We would like to take this opportunity to wish all our readers a very happy and peaceful Christmas.Here's to a prosperous 2015!
The Economics of Sport Team.
We are taking our usual winter break. Posting will resume in early January.
We would like to take this opportunity to wish all our readers a very happy and peaceful Christmas.Here's to a prosperous 2015!
The Economics of Sport Team.
By Robbie Butler
Chapter 18 of The Oxford Handbook of Sports Economics (Volume 2) is written by Peter von Allmen and is essential reading for those interested in the multiplier effect and the local economic impact of sport.
von Allmen (2012) commences the chapter by saying:
“projects that promise to generate substantial increases in income and employment effects are likely to garner widespread public support”.
This is often thought to be the case with sports franchises and sporting events. However, many studies have been carried out to date which all find clear evidence of little or no net gain from the presence of sport related activity in a city, state or country. Despite this evidence, many people espouse the opposite view and maintain that sporting events can generate a net gain to the host economy. According to von Allmen, this standpoint is often reliant on ex ante impact studies, funded by the interested parties
“that (mis)use economic tools and terminology – most notably the multiplier effect, - to explain why investment in [sports] facilities” will lead to an increase in incomes across the economy.
The multiplier is the increase in economic activity that follows from an injection into the economy. von Allmen suggest that hosting a major sporting event has two forms of initial expenditure; construction e.g. stadium construction, redevelopment, etc. and operations e.g. match day activities. According to investigative work by both Crompton (1995) and Hudson (2001) construction is likely to generate no net gain. There is simply either an increase in the national debt to pay for construction costs or an increase in taxes to fund the cost. There is also the opportunity cost to consider (what else could have been done with the money?).
Multiplier effects from operation are often overstated too. A common misnomer can be put down to consumption on match days. If spending increases in bars, restaurants and pubs near to constructed stadium, advocates often suggest an increase in economic activity. This is often not the case but rather a substitution effect. If local citizens decide to spend their money on these activities other vendors, away from centralised locations, are losing out. Leakages are also apparent on match days. Is all money spent staying in the domestic economy? The answer is often no. Should a supporter decide to buy a replicate shirt made by a foreign manufacturer, a large proportion of this spending does not stay locally but is instead repatriated back to the manufacturer’s home country. Crompton (1995) and von Allmen (2012) point out that
“increased spending (i.e. sales), however, does not necessarily mean increased income”.
Food for thought...
By David Butler
It’s a tough time for Arsène Wenger. Arsenal are performing poorly relative to their expectations in the English Premier League and there has been two notable unsavoury interactions between Wenger and the Arsenal fans. The first was the rather callous but profound banner – “Arsène thanks for the memories but it’s time to say goodbye” held aloft at the Emirates. Then there was the viler dealings that Wenger had with Arsenal fans as he boarded a train following a defeat at Stoke. Footage of Arsenal fans heckling the manager at the platform can be viewed here. Wenger, on the other hand, has told his critics to judge him at the end of the season.
What does the data say in regards to making it through the season unscathed as a manager in English football?
In the updated Handbook on the Economics of Professional Football released last month Professor John Goddard, someone whom has written extensively about the economics of football, has a chapter that analyses the patterns of managerial change in the English Football League from 1972 to 2013. His dataset covers 1804 managerial spells. An interesting table in his chapter details the month in which ‘involuntary’ managerial departures occurred. These involuntary departures are defined as dismissals that were instigated by a football club (the traditional sacking!) and also include managerial resignations that were fuelled by no obvious reasons other than poor results. Below is Professor Goddard’s data presented in a graphical format and shows the variation in these dismissals by month*.
Since 1972 English clubs have a preference for dismissing their manager in the close season. As expected, August is the month that fewest managers are dismissed. Dismissals decline in April and May (combined in the data); again, this would be expected as clubs may either have ditched an underperforming manager already or are waiting to the end of the season to part company.
