Money and Economics was prevalent in football since its inceptionbut now it has become the heart and soul of it. Football now is notonly confined to eleven players playing against each other to win amatch or winning a tournament. Owners of football clubs whichwere previously there just to coordinate the efforts of the team havenow transformed into wealthy businessmen whose main aim is notto keep his players happy but to keep the investors happy by earningmoney. A game which was invented for entertainment and fun isnow looked upon as a business.There are various ways for a football club to earn money. Beingsuccessful is the best way to ensure the survival of the club andearning revenue in the long run. Investment in football is oftencorrelated with its success and therefore many scholars and fans areintrigued in the football transfer market.
During the late 90s when many football clubs were coming up, clubshad a lot more control over their player’s future in the transfermarket. But since the opening of market and globalization of footballtook place, the transfer market of various different countries haveunified to form a single transfer market where players plying theirtrade in different countries and clubs are traded. Early years oftransfer market saw players traded, but the trade was restricted dueto various restrictions imposed by the football associations ofdifferent countries.
A fee of 500,000 pounds for Pietro Anastasi wasseen as a very large sum for a player and broke all the transferrecords then. Since then football has seen a rapid growth both interms of revenue and viewership. This with inflation has seen theBY: RAHUL GERA e-mail id: [email protected] Contact No.
9911126081 College: Shri Ram College of CommerceCourse: BA (Hons.) Economics Year: Firstvalue of players soar high. The once record fee of 500,000 pounds isnow equal to the monthly wage of a mediocre player. As the footballmarket is now unified all over the world, a recent cash induction inthe British football market saw the transfer market go ablaze. Thecurrent transfer record of 200 million pounds for Neymar Jr. justgives a glimpse of how football has grown so rapidly. Moreover therapid growth of Chinese football and huge investment in the footballmarket by the Chinese government has further led to the value ofplayers to rise.One might think that football clubs shift their burden of increase inexpenditure on the fans by charging them more for clubmerchandise and increasing the ticket prices but the case iscompletely opposite.
Clubs are only able to spend this amount ofmoney because of the increase in their revenue which is largely dueto the increasing commercial and broadcasting revenue. Withfootball becoming so popular over the years, clubs have seen theirrevenue soar high. In 2001 Real Madrid spent 53 million euros onZinedine Zidane when their revenue was only 138 million euros. Theyspent almost 40% of their revenue on him.
Manchester Unitedrecently bought Paul Pogba for 103 million euros when their revenuewas 519 million euros. When we compare their transfer price we seethat Pogba almost costed double of what Zidane costed, butManchester United spent a much smaller proportion of their revenueon Pogba when we compare to the 40% that Real Madrid spent onZidane. We can clearly see that Manchester United were able tospend so much money because of their enormous revenue which hasincreased over the years.Even though the football market has seen a rapid growth, but thisgrowth is not equitable. Clubs which have a rich history and have agood investors backing have been able to accrue the benefits of thisgrowth more than the other clubs. In order to tackle this problemUEFA has introduced the Financial Fair Play (FFP) system to curboverspending by clubs.
Under this system losses of the club areassessed for the last 3 seasons and the maximum loss limit of 13million pounds per season has been set. Clubs are liable to facepunishments if they breach these rules. Manchester City and PSGhave been punished by UEFA for breaching the rules in the past.The important question that arises here is that is it wise to spendsuch huge amount of money on a sport rather than on improvingtechnology and tackling more important issues like global terrorismand rising inequalities? The answer here is simple. The money inthese sports is mostly invested by the private sector. They spendsuch huge amounts in order to increase their profit quotient.Football has not yet fully achieved its potential with a large marketstill to be captured. In this case investing in football seems to bemore a fruitful investment than investing in any other industries andthat is why there has been a sudden increase in investment infootball from all over the world.
Moreover there is no reason for thegovernment to crib about these investments. They were not gettingany money from these clubs before and now they are earning hugesums in taxes paid by the players and the clubs for these players. It’snot only the private sector but the governments of differentcountries have also realised the potential of football and have beeninvesting in the sport. Take for example China. It is the governmentwho is promoting investment in football because they haveidentified that the next source of growth is through the sports andentertainment industry. Organising global sports event in the countryseems to be a very costly venture but it has a lot of offer to theeconomy. Organising such global events helps a country getworldwide recognition, and it further helps in bolstering foreigninvestment and tourism in the country. Organising such eventsrequires a huge amount of Investment in the country and boosts thedevelopment of the country.
When India organised theCommonwealth Games or currently it’s organising the FIFA Under17World Cup, in order to prepare the cities hosting the event, hugeinvestments were made to improve the infrastructural and transportfacility. Planning for these events is also a long process and takesabout 5-10 years or even more. The planning and investment for theevent helps create lakhs of jobs and further bolsters the economy ofthe country.
Economics is not only prevalent in football as a whole, but it can beseen in the everyday working of a football club. The manager of aclub faces various choices – whether to have speed in the game orwhether to have more control, whether to have more possession orplay more long balls, whether to have a more attacking approach orplay defensively. Even the club faces many choices.
A club also haveto maintain a balance between equity shareholding, assets and theirliabilities. A club even has to choose the championships they want toprioritise and the ones which are insignificant. They have to choosewhich player to purchase and which player to sell. A club will onlypurchase a player if his value to the club is more than his cost and aclub will only sell a player if his value to the club is less than his cost.Player’s value is determined by the money he generates for the club.When Real Madrid purchased Cristiano Ronaldo for 90 million euroseverybody was shocked by the money a club was willing to invest ina player. But now if we look 8 years later, the amount of revenue hehelped generate for the club is unmatched. Currently one cannotimagine a Real Madrid without Cristiano Ronaldo.
A club even has tofix the price of their merchandise and match tickets. The number ofSSseats being fixed, supply is perfectly inelastic, a club has to set a pricesuch that it maximises their matchday revenueG HEM NIf the club chooses a price above P2 there will be excess supply andseats will remain empty and if the price set is below P2 there will beexcess demand but as supply is perfectly inelastic it would not affectthe number of tickets sold thus it will only decrease the revenue ofthe club. Therefore a club has to carefully fix the price of tickets so asto maximise their revenue and fan’s satisfaction.So if we look closely at anything we can find the beauty of economicsthat is prevalent in it.