Competitive Imbalance; or, Why Newcastle United (probably) Will Never Again Win the Premier League

Along with higher salaries for players and longer contracts, the Bosman decision (see previous post) created one of the most interesting case studies for economics, a phenomenon known as competitive imbalance.

While labor flow became international, the consumption markets remained domestic. In other words, while Slovakian players might play in the Scottish Premier League, the viewership of the SPL is still predominantly domestic.

Most other EU industries faced the opposite result. While their products became international, their labor inputs remained largely domestic. German automobile manufacturers still make their Volkswagons in Germany with German laborers, but EU integration allows them to sell in France and Sweden and the Czech Republic.

This is because football labor is highly distinct, meaning it is easy to tell which components of a team are good and pick them up and move them to other leagues. Players are also highly mobile. Since their skills rely less on communication and language barriers, and since the sport is theoretically the same in every country, they are less reluctant to change countries. Plus, multi-million Euro salaries are a large incentive to change countries.

Leagues also existed in all countries before integration and the Bosman ruling, and residents already had connections with domestic teams. Unlike the sugar or shirt industry, where people are going to pick the highest quality for the lowest price, football fans are complicated in their allegiance, and just because they can watch a team other than Anderlecht, doesn't mean they will all of a sudden be Manchester United fans.

In fact, European football might be the only industry in the world that faces this particular brand of problem.

And the results might have serious repercussions for the future of the sport.

Leagues are becoming increasingly stratified throughout the continent. In the era when clubs relied predominantly on gate receipts (ticket sales) for revenue, clubs made roughly the same amount of money, though clubs in larger markets like London and Paris tended to bring in more income. However, the transfer system, wherein the big clubs had to buy talent from the small clubs at a hefty price, helped ensure revenue sharing and that all teams remained on an essentially even level.

This has changed with the advent of television viewership and merchandising. Now those clubs that can reach wider markets bring in substantially more revenue. This became clearly evident with the initial stratification and emergence of the “big five” leagues – Germany, Italy, Spain, France, and England – since these countries have higher populations and viewership. Even then, before the Bosman ruling, these five leagues were not substantially wealthier than the second tier of leagues such as Scotland, The Netherland, Belgium, and Portugal.

But with the changes wrought by the Bosman ruling have seen a greater stratification of leagues. Smaller clubs and leagues no longer see the return when a talented player leaves for a larger league that they did in the transfer system era. In fact, they see no return at all. And as soon as a talented player is identified he is scoped up out of the smaller league for a salary several magnitudes greater in a larger league. Smaller clubs and leagues lose their ability to compete, and become less competitive in the sport as well.

And the stratification has extended inside leagues.

Just like the discrepancies between wealthy and poor leagues, wealthier clubs have the resources to purchase more and better players at higher salaries than smaller clubs. In Europe, several clubs have emerged at the upper echelon of wealth. These clubs - British clubs Chelsea, Arsenal, Liverpool, and Manchester United; Spanish clubs Real Madrid and Barcelona; and Italian clubs Juventus, Internazionale, and AC Milan - have dominated club competition, both within their domestic leagues and in the Champions League.

Within their domestic leagues, these clubs routinely finish in the top spots. In the Champions League, clubs from Britain, Spain, Italy, and to a lesser extent Germany, continually dominate. This year, Chelsea and Manchester United squared off in the final after battling it out to finish first in the Premier League. Liverpool were Champions League semifinalists. Last year three British clubs were also semifinalists. Many are expecting a similar outcome in the next few years.

Even in the smaller leagues, teams that can make more money have emerged as perpetual champions in their leagues. In Scotland, Celtic and Rangers are perpetual champions. In The Netherlands, PSV Eindhoven has won the last four consecutive Dutch League titles. Lyon in France has won the last seven League titles. Spain is dominated by Real Madrid, and Switzerland by Basle.

And the system in which these clubs work perpetuates this imbalance. Winning means more air time, more sponsorship money, more tickets sold, and more merchandising. More air time, sponsorships, tickets sold, and merchandising means more money. With more money, clubs are better able to purchase the best talent, which will most likely see repeated success.

The English Premier League has notoriously stepped over the domestic hurdle and expanded its viewership well beyond the domestic market, which was already the largest football market on the continent. It is easy to find EPL games on television in other European countries, and even in Asia and the Americas, but much harder to find Italian matches. EPL games are being broadcast globally, with especially big markets in Southeast Asia and growing markets in the Americas.

For this reason, people think that the English Premier League is continuing to distance itself from the rest of the pack, and within the EPL, the big four are distancing themselves from the rest of the league.

Many people say the logical conclusion to this imbalance is to create a European super league, with these best teams competing against each other over the course of a season, and giving other teams the chance to be promoted into the league, just as teams move up in leagues within domestic leagues.

Others say that the English Premier League is slowly emerging as the European league as it becomes more and more wealthy and continues to attract the continents best talent. The problem with this result, however, is that the wealth remains concentrated in England, unless ownership continues to become international, like Manchester United, which is owned by American investors, and Chelsea, which is owned by Russian Roman Abramovich.

