If you are going to price gouge, do it to the other team’s fans!

January 11, 2013

The media has been abuzz this week with discussion over the price of tickets for the away section at the Arsenal vs Manchester City match in London this weekend.  Arsenal, decided to raise the price of the tickets in the away section to £62 (about $99 U.S.), which has made many supporters of Man City and the media very angry.  Manchester City actually returned 900 tickets to Arsenal of the several thousand that they were given for their fan section, as supporters of Man City have refused to pay so much to go travel to London to watch the game.

Which might have been a smart thing, as I believe it is now 35 years since Man City has beaten Arsenal at Highbury or the Emirates. (Yes, I’m an Arsenal supporter, and I keep track of these things…)

Notably, Arsenal and other teams in England have begun using multi-tiered pricing where different games are priced differently based on the opponents and other factors.  This practice means big games like Man City vs Arsenal will garner a high price, while QPR vs Norwich will be rather cheap.  It is also a practice which is not new to fans in North America, where many of the sport leagues use variable ticket pricing to try and capture greater consumer surplus.  Economists have begun to examine this practice of price dispersion, and research studies looking at similar practices in Theaters have found that it has boosted revenue for organizations.  Which means it seems only natural for sport organizations to copy this behavior.

But Arsenal fans are also unhappy, and have complained to the club this week because of the high prices.  They noted that in other countries across Europe, tickets often run between ten to twenty Euros.  I think with the growing nature of the business that is the Premier League, fans will only be disappointed in the future as ticket prices continue to soar, especially for matches with top tier opponents.



Manchester City’s New Record Losses!

November 18, 2011

Manchester City has announced that they have achieved a new Premier League milestone, they have posted the worst losses for any club in a single year, at a sum of £194.9 million.  The team owned by Sheikh Mansour currently sits on top of the Premier League table, and seems to show that better performance (and potentially championships) can be won by just dumping money into a team.  UEFA has now implemented a “Fair Play” financial rule requiring teams to be more financially responsible if they are to be allowed to play in confidential competitions such as Champions League and the Europa League.  Man City’s losses would have gotten them banned in future years, but because the losses come before the accounting window begins, they are safe for now.

The ESPN soccernet article linked above did note that the change in financing has taken consistently mid-table Man City to top of the table, and while costs have increased, so has revenue.

The Blues are also pointing out that commercial revenue has risen 49.7% to £48.5 million and TV rights, thanks to the club’s third place Premier League finish, winning the FA Cup to end a 35-year trophy drought and a run to the last 16 of the Europa League, have increased 27.4% to £68.8 million.

The question is, will Man City be able to keep up their performance in future years with more limited ability to spend money because of the “Fair Play” rules.

Trouble Brewing in the Arsenal Takeover Bid?

April 12, 2011

Greetings IJSF blog readers.  Just a bit of background before I start this post.  I am a big supporters of Arsenal, and have been for many years now (maybe it has something to do with Arsene Wenger have a degree in Economics).  Additionally, I also live in Columbia, Missouri which just happens to be the home of Stanley Kroenke, the most recent foreign investor attempting a takeover bid of another top Premier League club in England.

Yesterday news began to sprout around the sport websites that Stanley Kroenke was moving forward in an attempt to takeover Arsenal Football Club.  In moving to buy more shares, Kroenke hit the 62.89% ownership of the club mark, meaning that he now has the controlling stake of the club, and must make a cash offer to all the remaining share holders.  Kroenke’s takeover bid has hit a bit of a snag, as Russian oligarch Alisher Usmanov has refused to sell Kroenke his 27% stake of the club.  Rather, on the SkySports blog they are reporting that Mr. Usmanov tried to make a counter against Kroenke’s takeover, supposedly offering Lady Nina Bracewell-Smith a £13,000 pound per share offer, more than what she had agreed to with Kroenke for her shares.  All of that said, Lady Bracewell-Smith refused the offer, as she already had a full agreement with Mr. Kroenke.

With news of Usmanov’s defiance, the Arsenal Supporters Trust, a group of about 1,800 supporters announced that they would also not be selling the few shares of Arsenal which they held.

What does this all really mean?

