Value‐maximizing football clubs
| Published date | 01 November 2021 |
| Author | Aloys Prinz,Stefan Thiem |
| Date | 01 November 2021 |
| DOI | http://doi.org/10.1111/sjpe.12282 |
Scott J Polit Econ . 2021;68:605–622.
|
605
wileyonlinelibrary.com/journal/sjpe
1 | INTRODUCTION
Professional tea m sports, and in parti cular European club football , provide a unique framework for s tudying the
essence of econo mic behavior. The league stru cture can be interpret ed as a market in which teams comp ete with
each other by creat ing high- level entert ainment in a kind of “cooperat ive competition”. The most cr ucial factors of
production a re the athletes who play the g ame, in combination with th e respective club manag ers.
Several aspects of football economics have already been analyzed in the literature. These include profit-
maximization versus winning- percentage maximization (see e.g., Garcia- del- Barrio & Szymanski, 2009), the ef-
fects of sala ry caps (Késenne, 200 0a), revenue sharing (Grossmann e t al., 2010; Késenne, 2000b, 2 004), as well
as the combination of revenue sharing and salary caps (Dietl, Grossmann, et al., 2011; Dietl, L ang, et al., 2011),
Accepted: 5 May 2021
DOI: 10 .1111/sjpe.1 2282
ORIGINAL ARTICLE
Value- maximizing football clubs
Aloys Prinz| Stefan Thiem
This is an open access article under the terms of the Creative Commons Attribution- NonCommercial- NoDerivs License, which
permits us e and distributio n in any medium, provid ed the original wor k is properly cited , the use is non- commercial and no
modifications or adaptations are made.
© 2021 The Author s. Scottish Journal of Political Economy published by J ohn Wiley & Sons Ltd on be half of Scottish Econ omic
Society
Institute of P ublic Economics, U niversity of
Muenster, Muenster, Germany
Correspondence
Aloys Prinz, Institute of Public Economics,
University of Muenster, Wilmergasse 6- 8,
48143 Muenster, Germany.
Email: aloys.prinz@wiwi.uni-muenster.de
Abstract
In this paper, football clubs are m odeled as value- maximizing
enterprises. Wit h a long- term perspective in th is framework,
players are not only fac tors of production, but also a ssets of
the club. It is shown that talent investment is higher with
value- maximization t han with profit maximization f or homo-
geneous football club s. Club heterogeneity is then mode led
by different time- horizons regarding future profits, which
leads to asymmetric levels of talent investment. Teams
with longer time- horizons demand more talent and tilt the
competition to their favor. Increases in transfer prices for
players worsen the competitive balance, while higher player
wages improve it .
KEYWORDS
football, player s as assets, Tobin's q, value- maximization
606
|
PRINZ aNd THIEM
and luxury t axes (van der Burg & Prinz, 20 05; Dietl et al., 2010). In particula r, Franck (2014) analy zes the impact
on the competit ive balance of a league, as well as the UEFA's so- called “Fi nancial Fair Play” rules. The lat ter has
been and still i s influenced by the fear on the pa rt of some clubs of overinvest ment in players, referred to as al so
the “sugar daddy ” syndrome (Lang et al. , 2011), as well as by the problems associat ed with a possible competit ive
bias between clubs.
It is well- known theoretically that winning- percentage- maximization entails higher investments in player tal-
ents than prof it- maximi zation (Fort & Quirk, 20 04). One of the main reaso ns is that the current budget co nstraint
of a club is decisive for t he level of talent a club can buy whe n it attempts to maximize its wi nnings. A club that
is able to run huge def icits, for instance, can buy more talent than a club that is confronted with a zero- budget
constraint, that is, cannot sustain deficits. With profit- maximization, a club will buy only that amount of talent
which equates it s marginal revenue with ma rginal cost. Overinves tments are generall y not compatible with profit
maximization.
However, clubs may attempt not only to maximize profits or winning percentages. As suggested by Jensen
(2001), the objec tive function of firms may b e best characterized as m aximizing the firm value. T his view is long-
term, in contra st to profit- and winning- maximization t hat are short- term goals. In a long- term per spective, assets
of the firm, created via investments, play a crucial role in the behavior of the firm. Since professional football
clubs are enterprises, as legally specified by the European Court of Justice in the well- known Bosman- ruling, it
seems reasona ble to assume that professional foot ball clubs behave like other enterpr ises. Moreover, like other
businesses, p rofessional football clubs pre sumably want to survive, which r equires a long- term s trategy. Hence,
value- maximizat ion seems to be a suitable goa l for such enterprises.
The contribut ions to the literature of this pap er are firstly the mode ling of football clubs as value- maximizing
firms and secondly, the incorporation of heterogeneous club- ownership into the model. For value- maximizing
clubs, players a re not only considered as vari able factors of produc tion but also as assets of th e clubs with an op-
tion value (An tonioni & Cubbin, 2000 ). The latter gains suppor t from the accounting prac tice by means of which
players who are bo ught on the market are capi talized in the balance sh eet at their transfer va lue (PwC, 2018). Not
only from an accou nting viewpoint are player s assets, but also from an e conomic one. Football player s are traded
for a transfer payment between clubs if they are contr actually bound to the selling club. Expresse d differently,
these players ar e assets that a club may buy and se ll (Kuper & Szymanski, 2018, p. 111), if and when t he respec-
tive player agrees. Since value- maximization is a long- term objective, the economic implications of ownership
heterogeneit y can be considered via differe nt discount factors. As is well- known from f irms in other sectors of
the economy, ownersh ip concentration may cha nge the time- horizon for inve stments (see, for in stance, Baysinger
et al., 1991). In effect , more diverse investment strategies are possible in a non- f inite, value- maximizing frame-
work for football c lubs than in short- term m odels that prevail in sport s economics. As an indicator of t he clubs'
investment st rategies, the applicat ion of Tobin's (average) q is suggested in this p aper.
A first impor tant result of footbal l clubs as value- maximizin g enterprises with ta lented players as asset s is that
such clubs invest m ore in talent than profi t- maxi mizing clubs. Moreover, it is argu ed that this investment d ifferen-
tial need not be con sidered as “overinvestment ”, because it is a result of the lon g- term or iented behavior of clubs.
For example, af ter Roman Abramovich bought Che lsea Football Club in 2003 for about £140 million, he subs e-
quently investe d more than £1.1 billion in the cl ub up to 2019 (Baker et al., 2019). The club was wor th over £2.032
billion (£2. 58 billion according to For bes, 2019) in 2019, which would have resulted in a net p rofit of over 60 million
(adjusted for infl ation) from selling at this pri ce.1
Further relevant results are derived for heterogeneous club ownership. A higher discount factor implies a
higher demand for talent in a steady- state equilibrium, and a marginal increase in the clubs' own discount fac-
tors leads to a high er talent demand as well. The refore, the competitive ba lance is tilted in favor of a club whose
1We assumed that al l investments w ere made in 200 3, and calcula ted an inflation r ate of 59% for the UK fro m 2003 to 2019 (Bank of
England, 2020).
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting