Written evidence submitted by Professor
Stefan Szymanski
THE STATE
OF FOOTBALL
IN ENGLAND
Summary
— This
statement has been prepared by Professor Stefan Szymanski of Cass
Business School, City University London. It represents my own
personal views. I have been writing about the business and economics
of sport in general and football in particular for more than 20
years. I have published over 70 academic articles and book chapters
as well as eight books and two edited volumes on sports related
issues. I have been a consultant on sports issue to the DCMS,
the OFT, OFCOM, the OECD, and in 2010 I was a member of the Committee
of Independent Experts advising the European Commission on sports
policy. I have also worked for governing bodies such as UEFA,
the FIA and ICC. I was an expert witness on football for the OFT
in the Premier League broadcasting case. I appear regularly in
the media on sport and business issues and have written for various
newspapers and including the Financial Times, The Times, the
Washington Post, the New Statesman and the London Evening
Standard.
— This
submission deals principally with the state of football in England—little
will be said about the state of the game in Scotland, Wales or
Northern Ireland.
— Contrary
to popular views, English football is not currently in crisis,
but is in fact in rude good health. Not only has attendance grown
significantly over the last 25 years despite rapid price increases,
there has been £2.8 billion of investment in football stadia
largely from the private sector. English football now dominates
its European rivals thanks to the large commercial income that
it generates from ticket sales, broadcasting rights and merchandising.
— This
represents a major a turnaround after the long term post-war decline
that bottomed out around 1985. While there were many factors which
helped the recovery, the main driver was a change in attitudes,
away from the amateurism which had characterised management up
to that date, toward a more commercial outlook.
— English
professional league football is also remarkably stable, as measured
by the survival of football clubs over more than a century. This
stability stems from the community base that football clubs rely
on. Short term instability associated with debt crises and administration
represent only a temporary setback. Moreover, the movement of
clubs up and down the league is an important part of the competitive
structure of the leagues.
— Club
finances in England are remarkably transparent, much more so than
club finances in other countries, even those with admired regulatory
systems such as France and Germany. This transparency reveals
how the competitive process works. Money buys success, and support
follows successful teams. This also means that clubs make little
profit, but all income is instead ploughed back into football.
— Against
this background I have set out some answers to the questions posed
by the Committee. Broadly speaking I see little basis for government
intervention in professional football and argue that the competitive
system provides the greatest possible benefit for the fans. This
is manifested in the enormous popularity today of English football
at all levels. There is no obvious market failure or social injustice
which regulation is required to correct, and in that context the
government would do better to keep well clear.
Failure or Success?
1. There is a common perception that English
football is in crisis. In reality English football is healthier
than it has ever been. Equally, there is a view that English football
experienced a golden age, possibly to be located in the 1950s
and 60s, maybe even as recently as the 1970s. In fact the reverse
is true. As the chart below shows, attendance at league football
in England (the top four divisions) is now at the highest levels
seen for five decades. Indeed, attendance at league football in
England was in almost continuous decline from 1950 until 1985.
The scale of the recovery since 1985 matches the scale of the
decline, so that today attendance levels are where they were in
1960.
Source: Sky Sports Yearbook
2. The Premier League has the highest annual
attendance of any football league in the world, a total of 13
million in 2009-10, compared to 12.8 million for the Bundesliga1,
10.5 million for La Liga and 9.4 million for the Serie A. Much
has been made of the Bundelsliga's increasing attendance in recent
years, but this is only true in the top tier. If we compare second
tiers, the Championship attendance reached 9.9 million last season
(higher than Serie A), far ahead of the 4.6 million following
Bundlesliga2, the 4.2 million attending Spain's Liga Adelante
or the 2.5 million attending Serie B. Indeed, England's third
tier attracted over 5 million spectators last season, making it
more popular than any other second tier league in the world.
3. Attendance is one of the best measures we
have of the state of the game, since it represents active choices
made by people about how they want to spend their time. Football
clubs, like any other providers of a commercial service, have
to ensure that what they offer is attractive to the buyer on the
buyer's own terms. It is a commonly held myth that football fans
are somehow a captive audience monopolized by whichever club they
happen to support. However, the chart illustrates that if fans
do not like what they are offered then they will desert football
en masse as they did until the mid 1980s.