In order from Kroenke to fully takeover the club, he needs to hold 90% of the clubs shares, and at that point it would force all the remaining shareholders to sell their stake to Kroenke.  However, with Usmanov sitting on 27% and trying to fight back, it seems that this is not likely to happen.  Usmanov’s hopes of countering Kroenke, and having himself takeover seem an even more unlikely happening, so Arsenal may now be facing a battle of two owners causing headaches for each other.  Kroenke’s offer for the remaining shares would have made Usmanov a nice profit, but from the look of things, it looks like Usmanov may be digging in for the long-run.

This whole episode does bring up two other interesting points.

First, many seem worried about club debts, and the use of Premier League clubs as debt servicing for rich foreign owners, as has been done by Malcolm Glazer and Manchester United.  Kroenke in his bid made sure to note that this takeover was not going to be done by taking out loans, but that he would be making cash offers for the remaining stakes, and that Arsenal would not be saddled with any of the debt.  Still, it seems that many really reject the idea of Kroenke fully taking over Arsenal, and that leads into my second point.  Currently 10 of 20 Premier League clubs are fully owned or have a majority of their stake owned by foreign investors.  Notably all of the “big” clubs have been taken over by foreign investment, with the top 4 teams in the table (Man U, Arsenal, Chelsea & Man City) all being owned by foreigners.  While many will probably not care as long as their team is doing well, there are some who are probably most likely worried about non-UK owners slowly taking over more and more of the most popular league in the world.

Wayne Rooney

October 21, 2010

Football (soccer) is never short on a story or two.  Wayne Rooney and Liverpool FC seem to be invariably the sources of them currently.  As Liverpool recede slightly from the news (although any absence of a pick-up in form will surely see coach Hodgson sacked fairly soon – particularly since potential managerial candidate Frank Rijkaard has been sacked from his most recent job), Wayne Rooney has most definitely taken over.

There’s a huge, huge amount beneath the simple story that he wants to leave Manchester United.  Having won most things they are to win while at Old Trafford, he has stated that the club’s ambitions no longer match his own: He wants to win Trophies.  United won only the Community Shield and League Cup last season, a very poor turn-out compared to recent seasons that have seen United win the Premiership repeatedly and the Champions League.

But United have lost Ronaldo to Madrid and Tevez to Man City in the last couple of years, without proven replacements (although Nani reportedly scored a great goal last night to secure victory in the Champions League for United, his contributions are much more sporadic than Ronaldo’s ever were), and their start to the current season has been decidedly circumspect.  Still unbeaten, they’ve only won 3 of 8 games and thrown away winning leads all too often – 3-1 at Everton and 2-0 at home to West Brom.  Such form is uncharacteristic in the extreme for Manchester United and it would seem Rooney is applying his skills of forecasting to tell us that Man U won’t be winning much any more.  It’s a bit like the Bank of England giving its inflation forecast though given it then takes some action to ensure what it predicts happens – if Rooney does leave then the probability of Man U doing worse increases substantially.

There are, of course, many other theories doing the rounds about why he wants to leave, perhaps most obviously: Money.  Apparently he could earn twice as much down the road at Manchester City, or down in Madrid.  UEFA is bringing in financial fair play regulations next year apparently – restrictions on how much clubs can pay footballers.  Hence this may be a classic case of barmy regulatory structures and unintended effects via the incentives they create.  If Rooney can’t after this season get a fat pay packet from City or Real, then he needs to get moving now so he can still get it.  Apparently a number of agents are telling their clients this currently.

So, football fans who oppose all things financial being involved with football (when it harms their team), do we really think these arbitrary restrictions being introduced by UEFA next season are an unmitigated good thing?

Why are Salary Caps Bad?

August 18, 2010

A commenters asks me why salary caps are bad and won’t work, citing good outcomes in the NFL.  Now I’m not an expert on the NFL by any stretch of the imagination and so others can correct me if I’m wrong, but I believe that it is the multitude of other organisational differences between the Premier League in England (EPL in North American parlance) that generate the difference in competitive outcomes.

Why do I assert this?  Because simple economics shows that arbitrary constraints on the market mechanism such as salary caps, or rent controls, will have adverse affects because they distort the incentives the price mechanism produces to achieve an efficient allocation of resources.

