Collective selling of media rights as instrument for competitive balance in European major football leagues


Master's Thesis, 2014
95 Pages, Grade: 1,7

Excerpt

Table of content

Abstract

List of figures

List of tables

List of abbreviations

1 Introduction

2 Target markets
2.1 European professional team sports market
2.2 European television market
2.2.1 Broadcasting in sports
2.2.2 Legal background

3 Theoretical frameworks
3.1 Multi-sided markets
3.2 Analysis dimensions
3.2.1 Theory of competitive balance
3.2.2 Theory of media rights selling systems
3.2.3 Theory of revenue sharing systems

4 Status quo
4.1 Competitive balance
4.2 Media rights selling systems
4.3 Revenue sharing systems
4.4 Influence factors

5 Research design
5.1 Method discussion
5.2 Hypotheses
5.3 Design of the analysis

6 Presentation and evaluation of the analysis
6.1 Results of the RSD
6.2 Results of the CR5 and CR2
6.3 Statistical analysis of the results
6.4 Evaluation of the hypotheses

7 Conclusion

Appendixes

List of references

List of figures

Figure 1: Win versus profit maximization

Figure 2: The Organization of Sport in Europe - The Pyramid Model

Figure 3: Development of the media right fees of the English Premier League

Figure 4: The sports broadcasting market

Figure 5: Monopoly versus perfect competition

Figure 6: Revenue sharing under win maximization

Figure 7: Revenue distribution of the European 'Big Five' Football Leagues in 2010/2011

Figure 8: Ratio of minimum to maximum revenue within the league

Figure 9: Average number of spectators per match

Figure 10: Equation of the Actual Standard Deviation

Figure 11: Equation of the Ratio of Standard Deviation

Figure 12: Equation of the Hirfindahl-Hirschmann Index

Figure 13: Equation of the Concentration Ratio 5

Figure 14: Equation of the Concentration Ratio 2 of Championship

Figure 15: Final analysis equations

Figure 16: Premier League RSD results

Figure 17: Primera División RSD results

Figure 18: Bundesliga RSD results

Figure 19: Serie A RSD results

Figure 20: Ligue 1 RSD results

Figure 21: Primeira Liga RSD results

Figure 22: Overview RSD results

Figure 23: Centralized versus decentralized RSD results

Figure 24: Premier League CR results

Figure 25: Primera División CR results

Figure 26: Bundesliga CR results

Figure 27: Serie A CR results

Figure 28: Ligue 1 CR results

Figure 29: Primeira Liga CR results

Figure 30: Overview CR results

Figure 31: Centralized versus decentralized sale CR results

Figure 32: RSD boxplots

Figure 33: CR5 boxplots

Figure 34: CR2 boxplots

List of tables

Table 1: Overview RSD results

Table 2: Overview CR results

Table 3: Statistical anaylsis RSD results

Table 4: Statistical analysis CR5 results

Table 5: Statistical analysis CR2 results

Table 6: CR league ranking

Table 7: First overall ranking

Table 8: Deviations from the measurement tool median

Table 9: Deviations summarized in two figures

Table 10: Deviations in consideration of the calculated ratio

Table 11: Final ranking competitive balance

List of abbreviations

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Abstract

The objective of the present Master Thesis is to answer the research question “Is it possible to find evidence that collective selling of media rights increases competitive balance in European major football leagues in the long run?” Additionally five hypotheses have been developed to support and facilitate the attempt to fulfill the thesis’ objective.

Current discussions in the business of professional football are dealing frequently with the question if competitive balance is decreasing in the European major leagues. Clubs like the FC Barcelona or FC Bayern München were dominating on a national and European level in recent years. In professional sports a positive helix between financial and sporting power exists. Sporting success implies financial success which can be reinvested in the sporting strength, hence leads to even more competitive power. The key driver for the underlying financial success consists of the revenues generated by selling the clubs’ media rights. Two different systems of selling these rights exist, a decentralized and a centralized one. The aim of this paper is to investigate if the selling system of the media rights has influence on the competitive balance in the league.

Many different tools to measure competitive balance in team sports exist. For the underlying analysis the Ratio of Standard Deviation, the Concentration Ratio 2 and the Concentration Ratio 5 have been applied. The final rankings of the recent 30 seasons from 1984 to 2013 of six European football leagues have been investigated, the English, Spanish, German, Italian, French and Portuguese league. The data for the analysis was disposable on the World Wide Web. The leagues were analyzed with each measurement tool. The results were presented and evaluated in different steps. In the first step the results of each league were calculated for each measurement tool for the entire investigation period. In the second step the results were sorted and subsequently summarized to one final ranking of competitive balance. By means of this final ranking and the individual analysis results of the leagues, the author tried to cluster and evaluate these findings referred to the media rights selling system.

Out of the analysis it can be stated that leagues with an individual TV rights selling system show a lower level of competitive balance by trend. This statement can be emphasized by the created five hypotheses which all point in the direction that collective selling of the TV rights increases competitive balance. Two out of these five hypotheses can be confirmed to a large extent out of the investigation and one can be confirmed from a theoretical point of view. The lasting two hypotheses can neither be confirmed completely out of the investigation results, nor rejected.

However, it has to be added that the two confirmed hypotheses do not include the dynamic dimension of competitive balance. The two hypotheses which includes this dynamic component, could not be confirmed. Therefore, the evidence that collective selling of media rights increases competitive balance in the long run cannot be found clearly. The statement, for which evidence has been found, is that leagues with collective selling show a higher level of competitive balance by trend. Moreover, the influence of other factors, such as investors or revenues of European competitions, is growing. These influence factors exacerbated the investigation and weakens the results.

