximization of revenue

The economists have also contributed in the formulation of policies that illustrate the various investment opportunities that are presented within the international football business. This contributes towards the maximization of the revenue of the international football business according to the objective of the shareholders. This instills confidence amongst the potential investors in relation to the possibility of guaranteed increased returns from their investment. This enables them to consider international football business as a potential investment destination. For a long time, the football clubs relied on the match day collection from the sale of tickets and broadcasting as the major source of revenue for the club.

According to the economist one of these avenues is the integration of the concept of entrepreneurship within the football business. One of the avenues that have been incorporated is the concept of merchandising. This is in respect with the football clubs selling a replica of the uniforms for the respective teams. This has proved to be a lucrative business opportunity for in relation to football considering the fact that there is increased competition in relation to the prominence of the international football. This has resulted into these clubs establishing their own stores where they distribute the replica team uniforms (John 2005).

On the other hand, the academic economists have identified the incorporation of the concept of hospitality match day. This is where the tickets would be sold at a reduced price in order to increase the attendance. The result is that the amount of revenue collected would increase significantly.

Despite the growth in international football business, their investment in developing the stadium is hampered by the local authority which claims the ownership. In such situations, academic economists help in devising strategies on how these clubs can increase their investment in stadium. Amongst the strategies advocated by these economists is the incorporation of the concept of leasing. This will involve these clubs obtaining long term leases that would enable them develop the stadium.

Economic analysis of the trend of players’ wages and its determination

The academic economists also contribute to the analysis in the trend in relation to the growth of the wage rates for the professional players over the years. According to these economists, there has been significant growth in the amount of wages and salaries that are paid by these clubs. In Europe, an approximate amount of 391 million pounds was paid to the players belonging to the 20 Premier League clubs. According to these economists, an approximate amount of 25 million pound in form of salaries was paid by each of the four clubs that is Manchester United, Liverpool, Chelsea and Arsenal. According to a survey by these economists in the year 2000, approximately one hundred players in the Premier League earned an approximate amount that was above 1 million pounds within a period of one year. These economists explain that the determination of wage for the players is based on the concepts of marginal productivity (Dan & Gerry 3003)

According to these economists, the amount of wage that the football clubs would pay to the players is equivalent to the marginal revenue product of the individual player. This is due to the fact that these clubs are profit maximizing firms. This amount represents the value that the player would contribute to the club upon being employed as a professional player.

The academic economists also contribute in the understanding the unique nature of the international football business. This is due to the fact the sports teams cooperate in their business. For international business to thrive, different teams must come together in order to design the league. This illustrates the concept of joint form of production. This means that international business exists as a large firm that has different firms. In this case the different football clubs are the individual plants (Dan& Gerry 2003)

According to these economists, the football sports league produce a belief of existence of a natural monopoly hence the lack of competition within the international football sports league. This result into a form of efficiency hence it is possible for a single football league to supply the entire market during a particular sporting event

Economics of football superstars

The academic economics also contribute towards an economic analysis of the stars within the various clubs. According to these economists, they illustrate the potential that the football superstars have in increasing their marginal revenue productivity (Sherwin 2005). This is only possible during the peak of their career.

In the international football business, the academic economists also contribute in illustrating the relationship between the size of attendance by the fans and the production cost involved. This is through integration of the concept of internal diseconomies of scale. They explaining that upon the number of audience increasing during a sporting event, there is an increase in the marginal cost (Sherwin 2005). The reason for the rise in the marginal cost is associated with the increase in the increased number of matches that the teams are involved in. The reason behind this is that the players become tired and the chances of injury increases. Alternatively, there is an increase in psychological pressure for the players.

They also illustrate concept of external diseconomies of scale in the football business. According to these economists, external diseconomies of scale results from an increase in the number of the audience culminating into a reduction in the performance level of the players.

Analysis of the cost and revenue of football business

The academic economists help in devising strategies on how to analyze the revenue and cost of the international football business. This is through consideration of the various economic variables of costs and revenue in order to determine the whether the football business is operating at a surplus or a deficit. They help in the identification of the cost elements involved such as the wages, fees paid in securing a transfer for the players, salaries paid to the players and other stadium management costs. The sources of revenue considered include the receipts from the sale of tickets, receipts from television broadcasting stations and also the advertisement that are conducted by the various firms during the sporting events (Dan & Gerry 2003).

