Would European Soccer Clubs Benefit from Playing in a Super League?

Transcription

1 Would European Soccer Clubs Benefit from Playing in a Super League? HARRY ARNE SOLBERG and CHRIS GRATTON This article analyses whether European soccer clubs would benefit from joining a 'Super League'. Based on revenue figures, it argues that for the richest clubs from the top soccer nations, the current combination of domestic and international leagues may well be the optimal economic solution, for it is not clear that a single European Super League would replace the revenue that the clubs would loose from ceasing to play in the current domestic and international tournaments. For clubs from some of the smaller soccer nations, a multinational league may well prove economically optimal, since the income they would loose from ceasing to play in their domestic tournaments would be moderate. However, due to their moderate commercial value to a Super League, it seems unlikely that these would be invited to join. A mini Super League, for example the proposed 'Atlantic league', could still prove to be a profitable and suitable alternative. Introduction There have been revolutionary developments in the economics of European professional soccer over the last decade. The Premier League in England has led the way in terms ofgrowth in revenue since its establishment in 1992, but similar developments have happened across Europe, most notably in the other big soccer countries, Italy, Spain and Germany. Most significant among the forces driving this revenue growth has been the increasing importance of revenue from the sale of broadcasting rights. These developments have led economists to make comparisons with American professional club sports that have experienced similar trends. It has also led some economists to analyse the economics of European soccer using the economics of professional team sport literature which has mainly been developed in North America. This analysis has initiated at least one group of commentators (e.g. Hoehn and Szymanski)' to argue that only a 'European Super League' provides European soccer with the potential for a true American-style sports league model. The lack of competitive balance in most domestic European leagues, combined with the failure to introduce competition restriction, revenue sharing and salary caps, has led Hoehn and Szymanski to argue that the most natural solution to this 'problem' would be for a select group of clubs to form a European Super League and for members to cease playing in the national leagues, thus making those competitions more balanced.^ The idea of a European Super League was launched by Media Partners, whose plan was to offer the clubs a much more lucrative deal than that which UEFA were prepared to offer. In this proposal there would be 16 permanent Soccer and Society, Vol.5, No.l (Spring 2004), pp PUBLISHED BY FRANK CASS, LONDON

2 62 SOCCER AND SOCIETY members of the Super League the founder members who would be guaranteed a place for the first three seasons regardless of their ranking in their domestic leagues. A further 16 clubs would then be 'invited' into the tournament each season. Estimates of how much a winning Super League club could earn varied considerably, from a low of j(j50 million to a high of 100 million. The minimum level revenue for any participating club was generally forecast to be around ^^20 million.' So far, these plans have not been realized and the top clubs have remained faithful to UEFA. To achieve this, however, UEFA has been forced to increase dramatically the disbursements to the clubs. Therefore the Champions League has been extended, both in terms of the number of clubs involved and the number of matches played. From the 2003/04 season, however, the number of matches will be reduced and this has resulted in strong protests from the G14 clubs, the grouping comprising the top European clubs. UEFA also plan to restructure the UEFA Cup in order to increase the combined advertising and TV revenues. This article investigates the currently available evidence in relation to comparative revenue earned by European soccer clubs in both European and domestic competitions and considers the implications of a move to a European Super League for the economic viability of clubs. Data are provided on the economics of the European clubs that have participated in the ten-year history of the Champions League and the relative contribution to revenues from domestic and European competition. The key research question throughout this article is whether the revenues from such a league would outweigh the revenues that the clubs will loose from not playing in their domestic tournaments and the Champions League or UEFA Cup. These lost revenues can be regarded as the alternative costs for the clubs which join the Super League. It is important to bear in mind that some of the questions in this article can only be addressed speculatively, as only through the establishment of a Super League will actual demand and thus revenue beeome apparent. However, the very future of sueh a league is based on the kinds of forecast discussed here. Section two of the article examines why the issue of a Super League has received attention in recent years. It also presents the theoretical context that is of relevance to the issues discussed. Section three gives an overview ofthe historical development of the Champions League followed by some empirical data relating to financial revenues. This section summarizes how the financial conditions in European elite soccer have altered during the last decade. Section four discusses the lessons that can be learned from these data and seeks to answer the key research question, namely whether the European top clubs would benefit financially from joining a Super League. The final part of this section also discusses how important is competitive balance to the financial revenues in professional leagues.

