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Strengthening of Strongest Leagues and the phenomenon of Self-Perpetuating System

Recently the world economic situation got trembled and faced major recession. Even MNCs and global Corporations were protected by State Bank. Slowly and gradually the economy is being recovered. During these major challenges the worth of European football market grew to €15.7 billion. More importantly the revenue of five major league increased by 3% to €7.9 billion. Germany Bundesliga faced major growth rate in both relative and absolute terms among five major leagues. Nevertheless about 25% of the overall revenue was distributed among 20 mega clubs. There was inequality in terms of revenue and even in terms of payroll distribution.

Strengthening of Strongest Leagues and the phenomenon of Self-Perpetuating System:
Hamil and Morrow (2008) acknowledged that football clubs apparently seems unsophisticated and simple however there exists continuing debate about the intention and rationale behind these clubs. Prominent countries like Wales, England, Ireland and Scotland comprise of legendary clubs owned by private shareholders. For the last 15 years the business has remained financially unstable. Majority of the supporters seem that these are cultural and social institutions and perform as non-governmental organizations to benefit diverse mutually owned organizations. One of the recent analyses of SPL (Scottish Premier League) reveals that after severe losses for consecutive 3 years, they earned 3 million pounds in 2004-2005 and again after one year the business made a loss of £9.4 million. The major portion of the amount is spending on players to gain expertise and the business generally run through debt forgiveness.

Structural Issues:
In UK, the structural organization of football clubs reflects inconsistency. There are several major clubs which earn major portion of the revenue and it is because of two key reasons, namely:

·         Due to emerging television subscription deals

·         Increase in sponsorship income

          Regrettably such a massive amount is distributed among a handful of super leagues and super clubs. One of the recent case in point is of Scotland where major portion of revenue is distributed among Rangers and Celtic clubs. There is no competitive balance and the result is expected and knowable. A self-perpetuating system has emerged where super clubs are more successful since they receive enormous funds and reflect quality performance in the facilities. Some of the supporters consider it as typical and customary and in contrast other consider it as fraud and unethical. Both Celtic and Rangers clubs dominate at the domestic level because of strong finance in hands and it provides them an opportunity to compete with other major European clubs while spending more in improving performance and tactics. Hence elite group of few workers and best club players are considered as the principal beneficiaries of the chief fraction of the revenue. The comprehensive analysis reveals that the structure of private limited clubs performs to protect officers and owners from personal liabilities and since player’s wages have increase therefore clubs are unable to payback debts.

          Today football clubs are more than a business where investors endow with financial, emotional and human capital. Even clubs in SPL contribute to CSR (corporate social responsibility).

Consequences of the structural system:
One of the prominent examples reflects that Gretna football club participated in Unibond league, Scottish cup final and SPL. Later on the business was purchased by Mr. Mileson who earned value for 5 years and afterwards the unwillingness resulted into liquidation of Gretna FC.

           Another example is of Heart of Midlothian which is owned by Mr. Romanov. In 2007 heart club was burdened with 37 million pound debts. UKIO Bankas bank was the sole beneficiary and earned interest on the debt. More importantly Mr. Romanov is the major shareholder in the bank and wants the amount to be repaid. Heart club owns Tynecastle ground and it depends upon Mr. Romanov to take the strategic decision. Similarly Clydebank club was purchased by John Hall. The business faced major ups and downs and it was again sold to Mr. Ballantyne and today it is considered as a junior club.

          In contrary to this primitive limited liability model there are countries which follow different model.  Britain adopted the policy but doesn’t remain committed to it. One of the eminent examples is of Barcelona which is operated by around 142,000 members. Today it does not only focus on football but it has further diversified in basketball and handball games. There are famous Spanish clubs (Real Madrid, Athletico Bilbao), German club (Hamburg), and South Korean club (Afield) and different associations, corporations and local communities affectively participate in the course of development.

Understanding chronological and relative perspective:
Giulianotti (2003) highlighted that there has been structural reinvention and biggest clubs are promoted. The research paper focused on four key factors:

·   Historically non-national players were restricted from European football but this policy went away with in 1995. Increasingly foreign players participated in UK football games and wage rate inflated during the period.

·   Gradually football clubs gained a positive social and cultural image and biggest clubs attracted more sponsors.

·   Origin of digital and satellite broadcasting specifically from a UK channel BSkyB further multiplied the revenue of prominent leagues and clubs through contracts with televisions. In UK alone the overall value of television contracts increased from £9.8 million to £1.130 billion.

·   In 1992, the entire system of European football tournaments got restructured and clubs specifically focused on rich leagues. Previously all national teams participated in European Cup but later on only successful teams were allowed to perform in Champions league. One restriction was that the club must be worth of minimum £10 million in order to qualify and this resulted self-perpetuating system and few rich clubs dominated in the overall society. Prominent clubs from Spain, Italy, Scotland and Germany participated in major leagues where they opted for premiership coverage contract with broadcasting channels and earned a gigantic amount.

Big Clubs bounty:
According to Dixton (2008) the dominance of few clubs in famous leagues will result into lack of participation and interest by society in football. The elites take full advantage of champion league revenue. Few clubs participate in international competition and each club received £4 million from broadcast revenue. Furthermore elite clubs intimidate and threaten for the division of European league. Prior to 1981 television revenue was properly distributed among diverse 92 football clubs. Unfortunately after 1981 the policy changed and home clubs never shared revenue with away clubs and this was the first step towards the formulation of mighty clubs. In 1985 ‘Heathrow Agreement’ stated that 50% of the television revenue will go to first division, 25% to second division while third and fourth division earned the remaining 25%. Later on only £3 million was given to away clubs in which premiership just contributed £1 million and the remaining was added by football association.