4. The evident renaissance in English football
might seem puzzling in the light of the dramatic price increases
we have witnessed over the last quarter century. Back in 1985,
when attendances were still falling, a ticket for a top division
game cost £2.80 and a season ticket for Manchester United
cost only £70.[5]
When ticket prices were low, attendance fell. Since then prices
have risen at an average annual rate of over 10% to a level of
about £35 for a typical Premier League ticket and between
£513 and £930 for a Manchester United season ticket.[6]
For the sake of comparison, had ticket prices increased only with
the rate of inflation (RPI) an average ticket would cost £6.60
today and a Manchester United season ticket £166.
5. Economic studies[7]
have suggested that demand for attendance at professional sports
is inelastic (relatively insensitive to price) - with figures
ranging from close to unit elasticity (so that a 10% increase
in price leads to a 10% fall in attendance) to as little as -0.1
(so that a 10% increase in price leads to a 1% fall in attendance).
All else equal, the size of the price increases we have seen would
have provoked a decline in attendance of over 50% in the
Premier League even if we assume very inelastic demand. In reality
attendance has increased by 66% since 1989. Moreover, most
Premier League teams have been playing at near capacity for the
last decade. In the Championship, where ticket price increases
have been less steep and clubs still have spare capacity for many
games, attendance in 2009-10 was 180% higher than the post war
low of 1985-86. It is sometimes remarked that attendance in the
Bundesliga are equal to those of the Premier League while ticket
prices are one third the level. The implication is that if the
Bundesliga charged similar prices to the Premier League then their
stadiums would be half empty, while the Premier League would need
to double the size of its stadiums to meet demand if prices were
cut to Bundesliga levels.
6. The current strength of English football can
be measured in other ways. TV broadcasting income has increasingly
became a major source of earnings for successful sports leagues,
and the Premier League is the most successful football league
from this point of view. For the period 2010-13 domestic rights
were sold for £1.8 billion and for international rights £1.4
billion overseas. This amounts to just over £1 billion per
season, significantly more the top leagues in Spain, Germany and
Italy generate. The Premier league is also probably the largest
generator of commercial and sponsorship income overall. In the
most recent review by Deloitte,[8]
the average income generated in 2008-09 by Premier league clubs
was £99 million, £75 million by Bundesliga1 clubs and
£65 million by LA Liga and Serie A clubs. Seven out of the
20 clubs in the Deloitte Football Money League (ranking by income)
were from the Premier League. This is to a significant extent
driven by the growing enthusiasm for English football abroad.
Its international reputation has never been higher, with significant
following in the Far East, Scandinavia, the Gulf states, the USA
and elsewhere. Thus English football is healthy at all levels-
it has the lion's share of the world's richest clubs, while also
enjoying the greatest support in depth of any football nation
in the world.
Why has there been a renaissance in English football?
7. It is not difficult to find explanations for
the fall and rise of English football. Immediately after the Second
World War attendance peaked as football was one of the few entertainments
on offer in austerity Britain. However, from the 1950s onward
increasing affluence and new forms of entertainment (TV, motor
cars, leisure centres and so on) increasingly exposed the poor
quality of facilities and lack of investment in the game. Hooliganism
came to symbolise the English game both at home and abroad. The
quality of English football compared unfavourably with most of
Europe and Italy was seen to have the strongest league, with strong
competition from Spain, Germany and Holland.[9]
8. Since the mid 1980s the hooliganism issue
has been dealt with and largely brought under control; massive
investment in facilities—amounting to £2.8 billion
across the 92 League clubs since 1992[10]—has
made attending football matches a more pleasurable experience;
the quality of football has improved with the introduction of
some of the biggest stars from around the world; English football
became fashionable again in the 1990s, with blanket media coverage
and increased appreciation of its cultural significance, both
at home and abroad.
9. To a significant extent the pressure for change
came from outside the game itself. The Taylor Report, which mandated
all-seater stadiums following the 1989 Hillsborough tragedy in
which 96 Liverpool fans needlessly perished, was a significant
catalyst for change. Likewise, government pressure to deal with
hooliganism problem brought measures to ensure that anyone causing
a disturbance could be identified, ejected and if needs be prosecuted.
The deregulation of broadcasting in Europe in the 1980s helped
to create satellite broadcasters willing to compete aggressively
for television rights and so bid up their value.
10. However, change also came from within. The
turning point for attendance came around 1986, before Taylor,
before Sky and before hooliganism was brought under control. In
1982 the Football League Management Committee commissioned an
enquiry into the structure of the League as many clubs were struggling
with falling gates and revenues during the severe recession of
that period. This produced the second Chester Report (Sir Norman
Chester having written an earlier report as chair of the Committee
on Football commissioned by the Department of Education and Science
in 1968). The Report published in 1983 stated in its findings
"clubs will have to be more sales minded in future if they
are to maintain, let alone increase, their gates" (p vii).