3 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? Background Theoretical Context The literature on the economics of professional team sports has largely been generated in North America and deals with the issues of restriction of competition in the product and labour markets that characterize major American football, baseball, ice hockey and basketball. This restriction of competition flows from the need for professional sports leagues to maintain uncertainty of outcome. One major function of the league is to ensure that no club achieves too much market power or excessive dominance. The league therefore aims to restrict competition and achieve competitive balance. Non-competitive characteristics of professional team sports leagues include labour-market restrictions giving clubs property rights in players and revenue sharing, so that poorer clubs are crosssubsidized by the richer ones. With the exception of Gratton,'' the literature on the economics of professional team sports largely argues that a key feature that makes the economics of professional team sports 'peculiar' is that demand for the product (i.e. the game) is positively related to the uncertainty of outcome. As El-Hodiri and Quirk state: the essential economic fact concerning professional team sports is that gate receipts depend crucially on the uncertainty of the outcome of the games played within the league. As the probability of either club winning approaches one, gate receipts fall substantially, consequently, every club has an economic motive for not becoming too superior in playing talent compared to other clubs in the league.' This quote, from 1971, dates back to the days when gate receipts dominated sports club revenues unlike today, when they can account for less than half of total revenue. However, it can be argued that broadcast demand, which infiuences club revenue from television in the long run, also depends on uncertainty of outcome. Prior to the 1990s, economists argued that the economics of professional team sports was not particularly relevant in the European context because so few clubs had profit maximization as their main objective. Sloane' and Quirk and Fort' have documented that the profit maximization model has been inappropriate to European soccer in particular. However, in the 1990s significant changes have taken place in European professional team sports, most notably soccer. The staggering increases in revenues, mainly due to increases in television revenues in England, Spain, Italy and Germany in particular, is unprecedented in European professional soccer history. At the same time the restructuring of UEFA's Champions League, mainly to combat a threat to set up a breakaway European Super League, gave Europe's top clubs additional revenue to that earned domestically. This massive increase in revenues has altered European soccer and made profit maximization a more important objective than it was a few years ago. Clubs that lack financial resources also find it difficult to achieve sporting success.

4 64 SOCCER AND SOCIETY Consequently, clubs that have to choose between league systems are, other things being equal, likely to prefer the alternative that yields the highest revenue. Nevertheless, there are still substantial operational differences between American leagues and the way European soccer is organized. Each European country has its own domestic league, with up to 20 clubs in the top league and with up to four times that number in lower divisions, whereas the National Football League (NFL), for instance, has only 32 clubs in the whole of the USA. In European soccer the top clubs from each country take part in UEFA's Champions League or the UEFA Cup in addition to their domestic league and cup competitions. No such multinational competition exists for American sports clubs. Another difference relates to the national teams. In Europe, the best players are also involved with their national teams during the regular season. American soccer and baseball have no national teams, while in ice hockey and basketball the national teams have a secondary role to the club leagues the National Hockey League (NHL) and the National Basketball Association (NBA). For example, NHL players are not allowed to play for their national teams in the World Championship until their club has been eliminated from the play-offs. In some European countries the rise in revenues during the 1990s has been accompanied by increasing domination of domestic leagues by a small number of clubs, predominantly those who play in the Champions League. This development is in direct confiict with the recommendations of the professional team sport literature, which argues that a preferable situation, and the main role of the league, is to avoid such dominance. There are, therefore, some theoretical difficulties in applying the economics of professional team sports, which have been developed in the American context, to European soccer. The lack of correspondence of the American sports league model to European domestic soccer leagues is caused by increased inequalities in playing strength among clubs in the domestic leagues. Clubs playing in the UEFA's Champions League need to spend more on players in order to be competitive at a European level. Clubs aiming for success in European tournaments have found it necessary to extend their squads and adopt player rotation systems due to the increased number of matches. This has, in turn, increased costs due to the extremely high wages leading players can demand. So far, the revenues from participation in the Champions League have more than outweighed these increased costs. Thus these clubs have achieved a revenue advantage over domestic clubs not playing in Europe which has facilitated higher spending on players. It is the resultant lack of competitive balance in most European domestic leagues that has paved the way for the ideas about a European Super League among economists. In order to analyse the profitability of the two alternative systems, it is useful to set up equations which show the revenues for the clubs. Equation 1 shows the main revenue sources of a football club. Equation 7. TR = TV + GR + AS + M

