The lowest position a champion has finished the following season in La Liga was 7th (Valencia 2004-2005) while Werder Bremen (1993-1994) and Wolfsburg (2009-2010) both finished 8th the year after being crowned champions. While approximately 80% of champions in the EPL have returned to win the league or finish runner up the the next season, this rate is lower for La Liga (60%)  and Bundesliga champions (50%).

Something has definitely gone wrong for Mr. Mourinho. In my view Chelsea's fall is a product of many factors coming together: underperforming or burned-out stars, the sale of key personalities in the summer,  aging defenders, transfer failures (not securing the signing of John Stones), fielding young talent that may not  be quite ready, public relation disasters with staff and injuries to key players (such as Costa and Courtois) have all contributed to the 'crisis' .  While the stats would indicate that the champions may well bounce back from 16th, could Chelsea manage to finish worse than 7th?

By David Butler

The latest Deloitte Annual Review of Football Finance can be found here. Some key points that are good for the Premier League are below - revenues are increasing, wages and revenues are coming closer together again and debt is being reduced.

1. “Record Premier League revenue of £3.26 billion represented a £735m (29%) increase on 2012/13, due to 2013/14 being the first year of the current broadcast rights packages”

2. “The overall Premier League wages/revenue ratio fell dramatically to 58%, its lowest level since the 1998/99 season”

3 “Premier League clubs’ aggregate net debt reduced to £2.4 billion in 2014, with record levels of cash now present in balance sheets”

Deloitte predict future growth in the industry.

By Robbie Butler

I’m sure there are very few football matches, let alone Premier League football matches, that have their own Wikipedia page. However, recently I watched a game between Liverpool and Newcastle and thought these clubs might be an exception. The teams provided what most people agree is still the greatest Premier League game of all time, on the 8th of April of 1996. And yes, the historic match, does in fact have its own Wikipedia page. 

While the match was a classic from start to finish, involving a seesawing score line, which eventually culminated in a last minute winning goal by Liverpool’s Stan Collymore, it also demonstrates the internationalisation of both Liverpool and Newcastle, and by extension, the Premier League over the past twenty years. 

Below I provide two graphics to represent the nationalities that were represented during the matches in April 1996 and April 2015.

In recent weeks this blog has written pieces on FA plans to limit the number of non-EU players playing in the Premier League. It is clear for the graphics above however than non-EU players are not the problem; EU based players are. 

In 1996, 77% of the starting 22 players were English, 18% were from current EU states, with just 5% from a non-EU country. Fast forward 19 years. Just under one-third of the starting 22 are from England (32%), 55% are from EU states, while 14% are from non-EU countries. The most dramatic rise has not been from outside the European Union, but from within.

Given the structure and objective of EU labour laws it's very difficult to see how changes could be made to protect home grown players without undermining the very essence of the European project - freedom of movement.

By David Butler

Some weeks back it was announced that Tottenham Hotspur Football Club were free to build a new stadium after Archway Steel, a local business, dropped its legal challenge against the club.  The sheet metal manufacturing firm has been in an on-running legal dispute over the redevelopment plans at White Hart Lane. Recently the High Court in England rejected a challenge by Archway Steel over a compulsory land purchase granted to Tottenham. Archway Steel then dropped its legal action and entered negotiations with Tottenham.  On the 31st of March Tottenham reached a private deal with Archway Steel.

This is interesting in light of the Coase Theorem. In his famous 1960 article, The Problem of Social Cost, Chicago Economist Ronald Coase provided us with a means to understand an interaction like this.  While Coase is credited with this theorem, he didn’t name it and it is not really a theorem per se. The idea can be traced to Adam Smith and a standard bargaining solution in Economics was formalised by John Nash in 1950. In a nutshell what Coase did was make the crucial connection between institutions, transaction costs, and neoclassical theory.

Coase implied that if there was well defined property rights between two parties, such as Tottenham and Archway Steel, and that both could bargain without cost, then the private market would solve the problem. Even though an externality exists (Tottenham imposing costs on a private business) both parties have a shared interest in finding a solution.

The first half of Coase’s 1960 paper suggests that in these incidents resources will be allocated efficiently if negotiations take place, meaning that they cannot be rearranged in another way to make anybody better off while not harming others. He implied that this will happen regardless which side the law is on. Simply put, everyone has their price – Tottenham can pay Archway Steel to keep quiet or Archway Steel can pay to Tottenham to halt their plans. The structure of the law only determines the division of the value. If we take all of our standard assumptions regarding how individuals make choices and how markets operate, bargaining can actually solve the problems - no third party is required.  

Of course, Coase then went on to show the essential irrelevance of his argument given that markets are not frictionless and transaction costs associated with bargaining are pervasive.  As Professor Steven Medema, an expert in the work of Ronald Coase puts it, the theorem is a ‘logical fiction’ - it is purely intuitive, not amenable to mathematical proof but is logically sound.

Our initial reaction to the Tottenham vs. Archway case is often to look toward the law to see who has the rights. Cases such as this can often be framed as the 'poor little guy'. Thinking about the problem through the Coase theorem gives us an alternative way to reason and shows us how externalities are reciprocal – if Tottenham were prevented from building their new stadium, their utility sure would be diminished too.

Usually the Coase theorem allows us think about world that doesn't exist but in the Tottenham vs Archway case we have a neat real life event to think about the theorem (that's pretty similar to the examples used in the textbooks). For more of this on a similar theme, John Considine recently spoke about  the Chicago School of Economics and Chelsea.