Transcript Spectator_Sports

Spectator Sports
Maximise profits?
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Is this the aim of the firm? It depends on:
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Who are the owners?
Who controls its behaviour?
Distinct
Firm may therefore deviate from profit
maximisation
Is sporting success put ahead of profit?
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Wages & transfer fees too high
Public limited companies
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Football clubs have become plcs
Injection of cash with shares sold on the
Stock Exchange
Funds used for investment in stadiums or
acquisition of better players
Majority of shares purchased by financial
institutions rather than fans
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Conflict of interest?
Market for spectator sports
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Heavily segmented
Golf is poor substitute for football!
Within a sport, substitutability is weak – fans are
loyal to football clubs
Monopolistic competition?
Substantial monopoly power for some providers of
spectator sports
– charge high prices without fear of losing customers to
competitors
 Competition comes from outside the market
Supporter Trusts
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Group of fans form a trust, recognised by law
Influence management of club through share
acquisition
Ultimate aim is to become majority shareholder
Government help through Supporters Direct scheme
– official recognition of importance of sports clubs to
local community
Profit maximisation unlikely to operate at club run by
Supporters Trust
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Lincoln City – forbidden for any official or member of club
to profit from the organisation
Cooperation
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Team sports require cooperation between
different providers
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Leagues
Cup competitions
League or cup may become a brand in itself
Admission Prices
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Substitutability is low, therefore demand will be
inelastic
Competition unlikely to exert downward pressure on
prices
Supply of tickets is completely inelastic – quantity
determined by the number of seats available in the
stadium
Price below equilibrium price:
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Sell outs
Demand higher than seats available
Maximum price
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Also known as price ceiling
Desire to keep tickets affordable to genuine
fans?
Ticket rationing other than by price
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First come, first served
Limited number per customer
Lucky ballot
Preference to regular customers
Sources of revenue
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Admission fees to matches/events
Sponsorship
Advertising (e.g. hoardings around perimeter of pitches)
Umbro – manufacturers of England kit until 2014. Deal worth
around £200m of revenue to the Football Association
Television revenues – bidding process to televise matches (of
digital channels)
Total value of contracts to broadcast live matches is £1.7 billion
for 3-year period beginning 2007/08 season
Influence of TV has increased
Sale of replica kits
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2003 Umbro found guilty by OFT to fix prices
of replica football kits at artificially high prices
– heavy penalties imposed
England & Man U kits – Umbro withheld
supply to retailers wishing to sell below the
RRP, thus preventing price competition
Lack of information may lead consumers to
pay more than double the price charged by
the cheapest retailer
Monopoly selling of television
rights
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FA Premiership clubs sell rights to broadcast
matches collectively – acting as a joint monopoly
Reduces supply & raise price of televised football
1999 court ruling that current arrangements did not
act against the public interest
European commission has forced FA to divide
matches into 6 packages of 23 matches – BSkyB’s
monopoly power has been broken (Sky is still
dominant)
BSkyB & Manchester United
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1999, merger blocked on recommendation of
Competition Commission
Would have been an example of vertical integration
3 distinct threats to the public interest:
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Merger would enhance BSkyB’s ability to secure Premier
League TV rights in the future which would act as a barrier
to entry
Reinforce trend towards greater inequality of wealth
between clubs
Would give BSkyB additional influence over Premier
League decisions
Mobility of labour
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Bosman case 1995, European Court of Justice ruled
that the practice of football clubs charging a transfer
fee for players was a restriction on the freedom of
movement of footballers
Charge whilst under contract, but illegal when
player’s contract had expired
Players can move anywhere in Europe on a ‘free
transfer’ at end of contracts
Exception is for players under 24 to encourage
clubs to invest in the development of young players
Players wages
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Bosman ruling has led to higher salaries –
clubs spend money on wages rather than
transfer fees
Demand for footballers at any given salary
level buoyed by vast revenues from TV &
sponsorship
Strictly limited & inelastic supply of players of
sufficient quality to play football at a high
level
Government funding
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Sport is a merit good, carrying greater social
benefits than private benefits
Under-provided in a free market
Argument applies more clearly to
participation – health benefits
Positive externalities include:
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Value of club to local community
Stimulus to encourage further investment