Is money ruining sport?

Written by Mark Briggs on . Posted in Current features, Features, Uncategorized

Photograph by Agencia Brasil

Photograph by Agencia Brasil

Bucking the trend of the global recession, the sports industry has continued to go from financial strength to strength over recent years. According to auditors PricewaterhouseCoopers, the global sports industry will generate €106bn in revenue in the period between 2010 and 2015.

It is increasingly easy to watch any match, in any sport, from any league wherever you are in the world either on television or online. Sports are breaking out of their traditional national markets and ploughing new furrows, seeking new fan bases and markets.

Money is pouring into the industry. Yet two of 2014’s showpiece sporting events have threatened to be over shadowed by the cost of hosting.

February’s Winter Olympics in Sochi cost €38bn, three times the price of the London Olympics two years before and more than all previous Winter Olympics combined. The games were widely accused of being a vanity project by the Russian government, and suffering from large scale corruption.

Meanwhile this summer’s World Cup in Brazil saw protests throughout the ‘carnival of football’ over the cost of the event and failure to deliver on planned infrastructure projects for the benefit of the country after the finals have finished.

Has sport become a plaything of the super rich? Do investments raise standards, or isolate games from their traditional fan base, losing what makes them special in the process? Is money ruining sport?

Back home

The amount of money currently in football is growing at a phenomenal rate. This year the English Premier League awarded the team who came bottom of the league 60 million pounds in prize money. The same amount awarded to last year’s winners. Last summer Real Madrid paid 100 million euros for Gareth Bale, and this year Lionel Messi signed a new contract with Barcelona reported to be worth €20m a year.

Europe’s most prestigious club competition is being increasingly dominated by the super-rich. Since 2007 there has never been more than one team per year in the semi-finals of the Champions League which has never been there before.

“For me Europe is like the Wild West when it comes to sports regulation,” says Petros Mavroidis who on top of his work with the Global Governance Programme at the EUI is also on UEFA’s (Union of European Football Associations) Club Financial Control Board.

The National Football League, (NFL) the top American Football league in the US is one of the most heavily regulated of any league in the world. Salary caps, revenue sharing, and player drafts didn’t stop the league making profits last year of €6bn. In fact it may have helped.  Over the past 30 years 27 of the NFL’s 32 teams have played in the Super Bowl (the league’s final) at least once. There is genuine unpredictability about results each week, which keeps fans interested.

In contrast the National Basketball Association was less regulated and the league became dominated by a few major teams. Between 1978 and 2011 only 8 different teams won the championship. Games between these teams drew large television audiences, but the rest of the league lost fans and the majority of the teams were in debt. In 2010 the league adopted revenue sharing similar to the system used in the NFL. Market share has increased, and now the majority of teams generate a profit.

Financial Fair Play

Stadio Artemio Franchi. Photograph by posted to Flickr by lauren

Stadio Artemio Franchi. Photograph by posted to Flickr by lauren

Money doesn’t guarantee success, at least not immediately. However the gap between those who spend vast sums on players, wages, and facilities and those who do not is becoming increasingly difficult to bridge as the money involved goes up and is increasingly concentrated at the top.

Yet at the same time many other teams in lower leagues struggle to pay their bills. In 2010 Portsmouth Football Club faced a winding up order from the UK tax office despite playing in one of the most lucrative leagues in the world – The English Premier League. The club only avoided closure by entering into administration with debts estimated to be over 100 million pounds. They have since dropped to the third tier of English football. A host of Spanish football clubs have overspent and incurred large outstanding tax bills despite the country’s dire economic circumstances.

UEFA is currently implementing a new set of Financial Fair Play rules aimed at stopping, as UEFA President Michel Platini described it “financial doping”.

The idea is clubs are prevented from making huge losses in pursuit of glory, at the risk of their financial stability.

However, the rules have been accused of endangering competitive balance, further entrenching the division between the rich and the poor clubs.