5 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 65 Equation 2. TRQUAL = TVDT + GRD^ + ASpx + TV,x + GRj^ + ASj p Equation 3. TRgL = TVSL + GRgL + ASgL (TR = Total revenue; TV = TV rights revenues; GR = Gate receipts; AS = Advertising/sponsorship revenues; M = Merchandising; DT = Domestic Tournaments; IT = International Tournaments; SL = Super League) In the current dual system (outlined in Equation 2), the clubs earn their revenues from domestic tournaments (league and cups) as well as international tournaments. Equation 3 shows the income in the case of a hypothetical Super League. It is assumed that the clubs that join will lose the revenues they earn from the current domestic and international tournaments. In this analysis it is interesting to focus on the revenues that will be different in the two alternative systems. It is mainly the TV rights, the gate receipts and the advertising revenues that will be infiuenced if a club switches from the current dual system to a Super League. Thus, merchandising has been omitted from Equations 2 and 3. The decisions regarding the establishment of a Super League will be taken on two different levels. Primarily, the invited clubs will have to decide whether to accept the invitation or not. A club will be tempted to join a Super League if the revenues are predicted to outweigh the revenues it earns in the existing dual system. To achieve this, the income from a Super League must outweigh the combined revenues from the domestic tournaments and the international leagues, which today are the UEFA Champions League and the UEFA Cup. It is important to bear in mind that the domestic tournaments include the matches in the top league as well as in one or two cup tournaments. The total value of the TV rights will depend on the value per match as well as the total number of matches. A similar picture applies to gate receipts. Another aspect is that some clubs may feel inclined to join through fear of being left behind in a domestic premier league (DPL) with its top clubs removed. The commercial value of the DPL will diminish if the most attractive clubs disappear, and hence make it more difficult for the other clubs that are invited to reject the offer. There is however, one major difference regarding the two sources of revenue resulting from TV broadcasting being, to some extent, a public good. One of the main characteristics with public goods is the non-rivalling element. When television viewers 'consume' a sports programme, they do not prevent others from watching the same programme. This is in contrast to spectators at the stadium. Here, if demand exceeds capacity there is no room for additional spectators. In this situation the only way of increasing revenue is by increasing admission fees (or by extending the stadium). Secondly, there is the question of which clubs should be invited. Neither the establishment nor the maintenance of a Super League will be without complications. To illustrate the potential problems, let us assume that a Super League is being launched and that the wealthiest clubs are invited first. This may

6 66 SOCCER AND SOCIETY well be the so-called G14 clubs (recently extended to 18). The first issue that the initial members will have to decide on is whether further entrants should be invited. The outcome of this decision would depend upon the decision-making procedures/voting structure that the clubs agree on. Let us first assume that the TV rights and sponsorship deals are sold collectively, and thereafter are distributed equally among the member clubs. We also assume the same procedure applies to the gate receipts. Under such a procedure new clubs will be invited as long as the marginal revenue they create is higher than the average income which the existing members are earning; the revenue per club will increase as long as the contribution from the new entrants exceeds the average revenue. The outcome of the decision becomes more complicated if the revenues are unequally distributed, e.g. if the TV rights and gate receipts are sold individually. Then one may have a situation where some clubs will benefit financially from inviting new entrants while others will lose. If the clubs agree on a decisionmaking system where all clubs have one vote, the league will be extended as long as the majority of clubs benefit. However, since the wealthiest clubs will have different preferences regarding which new entrants should be invited, this process may be contested. This especially applies to local derby matches. Another alternative is that the wealthiest clubs are given more infiuence, for example, by getting more votes than the poorer clubs or being given a veto. The current wealth in European soccer is quite unequally distributed, with clubs such as Manchester United, Bayern Munich and Real Madrid earning considerably more than the top clubs in the smaller nations." Thus it is not unlikely that the wealthiest clubs will be favoured if a Super League is established. Some clubs have a special reputation among soccer fans and sponsors, and to keep them within the league, the other clubs may be willing to let (or be powerless to stop) them have some advantages. 3. UEFA's Champions League The Financial Side The Champions League was launched in 1992/93 as a redevelopment of the previous European Cup tournament, which was a knockout tournament for domestic league winners. The objective of the reorganization was to increase the revenues of participating clubs. The main mechanisms for doing this was an extension of the number of matches and the introduction of part of the tournament to be staged as a league instead of a knockout tournament. Since its introduction, TV rights and marketing revenues have increased considerably, as Table 1 illustrates. In the first few years, most of the matches were broadcast on public service channels with the consequence that revenues were quite moderate. In recent years commercial channels have taken over. In many countries currently, the matches are screened on a combination of free-to-air channels and pay-per-view channels. Table 2 shows how the TV rights fees for the Champions League vary across

7 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 67 TABLE 1 CHAMPIONS LEAGUE CLUBS TV REVENUE ( N4ILL1ON) Season 1993/ / /01 Revenue, two finalists Revenue, eight highest earners Source: Baskerville Communieation Corporation; Soccer Investor, various issues 2000/2001; UEFA.com. Europe in comparison with the TV rights fees from the DPLs. One reason behind the differences is that the DPLs have more matches. In addition national viewers have, to this point, mainly been interested in matches that include domestic clubs. This pattern especially characterizes the big soccer nations, and it also influences the market value of the TV rights. Table 2 also illustrates the large variations in the numbers of viewers in different countries. The average number of viewers in the Netherlands would represent just 22 per cent ofthe number of viewers in Italy. TABLE 2 NUMBER OF VIEWERS AND TV RIGHT FEES ( MILLION) Champions League, 2000/01 season Domestic Premier League, 2002/03 season Nations Average number of viewers (million) Annual TV-right fees Annual TV-right fees France Germany Holland Italy Spain UK * * also includes international rights. Source: Kagan World Media Ltd., European Media Sports Rights 1999 Databook (London, UK 1999). Initially each country provided just one club per year to the Champions League. These clubs qualified by winning their own domestic league. Gradually this procedure has changed as the big countries have been given more places in the competition. Table 3 gives an overview ofthe development ofthe competition since it began in the 1992/93 season. In the 2001/02 season, 16 clubs qualified directly. The six highest ranked nations each have two clubs, while the next four countries each have one club. In addition 16 clubs qualify through preliminary knockout rounds. The three highest ranked nations have two clubs in the qualifying round, while the three following nations have one club. Nations ranked from 11 to 15 have two clubs in the qualification rounds, while the other nations have one club each. Equation 4 shows from which sources the Champions League TV revenues are derived. The prize money includes a standard payment plus a bonus related to the club's performance in the competition. The more matches a club wins and the longer it stays in the tournament, the more it will earn in prize money. The