Figure 1: Television revenue redistribution policies

         The brief analysis of figure 1 make known that at different competitive levels, each club can opt for three chief priorities i.e. to maintain, improve the position and perform for the betterment of the football games. All the presented models impose some sort of threats to premiership residents. These residents have worsened their position by focusing on model 1 and they are threatening due to model 3 and 4 because this will increase the level of competition and the revenue distribution to shareholder will also get skewed.

Figure 2: Prominent clubs and their revenue distribution

          Figure 2 clear discloses that there is no consensus and majority of the revenue is portion is owned by the top four major players of the leagues. In this case if the television revenue increases then it will give power to those who belong to wealthy benefactors. It will not benefit Newcastle and Tottenham is any pattern.

Hyper reality of television broadcasting and football games:
Avgerinou (2007) highlighted four key aspects:

The impact of television revenue on alternative club revenue sources
Impact of competition and revenue of leagues
Structural and managerial changes in major leagues
Key features of football sports
The increase in overall broadcasting revenue has resulted into increase in salaries of players and worth performance. Meanwhile it has resulted into disproportion and discrepancy between top notch and bottom down clubs. Top clubs own bargaining power against media and make structural change in leagues due to which premier league and super league have been established and certain changes have been made in Rugby football league. Broadcasters are most concerned about the team mergers, fixture of day and time, game rules and team allocation. Although proper results cannot be gathered that whether television broadcasting has increased the numbers of on-premise viewers or not. Several researches stated that it has decreased the number of attendees in the stadium whereas other claims that television broadcasting along with live presence both increase fan interest in the subject.

Is television is an existent triumph:
Blythe (2010) reveals that both Barcelona and Madrid own the highest revenue as compare to other players and this is because of fixtures and television right selling. It further prompted that seven English clubs are counted among the world 20 highest earning football clubs. Redistribution systems are being considered. In Italy businesses are working for collective arrangements and this will surely build a stronger league.

Figure 3: Expenditures in Sports Sponsorship during 1990’s

          During the past two decades numerous sports millionaires have emerged and in this contemporary era television contracts for distinct sports events value billions of dollars. In 1999 around 574 sponsorship deals were signed and about €2.4 billion business were done in all around Europe. It does not involve private sponsors even government participate in the business either due to political concerns or for the prosperity of the nation.

          A new concept of doping has emerged due to commercialization of sports events. Media has played an important role and is considered as a mean for increasing entertainment facilities and spread of voice through mass communication. Increasingly both sponsors and TV stations both are investing massive amount in sports. Such flow of value into sports industry has transformed it into an economic market where several disciplines delineate the allocation of financial resources. Unfortunately it is considered as a ‘winner-take-all’ market where there exists imbalanced and asymmetrical distribution of value in relative terms instead of absolute terms and this result into few numbers of dominant players which gain the maximum financial benefits. This makes true the perspective of right hand theory of Adam Smith and Athletes make efforts to become prominent and   come under the spotlight (Europa 2002).

It can be concluded that top notch football clubs negated and contradicted the holistic approach and opted for short term benefits while suppressing long-term expensive. The demeanor remains with sustainable development and it requires strategic decision making and collaborative efforts. During the prevailing era of economic challenges mega football clubs and leagues looked for insubstantial benefits and deployed unethical practices. More importantly majority of the countries still pursue conventional wisdom and have formulated private limited companies where there is no concept of shared values and mutual understanding. Either these private clubs get liquidated or sold to other individuals. Major policies have resulted into few numbers of dominant clubs. They get massive sponsorships and distribute television broadcasting among them while bottom players could not spend amount in building talent, spending in infrastructure and social development. Moreover this will result into fall of interest among prospectus in football games.

Hamil, S & Morrow, S 2008, The People’s Game and Community Ownership of Football Clubs: A Mutual Solution to a Market, viewed 23 August 2010, <Problemhttp://docs.google.com/viewer?a=v&q=cache:5ryWasXiwt0J:https://dspace.stir.ac.uk/dspace/bitstream/1893/739/1/ownership%2520model_SMSH_.pdf+The+people%27s+game+page+16+by+Morrow&hl=en&gl=pk&pid=bl&srcid=ADGEESgreVKy9DWdRS0p40nYu5KQieSjghwDlfjaXBooFich3GWAsC43NRHhW60iUgbN3frVduyxQA-paZKCEsc34os5618dNqPMGyVn7jGI8kl05iEqSAuBmzEK4ZLICSE54vbaZiv_&sig=AHIEtbT-XCGHFEPt9wKZrC_pp4kl_lxlvg>.

Giulianotti, R 2004, Celtic, Cultural Identities and the Globalization of Football. Viewed 23 August 2010, <http://www.scottishaffairs.org/backiss/pdfs/sa48/Sa48_Giulianotti.pdf>.

Dixon, D 2008, ‘The Long Life of Bosman– A Triumph of Law over Experience’, Entertainment and Sports Law Journal, vol. 6, viewed 23 August 2010, <http://www2.warwick.ac.uk/fac/soc/law/elj/eslj/issues/volume6/number2/dixon/>.

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