“What are the rules saying? They are saying ‘don’t behave like a sugar daddy’,” says Mavroidis. “The statutory objective is clearly financial stability. It has nothing to do with competitive balance.”

“You won’t have the new kid on the block, the next Manchester City,” who received massive investment in 2008. They’ve since own the Premiership and the FA Cup and are now regarded as the one of the richest clubs in the world.

The established elite have the infrastructure in place to generate further income through global sponsorship because of international television exposure. Clubs lower down the league don’t have such opportunities.

“I think many of us are happiest when the underdog wins,” says Professor Sven Steinmo, an expert in politics and evolutionary theory. “As more and more money comes into the game that becomes less and less plausible, and as more and more money comes into the game the leaders at FIFA (world football’s governing body) have fewer incentives to make the game a fair game.”

There seems little doubt the vast sums invested by so called sugar daddies distort the market. But general investment can benefit sport in general, raising standards on the field and improving the experience of the viewing public off it.

“There is a lot of money in sport. I don’t think it ruins it. At every level sport is practiced in the US and the quality goes up year on year,” says Mavroidis. “Money is a means. You can use money to make sport very attractive. We just need the proper regulatory framework within which cash injections have a happy marriage with sport.”

Teetering on the edge

However the warnings signs of money’s corrupting influence are stark. Last year Lance Armstrong faced global revulsion when it was revealed the record holding cycling had been involved in what was called ‘the most sophisticated doping programme ever.’

“Lance Armstrong didn’t ruin cycling,” states Steinmo. “It was the amount of money involved that made it worth taking the risk. Worth being corrupted for.”

Corruption in its more traditional guise is also increasingly encroaching on to the playing field. Italian football is still recovering from the extensive match fixing revelations that saw the country’s biggest club Juventus, relegated to the second tier and stripped of two titles for their part in the scandal.

Sports such cricket, lower league football and rugby are increasingly susceptible to so called spot fixing. Spot fixing involves betting on the timing or quantity of minute details of a match, such as the timing of a throw in or yellow card. Vast sums of money are then bet on the event, raising suspicions of money laundering.

As in sport so too in life

Ultimately whether you feel the amount of money in sport has a detrimental effect depends on how you view sport. If you regard its activities as the same as any other entertainment then increased investment helps to create a greater end product which will ultimately attract more fans which in turn generates more income to even further enhance the product.

With the concentration of funds at the top of the game the quality of games between those teams would improve, but the local teams are likely to be squeezed out. “There is something about having a local team and being a fan of that team, a shared local identity that I think is valuable,” says Steinmo. “It is hard to put a monetary value on that, but it is there.”

Research in the social sciences continues to show equality rather than wealth is a more accurate indicator of happiness in societies. “We all want more money, but the correlation between GDP per capita and happiness is almost non-existent,” says Steinmo.

Those places with higher levels of inequality tend to be unhappier. Similarly it is more fun to watch a match, league or tournament where more competitors have a chance to win, where there is an element of unpredictability about results.

Ultimately the sports industry’s commodity is competition. Once genuine competition is lost, so is the appeal.

“It is not the money that is the problem, it’s the inequality. Inequality is ruining our society. Football and sport is just one of the places you see it happening,” says Steinmo. “A tiny elite has a disproportionate amount of power. Sport should be the ultimate place where a talented kid who works hard should be able to make it.”

“Sport should be fair, and I don’t think it is anymore.”



* Sven Steinmo holds the Chair in Public Policy and Political Economy at the EUI. He  is currently working on a project called “Willing to Pay? Testing Institutional Theories with Experiments” which examines differences tax compliance in several advanced industrial democracies. The project looks at tax compliance and cultural variation in Sweden, England, Italy, the United States, and Romania.

*Petros Mavroidis is a Professor of Global and Regional Economic Law at the EUI and is currently working a book regarding the evolution of disciplines regulating trade in goods back to the inception of the multilateral trading system.