Taking account of both voluntary and involuntary managerial change Goddard notes that October, after approximately a quarter of the season, is the peak month for within season managerial change in English football. For this season the 7th to 9th round of fixtures were played in October. For me, this reaffirms that the start of a season is the most important period for a manager.
As we are now in December this is perhaps good news for EPL managers who have avoided the axe. Alternatively Mr.Wenger's call to judge him at the end of the season may not necessarily be a good thing either, unless results improve; after all 25% involuntary departures have occurred during the off season.
The data for this chart was taken from Chapter 16 - The Football Manager, by John Goddard that is in the 2014 edition of the Handbook on the Economics of Professional Football,
By Paul O'Sullivan
While last week saw the launch of Ireland’s prospective RWC 2023 bid and much discussion of related issues like how exciting it will be, how many tourists will come to these shores and how much it will cost, etc., it also saw the release of ‘Three Inspirational Days’, an analysis of the economic impact in the UK of hosting the opening three stages of this year’s Tour de France. Media reports of the study are here and here.
Given past studies of the economic benefits of various sporting events and investments, my expectations for a reasonably accurate estimate were not high. To be fair, however, the report does seem to make a genuine attempt to accurately measure the economic impact, defined as the ‘additional expenditure generated within a defined area as a direct consequence of staging the event’. Firstly, the report states clearly that “The spending of local residents viewing the race where they live is not counted, and neither is the spending of those that were just passing by, termed ‘casual spectators’”. This is a correct starting-point, though it is not clear whether the report considers ‘time-switchers’, those who had planned to visit the relevant areas anyway at some stage but re-arranged their visit to coincide with the Tour. Such individuals should also be excluded from any analysis (except if they spent more while visiting the Tour than they would have at any other time, and only then it is the extra spending that should be included). Also, any possible future effects due to increased tourism and investment are not included in the final figure.
The headline findings of the report are that 3.5m ‘unique’ spectators attended the event over the three days. Of these, 1.3m spectators were from outside the ‘host regions’ of Yorkshire, Cambridge, Essex and London, including 113,000 from outside the UK. The direct economic impact on the ‘host regions’ is estimated at £128m, with an overall UK impact of £33m (the latter figure accounts for the £4m paid for the rights to host the event). Given these, one could infer that there was a £91m substitution effect within the UK.
A number of issues are not clear from the report as it stands. Firstly, while economic impact is important, the true measure of an event’s value is how the direct impact compares to ‘business as usual’ in order to determine the net effect. For instance, the report asked many businesses to compare sales before, during and after the Tour stages to ‘normal’, without stating what normal is. An accurate measure would compare sales outcomes before, during and after the event to an identical period in previous years when the event did not take place. Also, visitors during the Tour may have ‘crowded out’ the usual visitor numbers that would have visited had the stages not taken place, so that the net effect is lower.
The second issue is who bore what costs of hosting the stages. The report talks of £27m being spent but says nothing on whether this spending was within or above any budget. Of this, it seems that £10m is a contribution from UK Sport via national Government. According to the BBC report above, host region local authorities spent £11m of the event’s $27m budget. An important question is where did these monies come from? If from central local and national government, then that is money that could have been spent on something else. While the opportunity cost effects may not have formed part of the report’s remit, any true economic impact study should account for this. Another issue is what counted as direct spending. If, for example, a road on a stage route was resurfaced but would not have been were the Tour not to have taken place, is this included in costs? This is not clear from the report.
As well as the above, an issue alluded to repeatedly but not directly measured in the report is the ‘feelgood’ factor. There seems no doubt that hosting and attending the Tour was something that brought happiness to many people and, ideally, would be included in any benefits.
By Aidan Moynihan
The group stage of the UEFA Champions League will be completed this week. The eight group winners and eight runners up will progress to the next stage, where the competition becomes a knockout competition. Of the eight groups in the 2014/15 season, there are currently four groups which have already been won after five games. With one game remaining, Real Madrid, Bayern Munich, Chelsea and FC Porto each command a lead of greater than 3 points over the second placed team in their respective groups.
