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January 27, 2016 - Image 13

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Wednesday, January 27, 2016 // The Statement
6B

MONEYBALL:

by Karl Williams, Managing Statement Editor

F

rom the standpoint of an economist, it’s
often difficult to measure the financial
performance of a company in relation

to the quality of its product. But sports offer a
remarkably clear competitive market — there’s
no ambiguity whether a team wins or loses.

While the performance of the players on the

field determines a team’s success, thousands of
economic factors determine how those teams
get their players. Unlike in the American sports
industry — with the exception of Major League
Baseball — where teams share revenue through
a salary cap, European soccer clubs lack such
a system. The system, inevitably, leads to
inequalities among teams — only a handful of
teams dominate their respective leagues. These
teams, in turn, dominate the most prestigious
European competition, the UEFA (Union of
European Football Associations) Champions
League.

Research into what makes teams succeed

and fail — both on and off the field — continues
to grow. Various factors, such as players, stadi-
ums, revenue, debt, taxation, regulation and so
on, all determine whether or not a team will be
able to compete.

Kinesiology prof. Stefan Szymanski has been

one of the leading researchers in this growing
field. His research, which can be seen in books
such as “Soccernomics” and his latest book
“Money and Soccer,” attempts to explain on-
field performance through the lens of finance.

Though born in Nigeria to a Polish father and

English mother, Szymanski has spent most of
his life in London, with the exception of his col-
lege days in Oxford, where he studied politics,
philosophy and economics, and his time as a
professor at the University. Growing up in Eng-
land, Stefan Szymanski has always been a soccer
fan (his favorite team is Scunthorpe United), but
it wasn’t until he began graduate school at the
London Business School that he began to seri-

ously study the economics of the game.

“What I was really doing was research about

markets and industries, so really understanding
how firms relate to each other in an industry,
how competition works between firms, what
makes for better outcomes or worse outcomes,
how to evaluate policy and those kind of things,”
Szymanski said. “And I really got into it through
a group of us who were trying to find out how
certain groups were successful.

Soccer, he added, seemed like a good exam-

ple because there were many clubs, but few
with continous success. “We were trying to
understand that,” he said. “With sports though
it’s actually crystal clear — you know who won
the league, how many people went to watch the
game, so in that sense it’s actually much easier
to tie in financial performance with visible met-
rics of performance which reflect consumer
interest.”

Szymanski began his research into the

industry’s economics right when things were
beginning to change within it, especially in the
U.K. During the 1980s, soccer was not a partic-
ularly profitable sport, and Margaret Thatcher,
then prime minister, even considered banning
the sport because of hooliganism and stadium
collapses. Many believed the industry was one
of decay, not growth. Since then, profits have
soared, and the industry has become incredibly
lucrative.

How did such a drastic change occur?

According to Szymanski, because of a collec-
tion of fortunate circumstances. First of all, the
broadcasting environment changed — Premier
League clubs’ revenue increased through deals
with television broadcasters.

“The Premier League was able to generate

very large increases in revenues from domestic
viewers who wanted to watch this as the rights
were given to cable TV,” Szymanski said.

Furthermore, over the last 20 years or so,

international broadcasting, which is distributed
equally among teams, has become an increas-
ingly important part of revenue, approaching
nearly half of the total.

But the change in broadcasting was not the

only factor to change the game’s financial land-
scape.

“Other factors are that there was a lot of

interest from overseas in investing in English
soccer clubs, and partly that had to do with the
fact that the U.K. is a relatively easy place for
foreigners to invest in,” Szymanski said. “It’s
been a relatively welcoming environment for
that.”

He added that the clubs’ global recogni-

tion also played a role. “It’s also to do with
that the U.K. soccer clubs have global recogni-
tion. That’s partly because of the old empire,
and people knew about soccer going back a
hundred years. And the other thing is the time
zone — people can follow English soccer games
because the times they’re played at make them
accessible both in the Far East and the United
States. And, again, that’s a real advantage if
you’re trying to sell a sport.”

While in America one can expect a certain

level of parity among teams in most leagues —
which is mostly due to the salary cap that most
leagues employ — European soccer leagues are
almost shockingly unequal. For example, over
the last 25 years in Spain, either Barcelona or
Real Madrid has won La Liga, the Spanish soc-
cer league, 21 times. No American league — not
even the MLB — features such dominance by a
few teams. Although there are many giants of
their sports, such as the Yankees and Lakers,
there are no clubs that win with such little com-
petition. While the best teams succeed with lit-
tle to stop them, those near the bottom face the
threat of capitulation. Such disparity, according
to Szymanski, forms a model of dominance and
distress.

But perhaps, as Szymanski notes in his lat-

est book “Money and Soccer: A Soccernomics
Guide,” relative equality among teams is not
a necessity. In fact, Szymanski argues that “It
is simply not clear that fans want a balanced
competition.” In other words, inequality is not
a problem. The dominance of a few teams has
done nothing to discourage fans from watching.

In fact, soccer has been more successful than

ever in generating revenue and interest in the
game. As Szymanski writes, it’s almost para-
doxical how this works.

“It may seem counterintuitive at first, but

open competition with unlimited freedom of
entry has created a system in which only a few
clubs can win consistently. The market works
relatively efficiently, in the sense that money
buys success, and improving teams generate
increasing revenues because they attract new
fans.”

Yet many still believe that inequality is bad

for the game.

“There is this common folk wisdom that

unless a league is balanced, unless all the teams
have a reasonable chance of winning, the league
will become predictable and people will lose
interest, so the league will die,” Szymanski said.
“That folk myth is clung to by an enormous
amount of people, probably most people in the
world think that’s true, but it just factually is not
the case. Leagues can be attractive even if they
have massive amounts of inequality.”

Recently, Szymanski has worked with FIF-

Pro, the world soccer players’ union, on anti-
trust litigation that challenges the transfer
system, a system in which teams buy the rights
to players and currently gives players little
agency. A successful suit would change the way
the game is run financially and, thus, how the
product comes together on the field. But no
matter how the game changes, Szymanski will
be there to explain it.

University professor studies the
intersection between sports and finance

Illustration by Emilie Farrugia

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