Players generate marginal benefits to the sports teams they play for – better players generate bigger benefits.  If sports teams are restricted to pay at most x for players, then what happens for players that contribute a larger benefit than the player who the market values at x (likely your average player)?  The top clubs will want these players, but only being able to pay x, they will find other ways to attract that player to their team.

In rugby league’s Super League, methods used include paying the wives/girlfriends of players to “work” behind the club bar, or in the club shop, for an hour a month, and paying a somewhat large hourly rate.  I’m sure there are plenty of stories in North American sports leagues.

If you’re happy with these alternative methods, then that’s fine.  But I think when the clamour is towards greater financial transparency in sports, especially in English football after the scandal at Portsmouth last season, introducing new regulations that give incentives to clubs to disguise their actions is not wise.

Furthermore, due to these forces, the upshot of salary capping is not that talent is more evenly spread over a sports league.  There are other methods – I’ve long favoured capping squad sizes personally, without much empirical evidence that I know of.  I’m thus quite excited by the squad limits being introduced this season in the Premiership.

With Craig Bellamy, one of the Premiership’s best performers last season, moving to Cardiff this week on loan based on the likelihood he wouldn’t make the 25-man squad at Man City (who are buying right, left and centre), we are perhaps beginning to see the impact of such regulations on dispersing quality more evenly throughout the Premiership – and even the leagues in this case – Cardiff are in the Championship (the division below the Premiership).

Watching the Clock

September 21, 2009

Sunday saw the first Manchester Derby of the new season, since Manchester City spent millions and millions (see Brad’s last post about red ink in Madrid) in an attempt to topple Manchester United from their position at the top of English football.

Manchester United squeaked a win, 4-3, with the last kick of the match. Which wouldn’t have caused Mark Hughes, the Manchester City manager, too much discomfort, had it come in regulation time. Unlike in North America where the clock counts down to zero signalling the end of a game, in European soccer, the referee has sole control over when the game ends. Nowadays the referee must disclose at the end of 90 minutes how much “injury time” he will add, time lost for injuries and other disruptions during the 90 minutes.

At the end of 90 minutes, the referee signalled four minutes of injury time to be added, but Michael Owen hit Manchester United’s winner after six minutes of injury time had been played. Arguably, the game would have ended a draw had it been played with a countdown clock, and understandably Manchester City are furious.

But the referee still has discretion, and can add more time if there are stoppages in injury time (although this never usually happens and time wasting is very effective in injury time). I don’t know of any studies that have looked into injury time in England, before or after the length of time had to be stated at 90 minutes. There is a great study by Luis Garicano, Ignacio Palacios-Huerta and Canice Prendergast which finds for the Spanish La Liga, referees do systematically favour home teams to satisfy crowds by adding more minutes of injury time at the end of matches.

Manchester United’s stadium has over 70,000 supporters, which is a lot of fans to satisfy, and so it would not be surprising to think that a referee might be swayed by this. Fine, I think Mark Hughes might say, but to add six when you say four? It does seem a little unfair to me…

Limiting Foreigners in Sports Leagues

August 20, 2009

The blog Economic Logic has a post on some new research from sports leagues on the prevalence of foreign players. It’s based on new research from Markus Lang, Alexander Rathke and Marco Runkel on the potential benefits of restricting foreign players in leagues.

The suggestion is that leagues with foreigner restrictions are more balanced competitively, domestic player wages are higher and club profits rise too. I can certainly believe much of this, and in the case of the English Premier League, some of it sounds desirable – Man United’s dominance in recent years means I lose interest.

But would such a restriction really be enough? My micro theory isn’t my strongest suit, but it seems that the model in the paper doesn’t allow for outside injections of cash into clubs, such as Roman Abramovich’s money at Chelsea, or the Abu Dhabi United Group and Manchester City. Such developments will likely always, when the talent pool isn’t fixed by roster size (something referred to in the paper), lead to competitive imbalance as the teams with outside injections can buy up the best of the available player talent, domestic or foreign, and dominate a league.

I personally am not in favour of restricting foreign players, particularly in the Premiership, as I believe it will do little to help develop domestic players (all economists know about the virtues of protectionism), and I don’t think it will help create a more balanced contest because of other issues such as the absence of squad size limits.