The probability is rather high that in a few years all “Big Five” leagues in European football will apply the centralized media rights system because the Spanish league is currently in the act of changing its system. Likewise, there are endeavours to find a Europe-wide structure of the media rights sale. Furthermore, even a Europe-wide competition level of the top-clubs is under discussion which would roughly change the current organization form of professional European football.

1 Introduction

The FC Bayern München won the so-called “Triple” in the previous season 2012/2013, a combination of the trophies in the national league, the national cup competition and the UEFA Champions League. Due to the fact that they also won 22 national championships since 1963,1 when the German Bundesliga was founded,2 the FC Bayern München is a good example for one single dominating team in German football. Not only in the national competitions, but also in the European comparison FC Bayern München plays a quite important role. They participated in three of the last four Champions League finals which led to enormous financial incomes. These financial incomes lead to more power to invest in further talents, which in turn normally raises the sporting strength. A higher sporting competition level leads to further trophies, more money and so on.

From a clubs’ point of view such a development is desirable at first glance, but the league should have a critical eye on it. The most important factor for attractiveness of a league is a high level of competitive balance. One or two years of dominance do not come along with a direct boringness of the spectators but if one club would win every championship ten years in a row, the attractiveness of the entire league would definitely decrease. A decreased interest of spectators and TV viewing figures would affect lower revenues and thus less profit in the end for all clubs in the league.3 For that reason even Ulrich Hoeneß, the president of Bayern München, remarked this point in public and claimed a high level of competition and balance in the league.4

Another example for a dominated league is the Spanish Primera División. Real Madrid and the FC Barcelona won all national championships since 1985 with only four exceptions.5 The difference between these two mentioned leagues is the way they are selling their TV rights. The German Bundesliga, as well as the French Ligue 1, the Italian Serie A and the English Premier League, is selling the TV rights centrally which means they bargain the rights collectively. The clubs in the Primera División in turn have the opportunity to sell their TV broadcasting rights themselves individually. The financial force of the example Bayern München in case of sporting success is obvious and would be the same in all European major football leagues. However, the sporting successful Spanish clubs get another big financial plus on top because they earn by far more money than the other clubs in the league out of the individual TV rights distribution. Real Madrid and the FC Barcelona get round about 50 per cent of the total TV rights incomes which means round about 150 million per year each.6 Bayern München in turn got about 30 million TV broadcasting revenues in the season 2011/2012.7 Regarding the entire leagues, TV rights are the most important source to generate income with around 50 percent of the total revenues.8

This big financial advantage for the two Spanish clubs arises out of the way the leagues are distributing their TV broadcasting rights. The mentioned helix between financial power and sporting success brings us to the linking point between the way of selling the rights and the competitive balance in the leagues. With the underlying theoretical background the assumption is that individual sale of TV rights supports the competitive imbalance and the other way round. To find out if there is underlying evidence between these two variables the research question is: “Is it possible to find evidence that collective selling of media rights increases competitive balance in European major football leagues in the long run?”

Following the introduction part the target markets of the research question will be defined with a detailed description and differentiation. Regarding the theoretical framework the first step is to outline the theory of multi-sided markets, followed by the presentation of the theoretical dimensions of the paper. The European Football Leagues will be treated, the TV broadcasting market with its legal background will be analyzed and the revenue sharing systems will be introduced. Furthermore, the market features with the two ways of selling the TV rigths and the current situation in the leagues will be described. Another major topic concerning the theory are factors which could exert influence on the investigation. At that point several characteristics of the leagues will be considered as well as significant developments of the analyzed period.

After dealing with the theoretical framework, the research design will be explained and founded. The methodology in general, several measurement tools of competitive balance and the data acquisition and implementation will be discussed and the course of the analysis will be defined. In this context several hypotheses concerning the research question will be introduced which can be tested after the analysis. As soon as the entire data set is collected the measurement of the competitive balance of the leagues can be started. The analysis of the data set will be followed by the presentation and evaluation of the results as well as the evaluation of the hypotheses. Beside a graphical and descriptive presentation of the results a statistical analysis will be integrated in this part as well.

The last chapter of the thesis consists of the conclusion which contains of a summary, a critical review and some future prospects.

The general methodology of a scientific paper should be mentioned at the beginning. In social sciences research approaches are distinguished in quantitative and qualitative ones. For the underlying investigation of this report a qualitative approach was chosen for several reasons. All necessary data are unrestricted available, a high amount of different measurement tools exist and previous investigations about the construct competitive balance have been mainly applied with the quantitative approach. A few examples are the investigations of Berger 2013, Feddersen and Maennig 2005, Owen 2010 and Manesis et al. 2012. Not to forget, one major advantage of qualitative research methods is the presumed objectivity.9

In the methodology of social sciences four dominating paradigms exist: Positivism, Postpositivism, Constructivism and the Critical Theory. According to Guba and Lincoln, a paradigm is a “set of basic beliefs (or metaphysics) that deals with ultimates or first principles.”10 Concerning these paradigms different ways of classification can be found in the literature. Some researchers choose a research paradigm early in their careers like a philosophical view, others ignore this philosophical grounding and choose the approach depending from the method level. One further way is to alternate between quantitative and qualitative research methods, contingent on the requirements of the underlying investigation. These researchers are known as situationalists because the choice of method is determined by the research problem and data available.11 The papers author would classify himself in the mentioned category of situationalists. In previous researches the author has been rather positioned in the sector of Postpositivism, evokes the underlying research problem and the available data a research approach belonging to the paradigm of Positivism.