Until 1981 League clubs were prohibited from paying Directors-
the Committee recommended that all restrictions should be withdrawn;
the FA still limited the dividends payable by clubs and the Committee
recommended abolishing these limits. In order to ensure "managerial
efficiency" the report recommended abolishing gate sharing
for League matches, and that clubs shown most frequently on TV
should get a greater share of the revenues. The report also commented
"League clubs are commercial enterprises: their financial
success depends on meeting the needs of their customers. Yet until
very recently neither the League nor individual clubs have shown
any interest in the two management tools which consumer industries
normally find indispensable- market research and advertising."
(p10) It recommended increased market research, measures to attract
more women to follow the game and consideration of moving games
away from the Saturday 3.00 pm kick-off.
11. There can be little doubt that the League
and the clubs took this call for a more commercial approach to
heart. Restrictions on paying directors and dividends were removed.
As well as the investment in facilities already mentioned, clubs
have significantly extended their commercial activities and are
continuing to do so. By the late 1980s clubs were going on fact
finding missions to the USA to discover how commercial sports
marketing operated over there, and no doubt many practices have
been copied. It was this new commercialism which helped to generate
the rapid growth of income.
So why all this talk of crisis?
12. Despite the continued success of the last
25 years, many people have felt that the English football boom
was/is unsustainable, and that the "football bubble"
will soon burst. This feeling arises out of a confusion of three
things- the short term instability of individual clubs,
the long term survival of individual clubs and the stability
of the league system as a whole.
13. There is clearly a great deal of short term
instability at individual football clubs. This is largely a consequence
of the promotion and relegation system, which drives teams to
spend all they can afford, and often more than they can afford,
to avoid the drop. Equally, ambitious teams are tempted to stretch
themselves financially to their very limits, and frequently beyond
them, in order to reach a higher level of competition. Many imagine
this is purely sporting ambition, but there is also a commercial
context to this as well. As the chart below shows (using a decade
of data for clubs from the top two divisions), teams with lower
league positions (the horizontal axis) generate lower incomes
(the vertical axis). The chart demonstrates that there is a high
level of predictability in the relationship between wages and
league position- the "R2" tells us that over
time 89% of the variation in club revenues can be attributed to
league position alone.
Source: own calculations
based on football club accounts
14. One reason that revenue declines so significantly
with performance is that many fans are not always as loyal as
they are sometimes portrayed; failing teams lose support. To take
an example of a club with notably loyal fans, Leeds United attracted
a league crowd of over 39,000 in 2000 when the club was near the
top of the Premier League, a figure which fell to only 29,000
when the club was relegated to the Championship and then fell
below 25,000 when the club sank into League One. No doubt there
is always a core of supporters who will follow a club through
thick and thin, but equally there may be many "floating voters"
who are mostly interested in success.
15. An equally important cause of short term
instability is the link between league position and wage spending,
as shown in the next chart. This says that about 89% of the variation
in league position (the vertical axis) can be explained by wage
expenditure relative to other teams in the league (the horizontal
axis). This relationship reflects the operation of the market
for players. In economic terms this is a fairly "efficient"
market, which in football terms means that you get what you pay
for. Of course, individual players may get injured and sometimes
a superstar emerges unexpectedly, but because there are many buyers
and sellers in the market, and because there is plentiful information
about player abilities, generally the market prices talent accurately.
Source: own calculations
based on football club accounts
16. Combining these two diagrams, it can be shown
that revenues and wages at each league position more or less cancel
each other out, which explains why most football clubs fail to
generate significant profits. If a team makes profits, then it
must be underpaying its players, in which case a team below them
in the league can compete to hire those players at a higher wage
and take their position. The short term instability of clubs arises
when there is a mismatch between expectations and reality. This
may be misjudgement or bad luck, but in either case if short term
performance or fan support falls below expectations then the club
will fall in to a deficit, which may lead to insolvency. This
has become very common in English football; Deloitte identified
53 cases between 1992 and 2010.[11]
In order to deter clubs from reaching this stage a variety of
regulations have been introduced by the football authorities,
including docking of points for going into administration, a system
of expenditure limits adopted by League Two clubs and most recently
the Financial Fairplay regulations of UEFA which will limit annual
club spending on players to identifiable football income. Of course,
even without these constraints, failure often imposes a sporting
penalty in the form of relegation.