8 68 SOCCER AND SOCIETY TABLE 3 UEFA'S CHAMPIONS LEAGUE Season Clubs at Procedure Total Number group stage number of of matches matches for finalists* 1992/93 8 First two rounds with knock out procedure Thereafter two groups of four clubs. Final between the group winners. 1993/94 8 Same as in 92/93 until the post-group stage where the two best clubs in each group played semi-finals. Thereafter final between the winners of the semi-finals. 1994/ / One qualifying round for clubs from second-rated countries. Thereafter four groups of four clubs. Quarter-finals, semi-finals and final 11997/98 and 24 Two qualifying rounds for number two clubs from /99 first-rated countries and number one clubs from second-rated countries. Thereafter six groups of four clubs. Quarter-finals, semi-finals and final. 1999/2000 to 32 Three qualifying rounds for third-and /03 fourth-ranked clubs from first-rated countries and first- and second-ranked clubs from second-rated countries. Thereafter two group stages. First eight groups of four clubs and thereafter four of four clubs. Quarter-finals, semi-finals and final. * Excluding qualifying rounds Source: market pool revenue is influenced by the commercial value of the club's domestic TV market. This revenue will be a function of the population within the specific market, which in most cases is a country. In addition, the purchasing power as well as the interest for soccer within the market will also have an effect on the market pool revenue. Equation 4. CL TV revenue = Prize Money + Market Pool Revenues have increased for all clubs, but the largest increases have been for the clubs from the 'big five' soccer nations: England, Germany, Italy, Spain and France. The main reason for this is the market pool revenue. In the case of national associations represented by more than one club, the respective market pool share of each club is calculated on the clubs' ranking in the previous domestic championship and on the number of matches played in the season's UEFA Champions League. Consequently a club will benefit from the earlier elimination from the tournament of other clubs from the same country (market). The three clubs mentioned in Table 4 all reached the group stage in the 1997/98 and 2000/01 seasons. The table clearly illustrates how the market pool's share of the total disbursements increased considerably for the clubs from the big soccer nations.

9 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE.? 69 TABLE 4 REVENUE FROM MARKET POOL AS PERCENT OF TOTAL TV REVENUE 1997/ /01 Manchester United 24% 57% Bayern Munich 35% 55% Dynamo Kiev 5% 4% Source: Baskerville Communication Corporation; Another illustration of bow tbe market pool revenues benefit clubs from larger countries is to look at Bayer Leverkusen (Germany), Rosenborg (Norway) and Galatasaray (Turkey) revenues in tbe 2000/01 season. Tbe former two clubs performed equally in the first group stage (both were eliminated) and therefore TABLE 5 CHAMPIONS LEAGUE REVENUES SEASON (^-MILLION) Club Total prize money Market pool Total Bayern Munich Lazio Valencia Manchester United Real Madrid Leeds United Arsenal Paris St. Germain AC Milan Deportivo La Coruna Olympic Lyon Bayer Leverkusen AS Monaco Juventus Hamburg Galatasary Barcelona Sturm Graz Anderlecht Glasgow Rangers PSV Eindhoven Panathinaikos Spartak Moscow Sporting Lisbon SC Heerenven Olympiakos Rosenborg Besiktas Helsingborg Shakhtar Donetsk Sparta Prague Dynamo Kiev Total O.I Source:

10 70 SOCCER AND SOCIETY received the same amount in prize money. However, while Bayer Leverkusen earned 8.1 million in market pool revenue, Rosenborg only earned ^(^0.8 million. Galatasaray reached the quarter-final. Nevertheless, the club earned 3.5 million less than Bayer Leverkusen. Galatasaray only earned l.(> million from the market pool, which was ;(J7.1 million less than Bayer Leverkusen. The relative contributions of the market pool and the prize money and the overall total Champions League revenues for the 2000/01 season are shown in Table 5. Champions League Revenue vs. Domestic Revenue Table 6 shows the comparative television revenue from the Champions League and domestic league for English, German and Italian clubs in the 2000/01 season. With the exception of Bayern Munich, domestic television revenue is higher than Champions League television revenue.' Bayern Munich won the Champions League in this season and hence obtained an unusually high amount from this competition and substantially more than any other club that season. These figures are not directly comparable since the number of televised matches in which clubs appeared varies. TABLE 5 TV REVENUE FROM DOMESTIC PREMIER LEAGUE AND CHAMPIONS LEAGUE, 2000/01 SEASON (^-MILLION) Uayern Munich Lazio Manchester United Leeds Arsenal AC Milan Juventus Champions League Premier League Source: Deloittc & Touche, Detoitte C Touche Annual Review of Soccer Finance (Manchester: Deloittc and Touche, 2001); Soccer Investor, various issues, TABLE 7 1ROSENBORG REVENUES (^-MILLION) CL: TV and market pool, rev. CL: Gate receipts Total CL-revenues Total turnover* Wages & social costs Total CL-revenues/Total turnover n.p. n.p n.p n.p % % % % % % * Exclusive of the income from the sale of players. Source: Kirsti Brekkan. The amounts were originally in NOK-million and the exchange rates are from the end of the respective years.