The utmost objective of positivism is prediction and control which is caused by the realist ontological position. The epistemology of the positivism consists of the objectivist assumption that it is not possible for researchers to influence or affect the investigated objects and vice versa.12 The methodology is mainly characterized by quantitative research methods.13 Regardless of different paradigms, the methodology of this paper will be discussed in chapter 5.1 broadly. The final research design is determined by the requirements necessary to answer the research question and not by an inherent paradigm. The paradigms existing in the methodology of social sciences would provide enough content for a single paper. In regard to the extent of this paper, the given brief overview should be sufficient at this point.

The specific methodology of the investigation in this paper will be discussed in detail in chapter 4.1.

2 Target markets

2.1 European professional team sports market

In the world of professional team sports, economic literature divides in general two aims teams are tracking, namely to maximize profits or to maximize sporting success respectively utilities. Overall the US sports market with the big four leagues of baseball, basketball, ice- hockey and American football is seen as a profit-maximizing market. The club owners try to maximize the profits and simultaneously they try to be as good as possible in the sporting dimension. In the European sports market, especially with the key discipline football, the overall aim is to maximize the sporting success like wins, titles and trophies and meanwhile not to make losses.14

In an economic dimension these two strategies can be figured like the following graph:

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Figure 1: Win versus profit maximization

Source: Késenne (2007), p.40

The talent price of the profit maximizing function is the cross of the two marginal revenue curves with quite low costs on talents. Hence, the equilibrium is where the marginal costs equal the marginal revenues under profit maximizing conditions.15 Hereby, the resources are distributed ideally and the assumption is that within the figured Walras equilibrium model the strength of the teams is rather balanced. Nevertheless, the large-market clubs hire more talents than the small-market clubs. In contrast the function of the win-maximizing market is given by the two average revenue curves because under break-even condition the clubs spend all their revenues on talents. The effects of this changed equilibrium can be seen in the graph and are expressed by a rather unbalanced talent distribution and higher costs on talents. This higher talent price is founded by an increased demand and therefore a dead- weight loss which is graphically shown by the black hatched area. The mentioned dead- weight loss appears because not all resources are located in an optimal way. This inefficient resource allocation is caused by a talent unit price above the value of its marginal revenue. Furthermore, the total league revenues are lower because the talent costs increased while the other conditions keep stable.16

In this paper the focus will lay on the football leagues in Europe, hence a win-maximizing market. Football is the key discipline in European sports with 62 million athletes17 and total sales volume of 19.4 billion euros in 2012.18 The data for the analysis should be reasonable as well as comparable, that is the reason why the number of leagues to analyze will be curtailed. The basis consists of the so-called “Big Five” European football leagues, the Spanish Primera División, the Italian Serie A, the French Ligue 1, the English Premier League and the German Bundesliga.19 Other leagues are either not of a high importance or not suitable with every measurement tool because of a strongly variant number of teams in the League like in Denmark with 1220 or Austria with 10 clubs21 in the league. Nevertheless, the Portuguese Primeira Liga will be taken into account as one further data source because of a specific condition concerning the TV rights. A precise explanation of this specific condition will follow in course of this paper.

If one deals with the European football market in economic dimensions, its specific characteristics should be absolutely noted. The main difference of the professional football market compared to other industries is that the supply of the final product needs a cooperation of all teams in a league which in turn has to be organized in order to guarantee specific frame conditions. The matches as joint products which supply entertainment for all interested spectators, in the stadium as well as via television or internet, are “as much a product of the league, as it is a product of the individual clubs.”22 Thus, it is a mixed form of competition and cooperation. The clubs have to cooperate as business entities to produce the “good” of a match and meanwhile they have to compete with each other to get the highest sporting and therefore financial success.23 These specific characteristics demand for a closer look at the structure of the European football leagues.

The structure of a league in team sports has to be determined in at least five dimensions, the format, the hierarchy, the governance, the membership and the multiplicity. The format defines the method for scheduling the matches to find a champion and the hierarchy defines the relationships between leagues with greater or lesser quality. The dimension of membership determines the conditions under which a team enters, quits or stays in the league. The multiplicity states the number of leagues at the same level of the hierarchy and the governance defines the methods for deciding and enforcing the leagues’ rules and policies.24

In the European football market the format is a balanced round-robin system with a fixed and equal number of matches the teams play against each other, home and away. The points to award are based on performance and current a win is rated with three points, a draw with one point and a loss without any points. At the end of the season the team with the most points is the crowned champion.25 In the countries of the major European football leagues the hierarchies of the several leagues are quite similar. The first leagues are national wide without another league on the same hierarchy level. Every level has specific promotion and relegation rules, on the top league hierarchy level in Europe in most cases between two and four teams change every season because of relegation respectively promotion.26

The multiplicity in European football differs from country to country, for instance in Germany more than one league on the same hierarchy level exists below the third upper level. In England the multiplicity starts not before the sixth level. A big advantage of several leagues beside each other on the same level is that the teams do not have to travel all around the country which is especially in the non-professional sector preferable. In contrast to the US sports the European football leagues are open which means there is a yearly exchange of teams founded by the sporting weakness respectively strength. The cases of a league contraction or expansion occurred several times in the last decades in the European football,27 this will be described in later chapters in detail combined with practical examples.

