Sports clubs defy the normal rules of markets and won’t bend to a football watchdog
Popularity of sports club is driven by their performance on the field, not by their financials. The very best efforts of a football regulator wouldn’t be able to change the way cultural markets work, writes Paul Ormerod.
As a native of the town of Rochdale, I follow the fortunes of Rochdale Association Football Club. I am indeed, albeit in a modest way, a shareholder.
This investment is unlikely to finance my old age. The team currently sits bottom of the entire Football League, 92nd out of 92 clubs and at risk of relegation out of the competition. At the end of last year, its chairman stated the club was due to record a loss of over £1m, perhaps 25 per cent of its turnover. A shareholders rights issue to plug the deficit seems to have had a very low take-up.
Hardly more than 10 miles away as the crow flies sits the Theatre of Dreams, home of Manchester United. Probably the most famous team brand in the whole of global sport, United is currently up for sale. It’s considering offers in excess of £4bn.
The massively contrasting fortunes of these geographical neighbours tell a story about the modern world.
When we say “culture”, many people think of things like the opera, ballet and the theatre. But popular culture is far more widespread and pervasive. Football is an integral part of modern, popular culture.
A feature of all cultural industries is that the choices of consumers are determined in a different way to how they are described in standard economic theory.
Incentives, such as the relative prices and qualities of the alternatives on offer, still matter. But, in addition, the choices which other people make influences your own.
I wrote last week of the feedback loops which exist in the emerging struggle for control of the new AI-augmented search engines on the internet. Once a product becomes popular, it becomes even more popular simply because it is already popular.
In a world in which the choices of others influence the choices we make, highly unequal outcomes cease to be an exception; they become completely normal. The feedback loops drive markets towards “winner take all” situations, in which a few have a massive share of the market, and many have very little.
Politicians and regulators are still struggling to come to terms with this new world.
Fans of teams in the lower reaches of the leagues bemoan the unequal way in which the vast sums from television rights trickle down to them. The Premier League currently takes over 80 per cent of the money, giving the rest to the English Football League (EFL). The EFL itself then hands out the cash to the 72 clubs in the three lower divisions in an unequal way.
At first sight, more money for clubs like Rochdale would eliminate their losses and make them more sustainable. But then every team in the EFL would face the temptation to offer more cash to attract the better players. Sports clubs are unusual: they are judged not by their financial performance as companies, but on their performance and results on the field. They maximise costs, not profits.
Once a few gave in, the rest would follow. The players would be collectively better off, but their clubs would be in exactly the same situation as now. Most clubs in the lower divisions are only sustainable in the existing form if they have a benefactor – usually local – willing to plough millions into the team.
The government’s intention to introduce a football regulator will do little or nothing to alter this. The fundamental forces which drive markets in popular cultural activities such as football are simply too strong.