Economics of Sport

Topics: Premier League, Promotion and relegation, Manchester United F.C. Pages: 10 (2863 words) Published: May 13, 2013
Business and Economics of Sports

Semester 1, 2013

While sports leagues appear to be necessary for the delivery of competitive matches and seasons, they often actually function to maximise profits for team owners. What should governments do to ensure that the interests of all stakeholders are protected without jeopardizing the competitive environment established by leagues?

Johan Jurland

Words: 2360

Table of Contents
1. Introduction3
1.1 Background3
1.2 Win / Profit Maximising3
1.3 Government Involvement4
2. Key Issues4
2.1 European Football4
2.2 Other Leagues6

3. Summary6

4. References8

1. Introduction:

This report will overview and discuss how stakeholders in professional sports can get as much as they want out of the sport, without too much involvement from the government. It will also cover some of the purposes of government-intervention and what they should do to keep the competitive balance intact for the leagues. There will be examples and discussions drawn from clubs and leagues in the European Soccer and also differences between how sports leagues on either sides of the Atlantic ocean works in this matter. The importance of keeping stakeholders happy is the key to on-pitch success. Stakeholders in sport are everybody involved with sport; participants (players/athletes), fans, governing bodies, financial investors and communities at large.

1.1 Background:

Since the early stages of the discussion and the involvement of the economics side of the field of sports, Naele (1964) identified professional sports leagues as a different animal than any other competitive industry in the world we know today. The main focus for professional sport leagues is to provide and compromise teams to a highly competitive level where they can produce and sell sporting events to the public (Fort & Quirk, 1992). Similar individual teams make up a professional sports league, that all relies to gain the maximum of economic benefits as possible while relying on the opportunity to compete against other teams to produce their outputs; the outcome will be games for the fans to enjoy. Without an organised structure of games and tables, the competitive output would not exist for sports leagues or its fans.

Naele (1964) also claims that there is one main difference between a typical competitive business industry and the sports industry. He says that a normal industry gains the most economic and capital benefits while it faces the least amount of competition as possible. Simply put, the businesses are seeking to be the only supplier to the market to become the market leader and in that way earn money. This is not a preferred position for any professional sports league or team, while they rely on other teams and leagues to produce a product of outcome to make a sustainable business out of it.

1.2 Why do clubs either focus on winning or maximising profits?

Models often used to discuss how sports leagues tend to behave are primarily the trend if club owners either aims for maximise profits (El-Hodiri & Quirk, 1971) or wins (Késenne, 2000). It is seen that the North American major sports leagues and the European leagues supports the assumptions that clubs uses a trade-off point of profit and wins (Atkinson, Stanley, & Tschirhart, 1988). The most optimal for leagues and clubs should be to aim towards finding a model that balances the weighted sum of profit and wins (Dietl, Grossmann, & Lang, 2011). Therefor we sometimes see teams and leagues that work after gaining profit and economic benefits for survival, and on the other side we see the teams and leagues that works towards winning as their main goal and business objective. Some owners of team are even willing to lose or invest money to...
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