The group stage was first introduced into the competition in the 1994/95 season. Over the course of the following 20 seasons there were 160 groups. On 51 occasions there was a clear group winner decided prior to the final game. On 12 of these occasions the group winner had actually been confirmed after four rounds of games. How did these teams perform in the last round of games?
Taking the 51 times that a group winner had been determined before the last round of games, the group winner had obtained an average of 2.45 points per game. In the last round of games, these group winners obtained an average of 1.47 points per game. Prior to being confirmed as group winners the teams in question won 81% of their games and lost 3% of their games. In the last round of games the win percentage collapsed to 43% and the loss percentage jumped to 38%. Incentives mater.
This season both Bayern Munich and Real Madrid had guaranteed qualification as group winners after four games. Bayern Munich lost their game in round 5 while Real Madrid won their game. This week's game will reveal more.
By Robbie Butler
News broke on Friday that the island of Ireland is to officially bid to host the 2023 Rugby World Cup. The IRFU has formally announced it's intention to submit an all-Ireland bid, which if successful, will see venues on both sides of the border used to host the biggest rugby event on the planet. If Ireland is successful in attracting the tournament here in nine years time what a wonderful day that will be, for not only Irish sport, but cross-border relations on the island.
Already there has been speculation as to how much the event might cost, how much the state may have to pay and what the economic impact might be on the island.
Major sporing events like these rarely, if ever, generate an economic surplus for a state, create sustainable long-term employment or even dramatically increase tourist numbers. I have written and spoken extensively, both national and internationally on this here, here, here, here and here.
There will be winners of course, the biggest one being World Rugby (formerly International Rugby Board), but this tournament, if it comes to Ireland, will cost the state money.
It's like throwing a big party, the biggest this country has ever seen. Anyone that's ever thrown a party will know you don't make money from them. But what fun it will be.
by Declan Jordan
It is expected that the Irish Rugby Football Union will announce its bid to host the 2023 World Cup today. This will be supported by the Irish government and will also involve support, in the form of providing stadiums, from the GAA.
We have had several posts about the proposed bid. This post just over a year ago by John Considine looked at the context of bidding for major tournaments. It refers to the release of a report supporting the bid that was expected at the time. A subsequent post however revealed that the IRFU and the Minister were unwilling to publish that report. This report has still not been published but perhaps today's launch will provide the evidence supporting such a bid and the assumptions around visitor numbers and commercial opportunities that have been made.
Robbie Butler refers to literature on the effects (economics and wellbeing) of hosting major sporting events in this post and comments. There several posts on the hosting of major sports events including the problem of optimism bias here and the difficulties involved in measuring their impact here. These posts here and here also look at the winners curse problem in winning bids for major events - they consider the Olympics so perhaps the threat is less severe for a smaller event like the Rugby World Cup.
Paul O'Sullivan has an interesting take on the role and benefits to the GAA of supporting the World Cup bid here.
By Robbie Butler
The Official Premier League site is one I visit regularly. It's an excellent resource for those interested in the English Premier League and also provides a link to the the league's official fantasy football site. Fantasy Premier League is great fun and a super way to test your managerial skills against that of your friends and strangers registered on the site. Above all though, the site provides a list of statistics that can be very useful when measuring the performance of a player.
As you might expect, the top scoring players this year are Sergio Aguero, Alexis Sanchez and Cesc Fabergas. Other high scoring players include Southampton players Nathan Clyne and Graziano Pelle, and Swansea's Gylfi Sigurdsson.
Not surprisingly, few Liverpool players appear. Only Raheem Sterling can be seen on the list of top players. This (sadly for me) is a far cry from last season when Luiz Saurez, Daniel Sturidge and Steven Gerrard all appeared regularly on the weekly Dream Team. A closer look at the eight new Liverpool signings that are available on Fantasy Premier League will explain Liverpool's sluggish performance this year. I present three illustrates. The first two show the fictitious value Fantasy Premier League places on each player, broken into two sets; defensive players and attacking players over the course of the season so far.