11 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 71 The relationship between domestic television revenue and Champions League revenue is not the same for elubs from many of the smaller European countries. The Norwegian elub Rosenborg has participated in the Champions League in every season sinee 1995/96. Although the club has earned considerably less than the elubs from the big nations, the revenue from the tournament has still had a dramatic effect on the club's fmanees, as illustrated in Table 7. One example of this is that the total amount paid in wages has had a nine-fold increase in six years. In each season the total Champions League-related revenue including gate receipts - has accounted for more than 50 per cent of Rosenborg's total turnover.'" In the 2001/02 season, Rosenborg's Champions League-related TV revenue was the equivalent to over 200 per cent of the TV revenue that the domestic clubs received in total from selling the broadcasting rights for Tippeligaen, the Norwegian Premier League." Gate receipts from the Champions League tournament have also been extremely valuable for Rosenborg. The Champions League matches have been considerably more popular than the matches in the DPL. During the 2001/02 and 2002/03 season the average attendance at Champions League matches was 55 per cent higher than at matches in the domestic league, even though tickets for the Champions League matches were three times more expensive. During the 2001/02 season the average Champions League ticket cost 28, while the average DPL match ticket eost just 9.30.'^ Until the 2000/01 season Rosenborg has been unable to fully exploit this advantage, due to limited capacity. Thus the club extended the capacity to a 22,500 all-seater stadium (up from 15,000) during Similar conditions characterize the situation for the Swedish clubs that have participated in the Champions League. Gothenburg participated in the Champions League four years in succession from 1994/95 to 1997/98, reaching the semi-fmal in 1994/95. Their Champions League revenue from this season amounted to 6.i2 million, which accounted for 37 per cent of the total turnover of all 14 Swedish clubs in Allsvenskan (the Swedish Premier League). AIK- Stockholm participated in Champions League during the 1999/2000 season and Helsingborg during the 2000/01 season." Table 8 shows the enormous gap in turnover between the wealthiest clubs in some of the big five nations and the top clubs in the smaller nations. It shows that the highest earning clubs from the Champions League earned less than a quarter of their total turnover from Champions League television revenue in 2000/01 with the exception of Bayern Munich, where the proportion was slightly more than a quarter. It also illustrates that the Champions League revenues were relatively more important for the clubs from smaller nations. The Champions League-related revenues accounted for more than 60 per cent of AIK- Stockholm's total turnover, while for Helsingborg they accounted for more than 50 per cent. For AIK-Stockholm the average attendances at the Champions League matehes were 130 per cent higher than at the matches in Allsvenskan., despite tickets for Champions League matches, like those at Rosenborg, being three times more expensive than for DPL matches.'^

12 72 SOCCER AND SOCIETY TABLE 8 CHAMPIONS LEAGUE-RELATED TV REVENUE AS PERCENTAGE OF TOTAL TURNOVER. 2000/2001 SEASON Total turnover CL-TV revenue CL-TV revenue/ total turnover Number of matches Manchester United Juventus Haycrn Munich Leeds Lazio Arsenal Rosenborg AIK-Stoekholm Helsingborg % 10% 28% 18% 22% 24% 37% 61% 52% Source: Deloitte & Touche, Detoitte C Touche Annual Review of Soccer Finance (Manchester: Deloitte & Touche, 2001); Soccer Investor, various issues TABLE 9 AVERAGE ATTENDANCES AT CHAMPIONS LEAGUE AND DOMESTIC PREMIER LEAGUE MATCHES Clubs Seasons Champions League Domestic league Real Madrid Bayern Munich Valeneia Lazio Deportivo La Coruna Rosenhorg Milan Leeds Anderlecht Helsingborg A IK, Stockholm Liverpool 99/00 and 00/01 99/00 and 00/01 99/00 and 00/01 99/00 and 00/01 99/00 and 00/01 00/01 and 01/02 00/01 00/01 00/01 00/01 99/00 01/02 52,592 39,400 39,063 35,115 31,000 20,726 52,351 36,119 23,065 11,728 31,248 38,915 62,675 49,956 42,714 49,892 28,526 13,388 52,642 38,974 24,026 10,780 13,521 43,617 Source: various club websites, plus Sports.com, Kicker and Futbol.sportec.com. Table 9 looks at eomparative attendanee levels for domestic and European competitions. One has to be eareful when eomparing the attendance at the two categories of match. Firstly, at some Champions League matches the attendance capacities were reduced. This was because of strict security restrictions set by UEFA, but also because some of the front rows are used for advertising instead of being sold to spectators. There were also fewer matehes in the Champions League than in the domestic leagues. Thus a drop in attendance at one Champions League match can reduce the average attendance considerably. This has happened on occasions when the home club has been eliminated from the Champions League prior to the last group match being played. A similar effect occurs in cases when the home club qualifies for the next round before playing their last group match. The fact that a proportion of the spectators at domestic