The league size in the major five football leagues varies from 18 teams in Italy, France and Germany to 20 teams in England and Spain.28

The last dimension concerning the league structure deals with the governance of the league. In this dimension two general topics are included, on the one hand the ownership structure of the league and the clubs and on the other hand the role and influence level of an independent authority. The European football clubs are owned and managed mostly independently and the league is organized as a joint venture to coordinate their activities.29

The “Fédération Internationale de Football Association”, shortened FIFA, as the overall authority in football and the “Union des Associations Européennes de Football”, shortened UEFA in the European sector have a rather strong power compared to US sports associations. In addition they have their own goals and incentives.30 The European sports model is often described as a pyramid like the following. This might help to understand the construct which is headed by these authorities.

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Figure 2: The Organization of Sport in Europe - The Pyramid Model

Source: European Commission (1999), Directorate General X, p.3

This model merges professional and non-professional sports in a hierarchy and has four different levels. Furthermore, the model “facilitates an equitable distribution of revenue among the consistent sport clubs to encourage mass participation and competitive balance among clubs.”31 At the lowest level are the autonomous and non-professional football-clubs which are described as fundamental institutions in the European society. The second level consists of the regional sports federations within each country which organize the competition for the clubs of the level below. The next higher level is built up of the national federations for each sport discipline like the “The FA”, the English football association. The national federations have the task to overview the regional ones, to organize the national competitions and to regulate sports activities. On the highest level in Europe each sport discipline has again one European federation, in case of football it is the mentioned UEFA.32

In the economic analysis the league can be seen as a firm with monopoly power. The background for this assumption consists of the characteristics that the entry to the league is restricted, the matches are determined by the league and the number of teams in the league is fixed. Furthermore, in most cases there is no other league which is in direct competition. “These features of the professional sports industry demonstrate the need for an additional degree of coordination, governance and regulation over and above what might be expected in more conventional business activities.”33 The mentioned requirements of the professional sports industry build a bridge to the court orders concerning this market and the legal background in general which will be regarded within the next chapter.

2.2 European television market

2.2.1 Broadcasting in sports

Before the legal decisions will be discussed, the TV broadcasting sports market in Europe should be regarded. Since the 1980s, but especially in the last 15 years, the sale of TV broadcasting rights gained more and more of importance. In the current revenue structure of football clubs in the major European leagues, the TV broadcasting revenues are round about the half of the total revenues.34 The appearance of the pay-TV systems has grown the demand for TV broadcasting in sports further and boosted the market. Especially the sector of football broadcasting has experienced a lot of additional importance and became a strategic tool for TV broadcasters to get further share in other TV markets. Pushed by the globalization and the development of the media in general, football has become a global business.35 Solely the English Premier League sold its broadcasting rights in 2012 for more than 1.27 billion euros, the Spanish Primera División for more than 600 million36 and the German Bundesliga raised its revenues in this year by 52 percent up to 628 million euros.37 These examples show that TV football broadcasting has become a private good of high importance with a huge financial potential.38

Meanwhile beside the classical television market a lot of new distribution methods and broadcasting platforms have appeared, hence the variety within the broadcasting market has increased. New broadcasting platforms are for example Internet TV, interactive TV, digital TV, mobile broadcasting and broadband cable. All these mentioned platforms and methods need to provide premium content to acquire new subscriptions in order to get financial profits.39 One main characteristic of the sports broadcasting market is the high importance of products supplied exclusively in pay-TV. Especially in the European sports sector, the pay- TV companies act in a monopolistic way because in each country one big supplier is dominating the market.40 These companies pay enormous fees for the media rights of the major European football leagues which are seen as premium products along with the four big US Sports leagues and world-wide tournaments like the football World Cup or the Olympic Games. In many cases it is impossible to reimburse the money the pay-TV companies spend. However, these rights have such a huge image and prestige effect that they are described as loss leaders.41

Adequate to these market conditions the media right fees experienced a huge explosion during the last years. For instance, the fees for the FIFA World Cup increased in nominal prices over 900 per cent over the last 20 years, the prices for the media rights of the English Premier League even increased over 1000 per cent since its inception in 1992.42 These examples illustrate the enormous financial development in this market.

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Figure 3: Development of the media right fees of the English Premier League

Source: Hoehn/Kastrinaki (2012), p.26

As already mentioned the influence factor of the TV broadcasting revenues on the clubs’ seasonal budget cannot be underestimated. These revenues are one key driver for the purchasing power on the market for sporting talent.43 One main factor for these high earnings is that the negotiation with the broadcasters is made by the league in case of a collective selling. Hence, the revenues boost straight the clubs’ financial power because of very limited associated direct costs.44 If one talks about the system the leagues are selling their TV rights and the linked transaction costs, it leads to the question to whom the rights actually belong? Is it the property of the league as the organization body or do the clubs own the rights themselves?45

2.2.2 Legal background

In recent history several interventions and legal processes occurred concerning the combination of broadcasting and professional sports. The base for this line of legal discussions was built up on the Bosman ruling of the European Court of Justice in 1995. This ruling says that talents are allowed to move freely among clubs in the European Union. This paved the way for highly attractive club competitions on a European level combined with huge broadcasting revenue potentials. The collective selling of these media rights has called national and European legal authorities into action likewise,46 but for a better understanding the legal construct should be regarded from the base.