In relation to revenue from the tickets, the academic economists contribute to the international football business in the process of formulating a strategy related to the price to be charged. This is due to the fact that there is a possibility of some of the clubs would set a price that would result into influencing the fans. This would have a negative effect in relation to revenue generation by the football clubs that are located in the same vicinity. In order for this to be effective, the academic economists incorporate the concept of nominal and real pricing. This is done by considering the trend over a number of years.

Effect of economic crisis on football sponsoring

In the study of international football business, academic economists also contribute towards the understanding of the impact that economic crisis has on football business. According to them, financial crisis results into the sponsoring firm’s pulling away from sponsoring the football event.This has a negative effect in the operation of the clubs resulting into a financial difficulty for the club which may culminate into bankruptcy (Dan & Gerry 2003).

Under serious circumstances, it would be difficult for these clubs to afford to fund major competitions and pay the wages for the players. The effect is that these clubs result into selling- off their top players. This would have a negative impact in the performance of the football club resulting into decline in the level of receipts such as from the sale of tickets.

Apart from having an effect on the football business sponsorship, the academic economists help us in understanding then negative impact of financial crisis on the footballer transfer market.

Understanding the worth of football to the economy

For comprehensive study of international football business, academic economists contribute towards the understanding of the economic effect of a global sporting event on an economy. During world cup, there is a general perception that the global sporting event will lead to a significant boost in the economy of the country hosting the sporting event. The academic economists help in explaining that the effect of the sporting event are not direct and are short lived. According to these economists, these events disrupt the normal operation of the economy in certain sectors especially in relation to tourism.

This is experienced in these sectors immediately after the global football competitions. For instance; according to a survey by the academic economist, the 2006 world cup that was held in Germany contributed to a boost of an approximate amount of three billion pounds in the economy but these effect were lacking one month after the event. (John 2005).

Opportunity cost involved in international football business

International football business results into creation of opportunity cost. This is the cost that is foregone upon selecting from alternative course of action. Academic economists help us in understanding the opportunity cost that is created as a result of a large number of people venturing into international football. This is due to the fact that other forms of recreation such as cinemas are neglected yet they contribute to the gross domestic product of an economy.

Conclusion

In conclusion it is evident that academic economists have a significant contribution in the study of international football business. This is due to the fact that they help in illustrating diverse economic aspects in relation to football business. These include the positive and the negative effects. Increased commercialization of international football has social effect in that there is disruption in respect to consumer expenditure. This results into a strain in the consumer’s personal budget. These economists also contribute to the illustrating the economic aspect that is considered in the determination of wage for the players. This is through integration of the concept of marginal revenue productivity. The economists also illustrate the effect of increased competition amongst the clubs for the top players on the level of wage. This results into a spiral type of inflation in these clubs. On the other hand, they illustrate how inflationary pressure is created in an economy due to increased revenue from the football clubs. This is due to the fact that the increase in revenue is not integrated by a subsidizing the price of the tickets. They also contribute by illustrating the fact that the effects of a major sporting event have a long term effect on the other sectors of the economy such as tourism. They also help in the analysis of the cost and revenue variables involved in international football business. This aids in the determination of surplus and deficit for these clubs. The academic economists help in the identification of various investment strategies that can be integrated in international football business. This would contribute towards the maximization of revenue. These include the merchandising concepts and development of stadium through undertaking long term leases.

Reference

Conn, D. 1997. The football business: Fair game in the ’90s? London: Mainstream Sport.

Dan, J. & Gerry, B.2003.Delloite Touché annual review of football finance.Deansgate Publishers: Manchester. Web.

Sherwin, R.2005. The economics of superstars, Journal of American economic review.vol71, issue 5,pp. 845-848. Web.

Stephen, D.2007. The economics of football University of Wales Publishers: Wales. Web.

Hamil, S., Jonathan, M & Christian. O.1999. The business of football: the changing face of football business, supporters direct. Oxfam Publishers: London. Web.

John, H. 2005. Critically examining the commercialization of English football: A case of government intervention. University of York Publishers: London. Web.

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