To a man, each of the eight signings have seen their value decline over the course of the past three months. It would appear all eight are under-performing or were over-valued to begin with. Whichever you prefer.
The third illustrates the net transfer of each of the eight players, on a weekly basis, over the thirteen Premier League games. Assuming the wisdom of crowds theory holds, one would expect that users would be very adept at picking the 'in-form' players. Since the beginning of the season there has been a marked move away from some of the eight new signings. The graph below attempts to illustrate this.
Balotelli's arrival sparked interested with lots of users signing the Italian striker. Following Liverpool's 3-0 over Spurs in August users opted to sign both Moreno and more opted for Balotelli in the week that followed. However, since then there has been a dramatic shift away from the players, particularly Dejan Lovern.
These results were complied before Tuesday night's win over Leicester but it is interesting to note that of the eight players Roger's signed less than half started the game.
By David Butler
Black Friday was marked by consumer hysteria across the UK last week as shoppers searched for a bargain. When the transfer window opens up next month, there will be an opportunity for football clubs across the UK to pursue deals for new personnel. Clubs are often praised for ‘having a good window’ – meaning that they buy and sell wisely in the transfer market and avoid panic buys. Here I try to identify the best deals in the summer 2014 window.
To provide a basic analysis we need three key pieces of information. 1. Data concerning the number of transfers that took place in the last window. 2. Data that provides a measure of performance for each new signing and 3. Data for the transfer fee paid by the buying club, to a give a proximate measure of what kind of ability we can expect from a player. Data on last of these three variables is the most difficult to acquire as Premier League clubs rarely disclose a transfer fee. Usually we are left with estimates.
1. According the EPL, there was 167 transfers inward to the twenty clubs in the summer 2014 window that closed on the 1st September 2014. This list contains players that moved for a transfer fee, players that transferred on loan deals and players that registered to an EPL club as free agents as they were unattached.
2. Since the start of the season, the performance of these players has been measured by the EPL. The statistics for player performance in the league assess a player's contribution to their team and allocates them performance points based on their proficiency in individual matches. A player is awarded points for positive contributions such as goals scored, direct assists, blocks, clean sheets, shots, clearances, saves and accurate passing. Equally points can be taken away for negative actions such as poor discipline, shots off target and misplaced passes.
3. Finally, an estimate of all the transfer fees is provided (in Euro’s) by the website transfermarkt.com. This website estimates market values and provides data on historical transfer fee's.
Below are three tables of the top performing transfers of the last window in the EPL (as of 2nd of December) - starting with those transferred for a fee (table 1.), followed by loan transfers (table 2.) and finally free transfers (table 3.).
Table 1. Alexis Sanchez is the number one performer this year of those transferred for a fee. Given his price tag this is not entirely surprising - so he could hardly be labelled a bargain. Gylfi Sigurdsson and Graziano Pelle seem the bargain buys given their performances; both were transferred for approximately €10m. At €6m Daryl Janmaat's move to Newcastle also seems to be good business. In terms of the cheapest buy, Fraizer Campbell's move to Crystal Palace at €1.14m seems very successful, with the Englishman collecting 38 performance points to date. Finally, West Ham have also made some good signings, having three players in the top twenty list, two of which cost ‘only’ €5m each.
Table 2. In terms of loan deals Southampton have done by far the best business with their loan deal for Ryan Bertrand. Toby Alderweireld also looks good loan business by the Saints. Andre Wisdom's performances for West Brom means that he comes in second on the loan list.
Table 3. Swansea's signing of Lukasz Fabianski has proved to be the best free transfer in the EPL. The 29 year old Polish keeper has performed well since his arrival. Outside of this West Brom, Everton and Stoke have signed smartly, all having two free transfers in the top 10 performers of the free agents.
