From the standpoint of an economist, it’s often difficult to measure the financial performance of a company in relation to the quality of its product. But sports offer a remarkably clear competitive market — there’s no ambiguity whether a team wins or loses.
While the performance of the players on the field determines a team’s success, thousands of economic factors determine how those teams get their players. Unlike in the American sports industry — with the exception of Major League Baseball — where teams share revenue through a salary cap, European soccer clubs lack such a system. The system, inevitably, leads to inequalities among teams — only a handful of teams dominate their respective leagues. These teams, in turn, dominate the most prestigious European competition, the UEFA (Union of European Football Associations) Champions League.
Research into what makes teams succeed and fail — both on and off the field — continues to grow. Various factors, such as players, stadiums, revenue, debt, taxation, regulation and so on, all determine whether or not a team will be able to compete.
Kinesiology prof. Stefan Szymanski has been one of the leading researchers in this growing field. His research, which can be seen in books such as “Soccernomics” and his latest book “Money and Soccer,” attempts to explain on-field performance through the lens of finance.
Though born in Nigeria to a Polish father and English mother, Szymanski has spent most of his life in London, with the exception of his college days in Oxford, where he studied politics, philosophy and economics, and his time as a professor at the University. Growing up in England, Stefan Szymanski has always been a soccer fan (his favorite team is Scunthorpe United), but it wasn’t until he began graduate school at the London Business School that he began to seriously study the economics of the game.
“What I was really doing was research about markets and industries, so really understanding how firms relate to each other in an industry, how competition works between firms, what makes for better outcomes or worse outcomes, how to evaluate policy and those kind of things,” Szymanski said. “And I really got into it through a group of us who were trying to find out how certain groups were successful.
Soccer, he added, seemed like a good example because there were many clubs, but few with continous success. “We were trying to understand that,” he said. “With sports though it’s actually crystal clear — you know who won the league, how many people went to watch the game, so in that sense it’s actually much easier to tie in financial performance with visible metrics of performance which reflect consumer interest.”
Szymanski began his research into the industry’s economics right when things were beginning to change within it, especially in the U.K. During the 1980s, soccer was not a particularly profitable sport, and Margaret Thatcher, then prime minister, even considered banning the sport because of hooliganism and stadium collapses. Many believed the industry was one of decay, not growth. Since then, profits have soared, and the industry has become incredibly lucrative.
How did such a drastic change occur? According to Szymanski, because of a collection of fortunate circumstances. First of all, the broadcasting environment changed — Premier League clubs’ revenue increased through deals with television broadcasters.
“The Premier League was able to generate very large increases in revenues from domestic viewers who wanted to watch this as the rights were given to cable TV,” Szymanski said.
Furthermore, over the last 20 years or so, international broadcasting, which is distributed equally among teams, has become an increasingly important part of revenue, approaching nearly half of the total.
But the change in broadcasting was not the only factor to change the game’s financial landscape.
“Other factors are that there was a lot of interest from overseas in investing in English soccer clubs, and partly that had to do with the fact that the U.K. is a relatively easy place for foreigners to invest in,” Szymanski said. “It’s been a relatively welcoming environment for that.”
He added that the clubs’ global recognition also played a role. “It’s also to do with that the U.K. soccer clubs have global recognition. That’s partly because of the old empire, and people knew about soccer going back a hundred years. And the other thing is the time zone — people can follow English soccer games because the times they’re played at make them accessible both in the Far East and the United States. And, again, that’s a real advantage if you’re trying to sell a sport.”
While in America one can expect a certain level of parity among teams in most leagues — which is mostly due to the salary cap that most leagues employ — European soccer leagues are almost shockingly unequal. For example, over the last 25 years in Spain, either Barcelona or Real Madrid has won La Liga, the Spanish soccer league, 21 times. No American league — not even the MLB — features such dominance by a few teams. Although there are many giants of their sports, such as the Yankees and Lakers, there are no clubs that win with such little competition. While the best teams succeed with little to stop them, those near the bottom face the threat of capitulation. Such disparity, according to Szymanski, forms a model of dominance and distress.
But perhaps, as Szymanski notes in his latest book “Money and Soccer: A Soccernomics Guide,” relative equality among teams is not a necessity. In fact, Szymanski argues that “It is simply not clear that fans want a balanced competition.” In other words, inequality is not a problem. The dominance of a few teams has done nothing to discourage fans from watching.
In fact, soccer has been more successful than ever in generating revenue and interest in the game. As Szymanski writes, it’s almost paradoxical how this works.
“It may seem counterintuitive at first, but open competition with unlimited freedom of entry has created a system in which only a few clubs can win consistently. The market works relatively efficiently, in the sense that money buys success, and improving teams generate increasing revenues because they attract new fans.”
Yet many still believe that inequality is bad for the game.
“There is this common folk wisdom that unless a league is balanced, unless all the teams have a reasonable chance of winning, the league will become predictable and people will lose interest, so the league will die,” Szymanski said. “That folk myth is clung to by an enormous amount of people, probably most people in the world think that’s true, but it just factually is not the case. Leagues can be attractive even if they have massive amounts of inequality.”
Recently, Szymanski has worked with FIFPro, the world soccer players’ union, on antitrust litigation that challenges the transfer system, a system in which teams buy the rights to players and currently gives players little agency. A successful suit would change the way the game is run financially and, thus, how the product comes together on the field. But no matter how the game changes, Szymanski will be there to explain it.