The Bosman Decision; or, How the EU Changed Football

When I began doing research on the EU-ization of football, one year stood out as the point when the EU changed the way football worked: 1995. It was in this year that the way European football clubs manage players and transfers changed dramatically as the result of EU policy and the first time EU policy was really brought into the footballing world.

There is no long history of Belgium contributing much to the world of international football. Never has the small country hoisted the World Cup, or even the European Cup for that matter. They didn’t even qualify this year, and probably won’t qualify for 2010’s World Cup. In addition to an under-performing national side, their clubs never do well against those of other nations. Their best club, Anderlecht, has a budget totaling about a hundredth of the major English teams like Manchester United and Arsenal. The saddest part of that is the fact that Anderlecht’s budget is more than 100 times that of many other Belgian teams. There isn’t even storied fan past like in Britain, Spain, or even The Netherlands. There also aren’t any spectacular players to come out of the small multilingual country.

So it is interesting that the biggest change in the way football management works came out of Belgium.

Before the 1995 European Court of Justice’s Bosman ruling (what shook all of this up), European football, like football in most other parts of the world, worked under a “transfer system.” The transfer system worked like this: When a player’s contract expired he was not free to change clubs until a new club paid his current club a transfer fee. This fee was designed to compensate teams for training and development of the player. Also, it was a way for teams to increase revenue and to maintain control over where a player went when he was done playing.

In 1990 Belgian footballer Jean Marc Bosman tried to move from his team in the Belgian Juplier League (the Belgians, of course, would have a league sponsored by beer) to Dunkerque, a team in France. His contract with RFC Leige, his Belgian club, had run out, but Dunkerque had not offered the Belgian club enough of a transfer fee, so RFC Leige retained Bosman, refusing to field him and cutting his wages to 500 pounds a month.

During the next five years, Bosman took his case through the legal channels all the way to the European Court of Justice. During this time Bosman could not find a job at any permier European club, and settled instead for playing . Most European clubs came out against Bosman's case, saying it would disrupt competition and hurt the sport.

Steffan Kesenne, a sports economist at the University of Antwerp in Belgium who worked with Bosman's lawyers on the case and the impact a ruling in favor would have on the competitive balance of clubs, said that clubs were probably afraid of losing a substantial degree of control over players.

Which is exactly what happened in 1995 when the Court ruled in favor of Bosman, saying that two separate factors of the European transfer system - at least insofar as it pertained to relations between EU countries and clubs - were against the bylaws of the European constitutions.

First, the Court ruled that a club could not charge a transfer fee when a player’s contract had expired. European citizens are entitled to a freedom of contract, and when their contracts have expired, they are entitled to seek new employment independent of their previous employer, just like in every other profession.

Second, it ruled that, like other European Union citizens, players had the right of free movement between different countries’ leagues. EU citizens are allowed to move between countries seeking employment, and firms may not discriminate against any EU citizen on the basis of nationality.

In the process of creating a single market within the EU, the supergovernmental body tried to ensure that inputs could travel across borders as outputs and currency. Football thought it was outside these bounds for many years, and was surprised to learn that it had to comply by the same rules as other industries.

With the transfer system eliminated, players are free to move between countries and leagues at will when their contract expires, becoming free agents like American athletes. Clubs can still charge fees for players whose contracts have not expired.

As a result of the ruling, teams began signing players for longer contracts, and players began to make substantially more money.

UEFA, who comprises 53 different leagues, now has some leagues inside the EU who must abide by the non-transfer system rules, and some outside the EU-area, which still work under the transfer system.

Since 1995, the EU has done a lot of research and reporting about how to best tackle sport – and football – but none of their efforts have had the kind of impact that Bosman, and the similar decisions the followed in Bosman’s wake, had on the sport.

What I've Learned

When I was asked to formulate a research project for this summer, and when I decided to come to Europe and the Euro Cup, I knew I wanted to look at how the world of sports –especially football – interacts with the world of politics, social movements, and economic factors. I have read numerous books and articles on the subject, and wanted to see for myself how much of it held true and if there were other areas where the two subjects crossed over.

My initial plan was to start small and look at one particular issue: how European Union integration has affected the movement of players between countries and leagues, and examine who has benefited and who has been hurt from the changes in labor and economic regulations created by the process of international economic integration.

I also wanted to look at how this player movement has impacted international play and how fans perceive their club teams as they become increasingly internationalized, or, conversely, how they perceive their national clubs when players are dispersed across the continent.

But over the course of the past seven weeks, I have come across a wealth of other stories about how football mimics the world’s social and political movements, and also how the world’s social and political movements have mimicked the football world.

When I speak to fans about what I’m doing, they tend to open up and spill their hearts about how they have seen the two spheres interact. Never once has a conversation stayed on my topic for more than a few minutes, and I have come to learn that if I am to understand more about the sport and what there is to see in it, I have to be willing to hear all sides of the dialogue.

In an effort to keep track of all that I have witnessed, I began to write down what I was seeing. The point of this blog is to share what I have seen and heard and what I’ve learned. It will start how I started – with player movement – but, like my project, will branch out into the broader world of football and politics.