17. Despite this short-term instability, football
clubs are remarkably stable organisations over the long term.
Of the cases identified by Deloitte, all of the clubs re-emerged
as going concerns after a period of administration. Indeed, in
1923 there were 88 teams in the Football League: in 2007-08 85
of these teams still existed and the three that had disappeared
did so before the war. 75 of the teams were still in the top four
divisions and in fact 48 were still in the same division they
belonged to in 1923. One reason for this stability is that clubs
are at root community organisations. Clubs can adjust their expenditure
to any level of competition, and likewise the fanbase for a club
adjusts to the level of success, so even if a club falls on hard
times, there is a level of operation (both financial and sporting)
to which it can (and does) adjust.
18. The leagues have also shown themselves to
be remarkably stable. The greatest threat to a league is that
a club might fail financially and be unable to complete its league
fixtures. Whilst this in theory means that there is a systemic
risk associated with the financial instability of clubs, in reality
this risk is almost never crystallised. Leagues have also protected
themselves by imposing rules on settlement of debts, such as the
notorious football creditor rule. While some rules may be better
than others, there is little doubt that league administrators
have the capacity and the incentive to make rules which ensure
the long term stability of the league.
Should football clubs in the UK be treated differently
from other commercial organisations?
19. Football clubs established themselves as
limited companies in the 19th century, although as explained above
the FA and the League imposed rules which limited their capacity
to operate commercially until the 1980s.[12]
Given the significant sums of money involved, it makes sense for
clubs to be run as limited companies, but there is nothing to
stop the ultimate owners of the clubs to adopting different organisational
forms such as Supporter Trusts. It is worth noting that in the
early 1990s the Spanish government obliged football clubs to move
to limited company status because the membership organisations
("clubs") had unsustainable debts. In the event Real
Madrid and Barcelona (as well as two other clubs) were exempted
from the change. In Germany clubs (Vereine) have traditionally
been registered with and subsidised by the state. However, this
is a very different tradition of organisation compared to the
UK.
Are football governance rules in England and Wales,
and the governing bodies which set and apply them, fit for purpose?
20. Like Parliament and the Bank of England,
the governance institutions of football have evolved, and were
not originally designed for the purposes they are now required
to fulfil. However, institutions adapt, largely through competition
among those interested in the consequences of governance. Most
notably in recent years, the representatives of the professional
game have exerted increasing control over the FA. Abolition or
reform of the current institutions would not remove the fundamental
conflicts over control of the game which exist, although they
might give more power to some interest groups or less to others.
This is a much more important issue than the organisational structure
itself.
Is there too much debt in the professional game?
21. According to the UEFA 2008 Club Licensing
report, English clubs had just under €4 billion of net debt,
and just under €4.5 billion of long term assets. While these
debts were far higher than any other in Europe, so were the assets.
Deloitte estimated the net debt of Premier League clubs at £3.3
billion in 2008-09, against income of £2 billion. By the
standards of most businesses this level of debt is not excessive.
Of course, individual clubs may have too much debt, but without
full access to the management accounts of a business it is not
easy to be sure about what constitutes "too much". I
do not believe that current level of debt in English football
endangers its long term future. Furthermore, restricting the capacity
of teams to borrow may damage the competitiveness of the leagues.
What are the pros and cons of the Supporter Trust
share-holding model?
22. There is no reason that fans should not to
acquire shares in football clubs and manage them through a trust.
The limitation of the model is that few fans have the capacity
to invest significantly in their club, and when they do these
individuals often want their voice to reflect their investment.
In reality Supporter Trusts have played a useful role in some
lower division clubs, but the model makes little sense at the
top end of the game. Moreover, even with lesser clubs the involvement
of Supporter Trusts is no guarantee of good decision making, as
the case of Notts County illustrated.
Is Government intervention justified and, if so,
what form should it take?
23. In principle I believe that the Treasury
Green Book tests should be applied when considering the pros and
cons of government intervention. According to this the "underlying
rationale is usually founded either in market failure or where
there are clear government distributional objectives that need
to be met" (p 11). The annexes to the Green book describe
the following classification of market failure (p 51):
(a) "Public goods"—this has a
very specific meaning in economic jargon, amounting to the fact
that it is not feasible for private businesses to charge for services
they provide, which is far from the case with football clubs.
(b) Externalities—social costs and benefits
exceed private costs and benefits leading to under or over-provision
of the service in question. There is no obvious reason to think
we have too little of too much football at present.
(c) Imperfect information—in particular
asymmetric information, so that, for example, buyers cannot be
sure of what they are buying before handing over the cash. This
is not an obvious problem in football.