According to the European Court of Justice sport is a ”subject to Community law only in so far as it constitutes an economic activity within the meaning of Article 2 of the Treaty.”47 However, the professional team sports business sector features some specific characteristics compared to conventional economics which lead to the situation that clubs are not pure competitive rivals. They are in equal measure interested in a balanced competition and need the competitors to produce their “good”.48 This is the most distinctive difference in competitive relationships between undertakings compared to other markets.49

To pick up the topic of the rights’ ownership, several appending discussions and processes occurred on a national and European level. The conclusion of these processes is that generally the rights belong to the club50 as natural right owners and “the question whether federations may also have a claim to ownership in different circumstances has not been answered.”51 Furthermore, the European Commission and some national authorities declared that specific events in the sports sector are of a high importance for the society. For this reason the broadcasting of these events, like the FIFA World Cup final or the Olympic Games have to be provided for everyone.52 After regarding the legal frameworks in European Sports broadcasting one should have a closer look on the specific legal decisions concerning the target market, the European football.

All in all three leading Commission decisions were taken concerning the European sports broadcasting market. One decision mentioned the UEFA Champions league in 200353, one the German Bundesliga in 200554 and one the English Premier League in 2006.55 To facilitate the understanding for these discussions the theoretical background should be regarded.

All these processes occurred because the championships are organized by the league which acts in this dimension as a cartel.56 Due to the fact that this cartel sells the leagues TV rights collectively, it has been investigated by the European Commission in terms of cartel behaviour.57 The sports business sector has been treated by the European Commission because meanwhile it has a huge financial impact with yearly turn overs of round about 500 billion euros. Moreover, the sports sector supplies an enormous amount of jobs. Round about 15 million citizens are employed directly or indirectly in a sports-related employment.58

The common opinion in economics literature is that the collective selling is socially preferable and rather raises the competitive balance,59 furthermore in the pure theoretical analysis it is “obvious that any sharing agreement […] improves the competitive balance.”60 Concurrently other scientific papers have some doubts on this concept61 or suggest in turn the combination of an individual selling and a revenue sharing system. If the broadcasting rights selling systems are analyzed from a pure economical point of view in terms of market power and resource distribution, the individual one should be chosen. Within the collective selling a monopoly situation is created which affects a welfare loss with higher prices, lower output and therefore not ideally-distributed resources.62

The Commission accepted the collective selling of football broadcasting rights in the decision concerning the UEFA Champions League in 2003. This acceptation came along with different terms and conditions, hereby the transparency, the limited duration and the unbundling of rights were the key aspects which had to be fulfilled. According to the argumentation of the European Commission, these legal frameworks should provide a higher variety of football offered to the television spectators.63

The processes concerning the German Bundesliga in 2005 and the English Premier League in 2006 pointed in a similar direction like the Commissions’ decision of 2003. The collective selling is legally allowed and compatible with legislation of the European Union, if the mentioned key aspects are considered. In addition the non-discriminating aspect of the sales procedure was highlighted and should be guaranteed as well.64 Furthermore, the construct of collective selling has been loosened and the access for potential media broadcasters has been facilitated, especially in the new media sector, in favour of the football supporters.65

Besides these main processes some smaller decisions and discussion of the national authorities of the major football league countries in Europe should be mentioned. For instance, in Germany the cartel authority intervened in 2008 and 2010 in the sales procedure of the national broadcasting rights. The cause was that the cartel authority wanted to secure that the television spectators get some benefits as well out of the collective selling.66 These benefits are demonstrated in a highlight-broadcasting in free-TV which has to be provided contemporarily, broadly and not on a late-night slot in order that everyone is able to watch it.67 In the literature some controversial discussions appeared concerning this topic, partly combined with the question why the European Commission does not find a solution which is not only national-wide, but also Europe-wide valid. This would probably enforce the financial and competitive balance in European professional football.68

All in all it can be summarized that the sales procedure of the TV broadcasting rights has to be transparent, anti-discriminating, with a limited duration and split in several packages. A suitable final statement regarding the legal framework conditions of the TV broadcasting rights in football linked with the competitive balance is from Ross and Szymanski. This says that “a collective scheme to broadcast all or nearly all matches, with revenue shared to maintain competitive balance, might be necessary and hence lawful.”69

Some further political interventions will probably occur within the next years. For instance, the Spanish government has announced in 2013 that “a new law will be introduced that will obligate clubs to switch to a collective model for the sale of broadcast rights.”70 This field of legal decisions concerning the professional football and TV market is quite dynamic and will be picked up in the last chapter within the future prospects again.

3 Theoretical frameworks

3.1 Multi-sided markets

The theory of multi-sided markets has been developed during the last decade “in order to analyse markets that differ from ‘ordinary’ goods markets in regard to the customer structure.”71 Several definitions of multi-sided markets exist, a general one defines a multi- sided market if the following three requirements are fulfilled: firstly the existence of at least two distinct customer groups, secondly which are indirectly connected by indirect network effects, namely externalities. Thirdly these externalities cannot be sufficiently internalized. Conventional multi-sided markets can be found in markets like credit cards, media, software platforms, brokerage and many more.72

One comprehensive example, in which the three requirements are fulfilled, is the broadcasting market. The broadcaster as a supplier has two distinct customer groups, the readers and the advertisers, who buy advertisement space in the broadcastings. In standard economic theories these two groups would be analyzed with two distinct markets, a viewer market and an advertiser market. The issue of this classical view is that indirect interrelations between these two groups are neglected. Hence, maybe some important implications for competitive strategies of the suppliers will not be considered. Exactly for this reason the theory of multi-sided markets is integrated in this paper. The sports broadcasting market as well as the European professional team sports market have multi-sided characteristics. These specific characteristics ask for sufficient consideration while developing for example pricing strategies from the supply side.73