In terms of flops, things are not good for Tottenham; Michel Vorm, Benjamin Stambouli, Federico Fazio, Ben Davies all fall in the bottom 20 performers who were transferred for a fee and have a combined performance total of 7 points but cost the club approximately €34.25m. In terms of the individual ‘big money’ flop Lazar Markovic is the clear candidate, costing Liverpool approximately €25m and amassing a performance score of only 5 points to date. Liverpool and Tottenham have both spent substantially on players who do not get game time in the EPL.
While this analysis is relatively unsophisticated, as I don’t control for time on the field of play, injuries or when a move occurred, we still get an interesting insight, that pretty much corresponds to the court of public opinion - Sanchez, Fabregas, Costa and Di Maria have all been successful signings for their respective clubs so far.
By Paul O'Sullivan
News broke recently that the UK telecoms regulator, Ofcom, on foot of a complaint by Virgin Media, is to investigate the selling of audio-visual TV rights for Premier League (PL) games (see Ofcom statement here). Virgin’s argument is that the collective selling of PL TV rights is anti-competitive as it restricts the number of games available for live broadcast, leading to less choice and higher prices for consumers.
The Premier League’s argument for collective selling of TV rights is that it allows a more equal distribution of TV rights revenue across clubs than would individual selling, whereby the bigger clubs would be able to sell rights to their own games at a much higher price. While this may be a laudable goal, it is not clear why this should be the way to minimise any revenue imbalances. Other sports use measures like sharing gate-revenue and salary caps. Also, in principle, all clubs could share individual TV rights revenue. As well as this, the number of games broadcast live is restricted and no game can be shown at the traditional Saturday 3.00pm slot for fear that it may impact attendances at other PL games and those in lower Leagues.
Up to 2007, all live PL matches were shown exclusively by Sky. Following a European Commission investigation, from 2007 the PL divided games into packages and no one TV company could purchase all packages. Currently, Sky has exclusive rights to 116 games, with BT having the remaining 38. While there was an increase in the number of TV companies providing live TV coverage of PL games, what effectively happened was that one monopoly was replaced by two, as both Sky and BT has exclusive rights to individual games. It could be argued that this greater ‘competition’ made some consumers worse off. Fans with Sky subscriptions now had to purchase two TV sports packages to watch the same number of games as before, or had to find some other way of accessing BT games. Robbie Butler outlined his experience of this issue in a previous post.
One major effect of the entry of BT into the market is that the value of domestic TV rights increased by over 70% to £3.02bn, providing a huge windfall for the monopoly that is the PL. As expected, greater competition for TV rights for a fixed number of games increased the price of those games. The PL’s revenue increased due to competition for the market but not within.
Where the Premier League’s selling of TV rights is anti-consumer is not in its collective selling per se, but rather in its granting of exclusive rights to individual games to one particular TV company. Consumers have no choice but to consume a particular TV station if they wish to watch a specific game. This paper by Harbord and Szymanski outlines how the pay-TV market could be made more competitive. Their main recommendation is that “… not only must the rights not be sold exclusively to a single broadcaster, but the same rights should licensed nonexclusively to multiple broadcasters…” Only then will there be effective competition in the TV market as TV companies compete to sell the same game to consumers. While there are other issues that are raised by such a proposal, I will not discuss them here.
It is likely that the PL would be against any such outcome on the basis that it is not in the interests of the game as a whole, nor for the PL’s bank balance. Similarly, the pay-TV companies would also likely oppose this outcome as the benefit of lower prices for TV rights could be more than offset by a reduced number of subscriptions, especially if free-to-air channels manage to acquire rights, but also in reduced subscription fees if in direct competition with each other. Whether Ofcom’s investigation will benefit TV viewers remains to be seen.
This website was jointly founded in July 2013 by David Butler, Robbie Butler, John Considine and Declan Jordan. All four founders are Lecturers in Economics at University College Cork, Ireland.
The website is not formally affiliated to any institution and all of the entries represent the personal views and opinions of an individual contributor. The website operates on a not-for-profit basis. For this reason we decline all advertisement opportunities.