(d) Market power—some claim that clubs
have market power over their fans, but the evidence given above
shows that in reality large numbers of fans are ready to find
substitutes if the quality of the product falls.
In my view there is no compelling social equity rationale
for public intervention in commercial football, any more than
there is a rationale to make luxury cars available at subsidised
prices to people on low incomes.
24. It is also important to draw attention to
another aspect of the rationale for public intervention mentioned
in the Green Book (p 11), namely "is it reasonable to assume
that intervention will be cost-effective: ie that the benefits
of intervention will exceed the costs?" These costs could
include any damage done to the standing of English football in
general. Given the absence of any compelling rationale on the
ground of market failure or social equity, are purported benefits
sufficient to outweigh the potential costs?
25. There is a long tradition of state involvement
in sport and physical education in Europe. In the 19th century
this concerned mainly the preparation of young men for military
service. In the 20th century this evolved into a concern both
for providing a healthy environment and the pursuit of national
prestige through success in sporting competition. In Britain sport
evolved as an autonomous activity[13]
and as recently as 1960 there was almost no state involvement
in sport. In the last half century the state has become more closely
involved in the provision of facilities and the development of
healthy lifestyles, especially for young people. Through lottery
funding for sport the state has also become involved with the
development of elite sports.
26. My own view is that public funding which
supports mass participation in sport is desirable, but that the
state has no useful role to play in the provision of sport as
entertainment. Government would be no better at managing professional
sports leagues than it would be at managing movie studios or any
other form of mass entertainment. As this paper has shown, football
is a highly competitive business and hence there is no need for
a regulator of the kind required when there is natural monopoly
(eg water supply) or where information hard to acquire and consumers
need protection. I have not discussed the issue of the national
team in this paper, suffice to say that any government that allows
itself to take on even the slightest responsibility for the performance
of the national team will create a rod for its own back.[14]
Are there lessons to be learned from football
governance models across the UK and abroad, and from governance
models in other sports?
27. Yes, I believe there are always lessons to
be learned from different models abroad, and much of my own research
has been based on a comparative analysis of institutions.[15]
Indeed, I believe that many of the views expressed on the "crisis"
in English football stem from a poor appreciation of actual practice
abroad. In a nutshell, it is my view that the major American sports
leagues are both highly collaborative and highly profitable organisations
thanks largely to the absence of a promotion and relegation system.[16]
On the other hand, the regulatory mechanisms adopted in other
European football nations are more reflective of the lack of transparency
in the management of football clubs and poor levels of commercial
performance. It is worth noting that the financial analysis in
this paper, which is based on the publicly available audited accounts
of football clubs cannot be conducted on any football league outside
the UK, including Germany, because such accounts are not publicly
available.[17]
We should certainly beware of copying systems from other countries
whose governance systems are not completely transparent.
January 2011
5 Annual Digest of Football Statistics 1986. Back
6
http://www.manutd.com/en/Tickets-And-Hospitality/Ticket-Prices/Season-Tickets.aspx Back
7
See eg Fort (2004) "Inelastic Sports Pricing" Managerial
and Decision Economics, 25: 87-94. Back
8
Deloitte (2010) Annual Review of Football Finance. Back
9
See for example Simon Inglis (1988) League Football and the men
who made it. Willow Books. Back
10
Deloitte, ibid p 48. Back
11
Appendix to 2010 Deloitte Review, p 13. Back
12
For history of this commercial evolution see Szymanski and Kuypers
(1999) Winners and Losers: the business strategy of football.
Viking. Back
13
For a comparison of the European and British systems see Szymanski
(2008) "A theory of the evolution of modern sport" Journal
of Sport History, 35, 1, 1-64. Back
14
On the issue of the national team see Kuper and Szymanski (2009)
Why England Lose. HarperCollins. Back
15
See e.g. Szymanski (2010) The Comparative Economics of Sport.
London: Palgrave Macmillan. Back
16
On this see Hoehn and Szymanski (1999). "The Americanization
of European Football" Economic Policy, No. 28, 205-33. Back
17
For a sceptical view of German regulation written by Germans see
Dietl and Franck (2007) "Governance Failure and Financial
Crisis in German Football", Journal of Sports Economics,
8, 6, 662-669 and a sceptical view of French regulation written
by a Frenchman see Andreff (2007) "French Football: A Financial
Crisis Rooted in Weak Governance" Journal of Sports Economics,
8, 6, 652-661. Back
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