In the underlying example of the broadcasting market, increasing prices from the broadcasters would probably lead to a decreasing demand. Simultaneously the attractiveness of the advertising spaces would decrease due to a smaller audience. These interactions can be called indirect network effects and do not necessarily have the same effects the other way round. For instance, lower prices supplied by the broadcasters could lead to more demand, thus higher attractiveness for advertisers. A higher presence of advertisement in turn could lead to lower attractiveness for the readers. These indirect network effects or externalities are a special characteristic of multi-sided markets and have to be taken into account from the view of a rational entrepreneur.74

In addition the complexity rises further because broadcasters are acting in the downstream dimension on the supply side just as they are acting in the upward dimension on the demand side. Therefore, the broadcasting market is called “a market of two halves”75 which can be seen in the following figure:

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Figure 4: The sports broadcasting market

Source: Evens et al. (2013), p.39

To cope with this complexity the acting bodies should definitely aware of the multi-sided characteristic of the markets.

Applying the theory of multi-sided markets to the European professional team sports market, the leagues and the clubs are the product suppliers which offer their products to several customer groups. The following list of customer groups is not by guarantee totally distinct and exhaustive but it should demonstrate the complexity and multi-dimensionality of this market. One customer group consists of the attendees in the stadium, the second one is the media, mainly the broadcasting TV channels. Sometimes this group is consisting of several channels at once, for instance one pay-TV and one free-TV channel. The third customer group are the sponsors which provide money or services in return of media presence, tickets or image connection. If a club owns the stadium in which they are playing, a fourth customer group is added, persons, companies or institutions which are hiring the arenas for specific events. Not clearly distinct due to some overlaps with the first customer group but worth to mention, is the group of demanders for merchandise.76

This overview should be suggestive of the complexity of the sports business market, the high amount of different customer groups and the uncountable externalities and indirect interactions between the acting bodies. For all market players which appear in this paper the awareness of the multi-sided characteristic of the market they are acting in, is absolutely essential in regard to provide helpful implications for all strategic decisions.77

3.2 Analysis dimensions

3.2.1 Theory of competitive balance

The competitive balance is an economic concept which takes part in many scientific works concerning the professional team sports sector and plays a prominent role in the analysis of the leagues.78 79 As already mentioned the competitive balance is determining the attractiveness of a league, hence the success of a league. The more balanced a league is, the more interesting it is for the spectators. Spectators would not pay money to see a game, equal in the stadium or in television, if the result would be stated in advance.80 The problem is that sports leagues have a tendency to become dominated by a few clubs which is counterproductive for the competitive balance. The reason for these developments is the helix of financial and competitive balance.81 There is a high level of interdependency between the financial and the competitive balance which has to be regarded in detail in terms of cause and effect. A broader look on the related influence variables will be taken in the chapter 4.4. Nevertheless, to make a first note of this relation, more financial power offers in theory more possibilities to invest in talents and raises therefore simultaneously the sporting power.82

In general the competitive balance is equivalent to the uncertainty of outcome. Three types of this key component of economics of professional team sports are distinguished: the short-run or match uncertainty, the medium-term or within-season uncertainty and finally the long-term or championship respectively between-season uncertainty of outcome.83 The match uncertainty of outcome has the background “that spectators prefer close contents and are more likely to attend the next game if the teams are of much the same level of ability.”84 This type is measured in most cases by regarding the square of the difference in winning percentages respectively the current league standings of the participating teams.85

The within-season uncertainty of outcome deals with the question which team finally wins the championship. According to the literature several measurement methods exist.86 The most frequently used approach is a parameter linked to the Standard Deviation of winning percentages of the clubs in the league.87 The third type of uncertainty of outcome is the championship uncertainty and has a dynamic dimension because more than one season is taken into account. The easiest way to measure this dimension of competitive balance is to have a look at the final league rankings for a longer period.88 With regard to the statistical analysis of these final league rankings, several measurement tools exist.89 In chapter 5.1 within the method discussion this sector will be contemplated in detail.

The literature has discussed this important concept in the economics of sports very frequently with different results and conclusions. To give a brief summary the wide-spread opinion is that the uncertainty of outcome in the long run has significant positive effects on attendance and that supporters do not want to have the same champion every year.90 But critical views on this controversial concept exist. According to Downward and Dawson this phenomenon does not affect the attendance compared significantly and the effort which has been put in uncountable investigations seems not in proportion to the benefits.91 To round this point up “there seems to be no convincing body of evidence that sports leagues do evolve towards perfect balance.”92

In theory one can find several tools of the responsible institutions on the professional sports market to increase respectively maintain competitive balance. The most popular ones are salary caps, luxury taxes, rookie-draft systems and cross-subsidizations.93 The key factor, which distinguishes the two different media right selling systems, is revenue sharing. Revenue sharing is one type of cross-subsidization and has an impact on competitive balance. Therefore, this regulation tool will be highlighted later individually.

For the underlying research question especially the long-term dimension of competitive balance is of importance because only in the long run dependencies with the broadcasting rights selling system can be investigated.94 To circumscribe the market to analyse further, it should be noted that with regard to the extent and the comparability, solely the competitive balance within certain European leagues will be investigated, not on a European level.