13 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 73 league matches have season tickets is another factor which can reduce the fluctuations in attendance at such matches. Despite these modifications, it is still possible to draw some conclusions. Table 9 reveals that in only four cases Deportivo, Rosenborg, Helsingborg and AIK-Stockholm were the average attendances higher for European games than for domestic games. The attendance statistics revealed different patterns for clubs from the big soccer nations and the other nations. The clubs from the big soccer nations attracted lower attendance to the home matches against elubs from second-rated nations, compared with matches against second-rated clubs in their own DPLs. On some occasions this even applied to matches against well-known clubs from other big soccer nations. For example, Bayern Munich's and Real Madrid's home matches against clubs from the Nordic and Eastern European countries attracted attendances in the region of 15-20,000, which is about per cent of their stadiums' capacity." A similar picture characterized some of the English Premier League clubs as well. As Table 9 reveals, Liverpool sold fewer tickets for their Champions League matches than they did for their English Premier League matches, despite tickets for the former being discounted on several occasions." The same pattern applied to Liverpool's UEFA Cup matches during the 2000/01 season, when they won this cup." The UEFA Cup matches attracted an average attendance of 38,582, while the Premier League matches attracted an average gate of 43,699. The picture was completely different for clubs from Norway and Sweden, which had significantly higher attendances for Champions League matches than for matches in their domestic leagues. The biggest gap was observed for AIK- Stockholm's matches in the 1999/2000 season, where the average attendance for Champions League matches was 230 per cent of the average attendance for matches in Allsvenskan. The Champions League qualifying match against AEK- Athens also drew an attendance above 31,000. As mentioned above, Rosenborg's Champions League matches also drew considerably higher attendances than the matches in the Norwegian league, despite tickets being almost three times more expensive. In many cases, the capacity was too low to meet the demand at Champions League matches. 4. Diseussion Economically, the main difference between the two competitive structures discussed above (see Equations 2 and 3) lies in the difference between the TV rights revenue and gate receipts that each will provide clubs. The value of these revenues depends on the number of matches, as well as the commercial value of each match. The number of matches in a Super League will correlate with the number of elubs, but it also depends on the structure of the competition. Knockout arrangements reduce the total number of matches compared to leagues.

14 74 SOCCER AND SOCIETY In the current system the most successful teams in the big nations play more than 60 matches per season. As an example, each club in the English Premier League plays 38 matches. In addition to this clubs play in the FA Cup, with the finalists playing at least six matches, and the League Cup (currently sponsored by the brewers, Carling) in which finalists play at least eight matches. It may well be the case that the national soccer federations exclude the Super League clubs from domestic cup tournaments in order to discourage them from joining a Super League. UEFA, traditionally resistant to the prospect of a Super League, may be willing to support such sanctions. The finalists in UEFA's Champions League have played 17 matches per season in recent years, but this will be reduced to 13 from 2003/04. The finalists in the UEFA Cup played 13 matches in the 2002/03 season, but the total number of matches in this tournaments is likely to increase due the planned restructuring which aims to make it similar to the Champions League. The domestic leagues in the big soccer nations have generated substantial revenues in recent years. The English Premier League clubs saw their domestic television revenues rise by over 300 per cent in the season following the one to which the figures in Table 6 refer. In the 2001/02 season, a total of 349 million was split among the 20 clubs - with Manchester United, Liverpool and Arsenal receiving almost 26 million each." In addition come the revenues from domestic cups. The 2001/02 winner of the FA Cup earned 4.2 million in TV rights and prize money, in addition to gate receipts." In Italy, Juventus will earn 54 million ( 34 million), and Inter 49 million ( 31 million) from their domestic TV deals for the 2002/03 season. In addition to this, revenues come from the sale of the highlights package as well as rights to televise cup matches. Further revenue comes from the Champions League and/or the UEFA Cup. For the 2000/01 season. Champions League revenues (excluding ticket revenues) exceeded 15 million for more than six clubs, while the following season this number increased to eight clubs.^' The number of clubs that earned more than 20 million increased from one to four over the same period." Thus a Super League may find it difficult to exceed all these existing revenues. If it has fewer matches than in the current system, then the average commercial value per match must exceed the average value of the matches in the current system to make the alternative profitable for the clubs. Even if a Super League generated higher TV revenues than domestic leagues, this may still be less than the total television earnings from the combined domestic and European competitions. The fee for European Super League matches would have to increase substantially above the current growth rate of domestic broadcasting rights to make it financially advantageous for these clubs to leave their domestic tournaments and play only in a Super League. The major problem with Hoehn and Szymanski's" analysis is that they seem to assume that international matches are/will be more popular than matches

