The Economics of Football and the Curious Case of Club Governance

The present post diverts slightly from its usual reference to specific issues of sports law and refers its readers to more generalised concepts of football governance, by focusing on club policy and decision making, regarding  player recruitment/evaluation. Inevitably, the analysis draws on the importance of the doctrine of commodification and considers how such doctrine affects the internal relationships in a club, as well as the club's relationship with its fans and supporters.

One would be hard pressed to deny the validity of the argument that football is a commodity. Consequently, those in charge of football clubs, see player recruitment and evaluation as a major part of the club's decision making, simply because the players (assets) will determine the profitability of the business (football club) in the short term, as well as in the long term. Although economic trends in the earlier years and specifically during the 80s and 90s may suggest that football clubs in England would focus primarily on the win maximisation doctrine, similar trends in the current economic climate point towards an adaptation of the profit maximisation doctrine. 

In the premises, it is suggested that any comparison between win maximisation and profit maximisation, particularly in the long run, may not yield safe results, as the policies and decision making of a club may change from one season to another. It is arguable that the main revenues of a football club come from broadcasting rights, ticket sales, merchandise and general and specific sponsorship opportunities. As such, club owners would seek to maintain a profit maximisation principle, in a very similar fashion witnessed in American sport where decision makers would seek to apply profit maximisation through different commercial activities. We have been witnessing such trend, in the last few years in the Premier League in England, and this is a trend that is likely to continue in the coming years.

The above analysis suggests that although club owners may be prepared to take some losses in the short term (this may not be the case where the business medium/vehicle is subject to demanding loans secured against the club's assets), it is submitted that in the long term, club owners would seek to maximise profits, via a series of different commercial activities that relate to the performance of the football club. Inevitably, acquisition of assets (players) would demand higher expenditure (save where there is ample academy talent) and, in essence, club owners would want to see a considerable return in such investments. Although, profit maximisation may be dependent upon performance of assets on the pitch, nevertheless, any such asset acquisition would demand consideration of its future sale value. Consequently, the decision making of a club owner may be in direct conflict with that of the club manager/coach.

This inevitably points towards an important consideration that relates to club governance. Old traditional club governance was indicative of the club owner/president's influence in the player recruitment, whereas in more modern times the club manager/coach is free and solely responsible for football matters, including player recruitment. We have recently seen, however, that the old traditional style of governance may severely influence the relationship between a club manager and its owner. Although the club manager, by definition, is/should be the sole person with responsibility for player recruitment, the club owner may veto the manager's plans and requests, by citing, club 'traditions', focus on youth development and future sale values. While all these principles cannot be dismissed at face value, success on the pitch cannot be determined by what the club owner considers to be appropriate off it. If that was the determinative factor, the role of the manager would move towards redundancy.

Moreover, there may be the case where the manager's frustration,  for missing out on specific recruitment targets, is aired in a public manner. A prudent advice here would be for the manager to refrain from channeling such frustration via the Media. Those interested in football and its governance know very well that it is hardly ever the case that a manager negotiates on a player's transfer. It follows, therefore, that failure of the club to acquire a player does not rest with the manager, but with the person who is responsible for such negotiation, who is usually the CEO and/or its advisors/negotiators. Similarly, a club must never expose the manager publicly and veto his recruitment plans in a public manner, solely in an attempt to justify its decision not to meet with such plans. Such disagreement must remain private and must be clarified via the existing internal mechanisms. 

In addition to the above, one must be very careful with the 'information' they supply to the Media, particularly when such information produces several demonstrable flaws. For example, they may argue that there had been no discussions over a particular player, when in fact, a number of different people are aware of the argument to the contrary, as well as of the particulars of the potential agreement (especially when the selling club had reduced its demands considerably). In a similar light, one must be careful not to underestimate the intelligence of people by making reference to the playing capabilities of existing staff and the ones the manager demanded for acquisition, in an attempt to justify his/her failure to acquire the latter. It is one thing relaying to the manager, in private, that the players he has are good enough to win titles and he has to prove his worth by bringing the best out of such players and it is another thing showing to the world that you know better than the manager. 

Arguably, there is a dichotomy of responsibilities and expertise, where one is able to complete business deals, including player transfers, off the pitch, and where the other is able to produce success on the pitch. In a similar light, if you boast that you are able to attract the bigger names, you should be able to deliver them too. It is not good enough saying that you can do great things in the transfer market, where the facts and the evidence clearly demonstrate that you cannot. It follows, therefore, that internal disagreements must never see the light of the day and become the subject of public scrutiny, as such disagreements indicate a certain level of incompetence and have the potential of affecting relationships on and off the pitch. 

Finally, the present analysis also demonstrates the differences in football governance. Such deferences, consequently, determine the application of a particular economic model, which, in turn, demonstrates the real intention of those running a football club. It is arguable that private ownership of a football club  takes away democratic values in the decision making and precludes social inclusion. The latter also supports the probity of the argument that football fans/supporters are powerless in facilitating changes in their beloved football club and are left outside any decision making mechanisms, despite the fact that they are the power that determines the history, the present and the future of such club. Although allowing fans/supporters to be part of the decision making (or even ownership, by creating supporters' trusts) can never be part of a club's private ownership, it is, nevertheless, valid to suggest that such supporters' ownership may be a workable solution. 

The above may lead one to conclude that sometimes fairness and convenience are at odds; in this case, where decision making and club governance via the involvement of fans/supporters are concerned, they speak with a single voice...

Dr Gregory Ioannidis*

12 August 2018

*Dr Gregory Ioannidis is a sports lawyer and an anti-doping litigation expert. He is a former The FA registered lawyer and has acted for and represented many players and clubs around Europe, Africa and Asia. He is currently the Course Leader of the Master's Programme LLM International Sports Law in Practice at Sheffield Hallam University and an academic associate at Kings Chambers in Manchester.