3.2.2 Theory of media rights selling systems

In the literature one can find several pros and cons concerning the individual selling of the TV broadcasting rights in the sports sector. One of the main arguments against this system is that the decentralized system increases the financial gap between the rich and poor clubs or at least does not do anything to diminish this gap.95

In the individual selling system each club in the league is in charge to distribute the TV rights of its home matches by oneself for the highest possible price. This system leads to huge price variations because the price the broadcasters pay depends on the attractiveness of the participating clubs and the uncertainty of outcome. The uncertainty of outcome in turn determines the probable success the match will deliver to the broadcasters.96 Subsequently the successful clubs are able to generate higher TV rights revenues, spend more money on talent and will become increasingly stronger in the financial and sporting dimension.

In the long run such developments induce a lower uncertainty of outcome and a lower attractiveness of the league which all clubs want to hinder.97 Simultaneously the clubs want to be competitive on the European level which is quite difficult with lower revenues due to the centralized selling system. This leads to the paradox situation that dominating clubs on a national level want to distribute their TV rights themselves with the knowledge that this would probably come along with a negative impact on the overall success of the national league in which they are playing.98 These contrary opinions depending on the competition level ask for a discussion to find a consistent approach throughout Europe.

One further issue of the decentralized system is that the clubs have to deal with high transaction costs.99 In theory a club can sale each of its home matches individually. But even if one club sells its rights for a longer period, for instance seasonally, each club has to negotiate its own contracts. Meanwhile a lot of different packages or kinds of media rights can be sold, especially accrued with the New Media sector, which increases the transaction costs further if each package is bargained individually.100 These procedure leads to higher transaction costs combined with a lower net revenue in comparison to the centralized selling system.101

In contrast to the mentioned negative effects, these circumstances can also lead to some positive incentives. A higher level of competition, evoked by not only one supplier on the market but 18 to 20, could affect more efforts to negotiate the highest possible price for the media rights. Furthermore, the induced competition between the clubs on the market could lead to more efficient bureaucracy as well as more cost-effective procedures compared to a monopoly situation of a centralized selling system.102

The centralized system has the complementary advantages corresponding with the negative aspects of the decentralized system and reversed. The transaction costs are by far lower because only one institution has to bargain the media rights and in most cases for at least one season.103 Furthermore, the centralized media rights selling system is combined with a specific distribution key which determines the revenue sharing within the league. Revenue sharing reduces the financial cleft between poor and rich clubs which improves theoretically the competitive balance in the league.104

However, the main and recurrent point of criticism of the centralized selling system is that the league is a natural monopoly with all linked effects due to monopolistic behaviour.105 The following figure displays the theoretical construct of the mentioned effects:

illustration not visible in this excerpt

Figure 5: Monopoly versus perfect competition

Source: Késenne (2007), p.21

In a perfect competition the equilibrium is given at the point where the demand curve meets the marginal cost curve, namely the point E2. In contrast the equilibrium under monopoly consists of the intersection of the marginal revenue curve and the marginal cost curve, namely E1. As one can see in the figure, the monopoly situation affects higher prices combined with a lower outcome compared to perfect competition.106

Therefore, the owners, irrespective of the discussion who owns the rights, should have a high interest in keeping the monopolistic situation under a central TV rights selling.107 Of course some clubs claim to change the system but these reasons rather point at specific details like the revenue sharing part and European comparability.108 The broadcasters rationally should be interested in a broad and competitive supply market of TV rights. In turn, the monopolistic situation on this market offers in some cases a monopolistic situation on the broadcasting market109 as well with only one supplier for the public.110 These circumstances point to an important fact, namely that the supporters and spectators experience the negative effects out of the monopolistic market situations in the strongest way.111

At this point of the theoretical framework, it should be absolutely noted that the way a league is selling its TV broadcasting rights is theoretically independent from any kind of revenue sharing.112 In practice in the European major football leagues, the centralized selling system is combined with a kind of revenue sharing. However, it should be added that it would be absolutely possible to introduce a revenue sharing system in a league with a decentralized media rights sales approach.113

Before the revenue sharing will be regarded in more detail in the following chapter, it should be mentioned that in the latter analysis only the analysis dimensions “competitive balance” and the “TV broadcasting rights selling system” will be taken into account. Due to the noted reasons and the fact that it is directly connected with both analysis dimensions, the revenue sharing should be contemplated solely which justifies an own subsection in this chapter.

3.2.3 Theory of revenue sharing systems

One of the tasks of the institution, which organizes a professional major football league, is to coordinate the clubs’ activities. Beside the framework conditions like the rules of the game, ownership regulations and license guidelines, some interference occur, mainly to raise or maintain the competitive balance. The most frequently used way of interference is the crosssubsidization in a league. Different kinds of cross-subsidizations exist, traditionally the leagues mainly intervened in the sports labour market or the distribution of the clubs’ revenues, hence revenue sharing.114

In the European sports market almost all leagues practise some kind of revenue sharing. According to Késenne revenue sharing is defined “as a distribution or redistribution of money in the sense that money that is earned by one club is given to other clubs.”115 This form of cross-subsidization seems reasonable because different market features, like a prohibited reallocation of a team and a restricted entry into the market, create strong natural differences concerning the market power. To guarantee the financial and sporting balance, revenue sharing is a popular intervention tool of the several league organizations. If one looks at the theoretical economic background of this kind of cross-subsidization, it is useful to analyze the following graph which is applied on a win maximization affected market. Compared to a profit maximization market, the talent distribution is less equal.116

illustration not visible in this excerpt

Figure 6: Revenue sharing under win maximization

Source: Késenne (2007), p.112

Again the figure shows the two-club model and one can see the equilibrium of talent demand without revenue sharing in point Ew, where the net average revenue curves of the small and the big market club intersect. This point shows the average price for a talent unit and the talent distribution of both clubs. If now a pool sharing takes place, for instance of the media revenues, the demand on talent of the small market club increases whereas the demand on talent of the large market club decreases due to lower revenues. These developments lead to new net average revenue curves of the clubs, hence a new equilibrium in point E*w. As one can see the talent distribution is now more equal, however the price per talent unit rose. The total league revenues also increased because the new equilibrium shifted closer to the equilibrium of a profit maximization market,117 in which the marginal cost curve equals the marginal revenue curve.118