15 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 75 between domestic teams. We are not convinced that this is the case for the top clubs from the big soccer nations. A match between two domestic clubs will draw supporters of both teams. In addition 'neutral' spectators and viewers will be attracted. A match against a foreign club will predominantly attract supporters of the home team. On the other hand, this may be outweighed by neutral spectators who regard such matches as similar to matches between national teams. The interest from advertisers and sponsors is also of importance, but ultimately this will be a function of the interest from the viewers. The data presented in this article do not give any clear answer to whether domestic TV viewers in the big nations have a preference for domestic or international matches. A comparison of historical rating figures is not helpful, since the matches have been broadcast on channels with different penetration. The attendance figures, however, do not indicate that international matches were the most popular. Indeed, in some cases the data indicate the very opposite (see below). The combined income from TV rights and sponsorship deals from the Champions League were lower than the income from domestic TV rights for the clubs within the big nations. The only exception was for Bayern Munich, which won the Champions League in the 2001/02 season. However, one cannot automatically use the TV rights for the Champions League that has been presented in this article as a proxy for the TV revenues that a European Super League will create. This particularly applies to the big soccer nations. The prices on sports rights are infiuenced by a number of factors, and these have varied substantially across Europe and also over time in the respective countries, with the level of competition between the TV channels being of particular importance. However, it is interesting that the data reveal some clear differences between the big soccer nations and the smaller nations. In the Netherlands, the Champions League revenues equated to 54 per cent of the TV revenues from the Eredivise (the Dutch Premier League), while in the big five nations this proportion varied from 15 per cent to 42 per cent. The Champions League-related TV revenues that Rosenborg and the Swedish clubs earned were considerably higher than those that they earned from playing in their domestic leagues. The large difference indicates a clear preference among spectators for international matches in these countries. Attendance figures also revealed a different pattern between the bigger and the smaller soccer nations. Some of the clubs in the former group attracted lower attendances to Champions League matches than they did to the matches in their domestic leagues. This particularly applied to matches against clubs from the smaller nations. Matches against clubs from the other big soccer nations generally attracted large attendances, but this also applied to a large proportion of the matches in the domestic leagues. This contradicted the pattern in the smaller nations, for example the Nordic countries. When Rosenborg and Swedish clubs played against clubs such as Real Madrid, Juventus, Arsenal and Bayern Munich in the Champions League, the demand was subject to positive shifts compared

16 76 SOCCER AND SOCIETY with the matches in the domestic leagues. AIK-Stockholm sold 130 per cent and Rosenborg 55 per cent more tickets on average for their Champions League matches than for their matches in the domestic leagues, despite the extra cost of attending Champions League matches. The most likely reason for this difference relates to the 'quality' dimension. Several analyses have tried to estimate the infiuenee of club performance and club quality on attendances.^'' A wide range of variables has been used to test this influence, such as the league position of both the home and visiting club, performance in preceding matches, percentage of matches won and the number of internationals or other 'star' players appearing for the visiting club. In summary, the various proxies for expected quality have generally shown significant coefficients which imply that as (expected) relative quality rises, attendances increase. For the Champions League matches the quality dimension was more conspicuous when clubs from the smaller nations played against teams from the big nations. When Nordic clubs have met foreign clubs, the quality of these matches has been considerably higher than in matches in the domestic leagues. For clubs in the big soccer nations, however, the difference in quality between domestic and European club matches has been more moderate. Another consequence of a European Super League is that it will reduce the number of local 'derby' matches, especially if the number of clubs in the league is in the region of 20. It is worth noting that several studies have revealed strong interest for local derbies. Garcia and Rodriguez's" analysis of the Spanish First Division revealed strong positive effects on attendances at matches being played by 'historical or regional rivalry' clubs. Local derbies had a larger positive effect on attendances than matches against Barcelona and Real Madrid (historically the two most important clubs in Spain). Moreover, Peel and Thomas,^** Walker" and Hart et al.^* have all found that the geographical distance between the clubs concerned has a negative effect on the attendance for that fixture. This is explained partly by the propensity for derby matches to attract higher gates due to local interest and rivalry, and partly by the financial and practical disincentives for supporters to travel to more distant fixtures. Similar results have been documented by Dobson and Goddard^' and Jennet,'" who showed that attendance was positively infiuenced by the population of the away club's region, but was negatively influenced by the distance between the two clubs' host cities. This is particularly interesting in cases where the demand for tickets among the local supporters is lower than the capacity In such cases it helps to fill up the stadium with away supporters. However, if the away club comes from another part of Europe, expensive travel costs will reduce the number of visiting supporters. Hoehn and Szymanski's proposal of a Super League of at least 60 clubs, though, will allow for more local derby matches." In addition, the financial consequences of local derby matches may threaten the stability of a Super League as different clubs will have different preferences regarding which clubs should be included. For a London club, a match against

