Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

The Rules of Football (2)

From CityAM:

ENGLAND’S leading clubs are jeopardising their futures by spending increasingly dangerous sums on player wages, one of the country’s most prominent football finance experts warned last night.

Premier League teams forked out a record 68 per cent of their income on pay packets during the 2009-10 season, according to research published today by Deloitte’s Sports Business Group. The total wage bill of £1.4bn constituted a five per cent rise and wiped out a two per cent improvement in revenues that saw top-flight clubs collectively earn more than £2bn for the first time.

Deloitte’s Dan Jones, who edited the Annual Review of Football Finance, told City A.M. the increase in wages-to-turnover ratio was cause for alarm.

“The thing that concerns us is that we went through about 10 years of the wages-to-turnover ratio in the Premier League being around 60 per cent,” said Jones “Then suddenly last year it went up to 67 per cent and this year it’s edged up to 68 per cent. We think that is right at the boundaries of where you want it be. We’ve always talked about 70 per cent as being a warning level. Obviously you have to look at each individual club, but for the Premier League overall to be edging towards that 70 per cent mark is a concern.”

Well, duh.

Increases in the profitability of any economic activity* always accrue to the least elastic factor**, using the figures above, turnover went up by £400 million and total wages went up by £700 million, but in the long run, we’d expect the two to go up £ for £.

The reason for this is simple; the costs of actually staging football matches (stadium maintenance, ticketing, security, floodlighting etc) is pretty constant (fixed costs) and can be provided by any one of many competing providers, and the balancing is ‘surplus’ or ‘profits’.

Nearly all this ‘surplus’ goes on footballers’ salaries, because there is a small, limited pool of talent; these teams need to sign up the best two or three hundred players and by definition there are only two or three hundred ‘best’ players. We know full well that these players would play for a tiny fraction of their current salaries (like up to the 1970s) because it’d still be more than they can earn as a bus driver or gardener or something.

The difference between their actual salaries and what they’d earn elsewhere (as a bus driver etc.) is quite simply monopoly income or ‘rent’. So football just follows the usual economic observation that increases in the profitability of the economy just go to ‘rents’ – which is why the players’ share of total income has crept up from 60% to 78% over the last decade. The same rule applies to the economy as a whole – which is why an ever increasing share of GDP goes to ‘rents’ in the literal sense, i.e. land values.

And the notion that all Premier League clubs as a whole are threatened by these salary increases is a nonsense; if total income were to fall by £100 million, then total salaries would fall by £100 million as well, leaving the clubs no better or worse off.

* To the extent that Premier League football is an economic activity in the normal sense or just vanity spending with no particular profit motive on the part of the owner.

** Paraphrasing Dearieme.

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