Economists like to make assumptions such as:

• People seek to maximise profit
• People seek to maximise utility.
• Consumers will seek to choose goods which give best value for money
• Firms will produce in the most efficient ways
• e.t.c.

However, in the real world we find that many markets cannot meet the assumptions of economists. Football is a good example.

1. Economies of Scale and Mergers

Bristol City and Bristol Rovers have been languishing in the lower divisions for many years. If they combined their resources they may have a chance of hitting the big time. There are clear economies of scale in football. If their support doubled they would have more money to buy players and may have a chance of competing against the top clubs. From an economic perspective this merger would make sense, however, from a Bristol Rovers fan's you might as well as ask England to Merge with France. In other words, sense of a clubs identity is more important than achieving success.

2. Setting Low Ticket Prices.

Rather than setting profit maximising prices, clubs set prices lower so that supporters can afford to go. This doesn't increase the number of spectators who go to a game. It could be a full house at a higher price. It also means the club gains less revenue to spend on players. However, if they increase prices too much then they will get criticised by their own spectators. The football club has monopoly power but it chooses not to use it.

• See economics of ticket prices

3. Supporting losing Sides

Why do people stick with losing sides. Why go to watch Bury, when you could go a few miles and watch Manchester United play at a higher standard. Usually if we buy a good and it under-performs we switch to an alternative. However, football is not likely this. Brand loyalty is very high. No matter how bad the good becomes - people still stick to the same team (good)

4. Unrealistic Business Models.

With the exception of Manchester United, if you want to invest money on the stock market, don't buy shares in Football clubs. Football clubs are notorious for having over optimistic business plans. The problem is that to do well, you have to invest in good players. However, to invest in good players you need money. Money comes from doing well and winning competitions. Therefore, it is a vicious cycle. If you can't get good players you can't win and get the money to buy them. Therefore, clubs have to borrow against expectations of good results in the future.

One example, was Leeds United. In one season Leeds United were in the semi finals of the Champions League, with the potential huge pay out of winning the competition. Greedy for success the club overstretched itself in buying new players. Unfortunately the club didn't quite meet their expectations. The income was not as high as hoped and they realised they couldn't afford to keep paying the players. Therefore, they had to start selling their best players just to stave off bankruptcy. As a result their form fell and the team was relegated from their premiership. They are currently languishing in the third division (called 1st division) starting the season with a 15 point penalty for bad book keeping. How the mighty have fallen. - from playing A.C.Milan to the likes of Doncaster Rovers.

There are probably 10 clubs basing their spending on being in the top 4 of the premiership. 6 clubs are bound to be disappointed.

• Economics of Football

Labels: football

Ticket prices is an emotive issue, particularly in the past 10 years, which have seen ticket prices increase faster than the rate of inflation. A top price ticket at Manchester United will cost £38. At Chelsea £48.

Listen to any football supporter and it will not be too long before talk of the "real supporter" being priced out of the game by a "new breed of supporter" - This new supporter is characterised as preferring champagne and salmon, rather than standing on the terraces, eating meat pies, and shouting obscenities at the opposition.

Football clubs have a conflict between charging the maximum price they can and keeping prices low for their "real supporters". As a consequence we see many top clubs regularly sold out with long waiting lists to get tickets.

From an economic point of view, this is not rational. If demand is greater than supply and there is a shortage, the firm(football club) should put up prices to increase revenue. Furthermore to maximise profit, it may not be necessary to fill the stadium. If demand is inelastic profit may be maximised at a price which leads to empty seats.

Profit is maximised where MR=MC. The MC of an extra supporter coming to the game is quite low. Therefore ticket prices should be set at a price to where revenue is maximised and this is not necessarily where the stadium is full.

• Economics of football

External Links

• Football Ticket prices Compared
• Man Utd defend ticket price rises

Labels: football

The Economics of Football

Football is big business, we only have to look at the wages of the top players to see the amount of money in the game. Football is also an interesting topic for economists because it arouses emotions and passions that often don't fit into neat economic models. I have an uncle who has supported Morecambe F.C. for the past 57 years. He is passionate about football, but, he also tells me he wouldn't watch the premiership because the players get paid "too much money" This is not a unique view, many feel it is obscene how much players earn. However, you wouldn't hear people say I'm not going to buy from Tesco's - it's obscene how much the directors get paid.

This week we will have a series on different aspects of the economics of football. If you have any questions or suggestions feel free to leave comments.

Essays on Football

• Players Wages
• Ticket Prices
• Irrational Economic decisions in Football

Picture from: Manchester premier action

Labels: football