17 WOULD CLUBS BENEFIT FROM A SUPER LEAGUE? 77 another London club may be of especially high value, while a German club may prefer to play other German clubs for the same reason. Such aspects may complicate the procedure if/when the initial clubs invite further clubs to join the league. Significantly no clubs are currently guaranteed admittance to the Champions League or the UEFA Cup. Hence the current system contains an element of risk that will be eliminated by a hermetic Super League. This represents an opportunity that the invited clubs may find tempting. The history of the Champions League shows that the majority of the wealthiest clubs have qualified almost every season especially in reeent years as combined TV and advertising revenues started to escalate. However, one also finds a number of top clubs which on some occasions have failed to qualify and thus lost substantial amounts of money. On the other hand, since hermetic leagues have no system of relegation and promotion, this can reduce the seasonal uncertainty of outcome, and thus have negative effects on attendances. It is worth noting that Jennet" has documented that matches between clubs that were fighting to avoid relegation drew larger attendances than matches between clubs that were already relegated. It is more apparent that a Super League would prove economically optimal for clubs from the smaller soccer nations (e.g. the Nordic countries, Scotland, the Netherlands, Belgium, and Portugal). Their problem, however, is that it is unlikely that they will be invited. The reason for this is that there is no rationale for the clubs from the big nations to invite clubs from second-rated countries to a European Super League. The income contribution from the clubs outside the big soccer nations will be considerably smaller than from the clubs within the big nations. There are several illustrations of this difference in the figures presented in Section 3. As Table 2 revealed, the Champions League revenues (TV and advertising) in the Netherlands only equated to 16 per cent of the Champions League revenues in Italy, while the average number of viewers was just 22 per eent. On the other hand, while the Champions League revenues accounted for 38 per cent of the revenues from the domestic league {Serie A) in Italy, the comparative figure for The Netherlands was 54 per eent. This indicates that the Champions League revenues were relatively more important to the clubs in The Netherlands than in Italy. Another example is the market pool revenue in Table 5 which showed that the clubs in the big soccer nations earned considerably more than the clubs in the smaller nations. The case where Rosenborg and Bayer Leverkusen achieved identical sporting success in the Champions League in the 2000/01 season, but where the German club received TV and advertising revenues that were 8 million higher than the Norwegian club, illustrates this very clearly. The reason for this 'biased' income-distribution was due to the different size of the domestic markets. While Germany has a population of 82 million, the Norwegian population is only 4.4 million.^^ This is also the main reason why UEFA has made it more difficult for clubs from lower-rated countries to qualify for the

18 78 SOCCER AND SOCIETY Champions League and have increased the number of teams from the bigger nations in recent years. However, it is still likely that the clubs from the second-rated nations could benefit from joining a mini Super League, for example the proposed Atlantic League which has been suggested by leading football figures in Scotland, Holland and Belgium as an alternative for the top clubs outside the 'big five' nations.'''' Such a league would not have the same market value as a Super League which includes the big nations. However, for these clubs the income they would lose from ceasing to play in the domestic leagues would be quite moderate. Since the opportunity cost is low, it takes relatively little to make an Atlantic League more profitable than the current system. Hom Important is the Competitive Balance and Uncertainty of Outcome? One ofthe main reasons underlying proposals for a European Super League is the concern to improve the competitive balance in domestic leagues and thus gain the expected financial benefits of this. The remaining part of this article will therefore focus on how important the competitive balance is to the attendance and the TV audience, and hence for revenues. Despite the fact that the literature on the economics of professional team sports is dominated by the discussion of the importance of uncertainty of outcome and competitive balance. Cairns, Jennett and Sloane point out the lack of conclusive empirical evidence in support of this proposition: Given the importance of uncertainty of outcome to professional team sports research, it is unfortunate that not only has empirical testing of the key relationship between demand and uncertainty of outcome been limited, but also that the discussion of this central concept has been unmethodical, if not confused. Inadequate attention has been paid to determining the appropriate empirical specifications of the underlying theoretical notions.^' Quirk and Fort carried out analysis for all the five major American professional club sports leagues (the NFL, NBA, NHL and the two baseball leagues, the American League and the National League) for each decade from 1901 to They found that all five leagues operated with a significant degree of competitive imbalance." The NFL had the most competitive balanee, and the NBA the least, but even the NFL fell a long way short of the ideal league. They concluded: One obvious conclusion... is that none of the leagues comes close to achieving the ideal of equal playing strengths. There is ample evidence of long-term competitive imbalance in each league, despite the league rules that are supposedly designed to equalize club strengths. On the other hand, with all their fiaws, the leagues have not only survived but have flourished, with growth in numbers of clubs, in geographic coverage, in attendance and public interest, and in profitability.