In practice several forms of revenue sharing exist, the two most popular ones are gate revenues sharing and pool revenue sharing. The gate revenues are the earnings a club gets from the spectators in the stadium. Some leagues in US sports are practicing this kind of cross-subsidization, for instance in the National Football League with a distribution key of 60:40 in favour of the home team.119 In the European national football championships, gate revenue sharing is very rare and monetary to neglect.

[...]


1 Cf. http://fcb-erlebniswelt.de/en/history/honours/

2 Cf. http://www.dfb.de/index.php?id=311002

3 Cf. Berger (2013), p.7

4 Cf. http://www.sueddeutsche.de/sport/spanische-verhaeltnisse-in-der-bundesliga-da-lachen-ja-die-huehner-1.1649661, web

5 Cf. http://www.kicker.de/news/fussball/intligen/startseite/578676/artikel_leere-raenge_zuschauerschwund-in-der-primera.html, web

6 Cf. http://www.spox.com/de/sport/fussball/international/spanien/1108/News/streit-um-tv-gelder-primera-division-fernando-roig- fcvillarreal-barcelona-real-madrid.html, web

7 Cf. http://www.wiwo.de/sport-bayern-kassiert-mehr-tv-geld-als-meister-dortmund/6605912.html, web

8 Cf. http://www.deloitte.com/assets/Dcom- Germany/Local%20Assets/Documents/06_CBuTransportation/2012/CBT_Highlights_ARFF%202012.pdf, web

9 Cf. Schulze (2003), p.8ff

10 Guba/Lincoln (1994), p.107

11 Cf. Schulze (2003), p.11f

12 Cf. Guba/Lincoln (1994), p.111ff

13 Cf. Schulze (2003), p.9

14 Cf. Késenne (2007), p.5

15 Cf. Késenne (2007), p.35

16 Cf. Ibid., p.35ff

17 Cf. Vöpel/Steinhardt (2008), p.5

18 Cf. Deloitte (2013), p.6

19 Cf. Dobson/Goddard (2001), p.24

20 Cf. http://www.superliga.dk/forside.html, web

21 Cf. http://www.bundesliga.at/index.php?id=558, web

22 http://www.bbk.ac.uk/management/mscmres/publications/seanpublications/agameoftwohalves/Gof2H-chap6.shtml, web

23 Cf. Dawson/Downward (2000), p.20f

24 Cf. Noll (2003), p.1

25 Cf. Bravo et al. (2011), p.79

26 Cf. Noll (2003), p.7f

27 Cf. Ibid., p.9ff

28 Cf. http://eurorivals.net/tables.html, web

29 Cf. Noll (2003), p.22f

30 Cf. Ibid., p.28f

31 Nafziger (2008), p.101

32 Cf. Nafziger (2008), p.100f

33 Dolles/Södermann (2013), p.130

34 Cf. http://www.deloitte.com/assets/Dcom- Germany/Local%20Assets/Documents/06_CBuTransportation/2012/CBT_Highlights_ARFF%202012.pdf, web

35 Cf. Gortazar (2012), p.1

36 Cf. Ibid., p.1

37 Cf. http://www.welt.de/sport/fussball/article106188773/Die-Bundesliga-feiert-einen-Quantensprung.html, web

38 Cf. Andreff/Bourg (2006), p. 37

39 Cf. Clarke (2002), p.14

40 Cf. Cave/Crandall (2001), p.13

41 Cf. Ibid. (2002), p.14

42 Cf. Hoehn/Kastrinaki (2012), p.4

43 Cf. Ibid., p.2

44 Cf. http://www.deloitte.com/view/en_GB/uk/industries/sportsbusinessgroup/sports/football/deloitte-football-money-league- 2011/1cf28c129dffd210VgnVCM2000001b56f00aRCRD.htm, web

45 Cf. Falconieri et al. (2004), p.836

46 Cf. Hoehn/Kastranaki, p.7

47 European Court of Justice (1974), Case C-36/74, p.14

48 Cf. Dawson/Downward (2000), p.20f

49 Cf. European Commission (1999), Directorate General X, p.14

50 Cf. http://www.thefreelibrary.com/The+impact+of+pooling+and+sharing+broadcast+rights+in+professional...-a0206866155, web

51 European Commission (1999), Directorate General X, p.14

52 Cf. Kruse (2008) , p.160f

53 Commission decision of 23 July 2003, Case 37398 Joint selling of the commercial rights of the UEFA Champions League, OJ 2003 L 291/25

54 Commission decision of 19 January 2005, Case 37214 Joint selling of the media rights to the German Bundesliga, OJ 2005 L 134/46

55 IP/06/356: Competition: Commission makes commitments from FA Premier League legally binding, 22 March 2006.

56 Cf. http://www.thefreelibrary.com/The+impact+of+pooling+and+sharing+broadcast+rights+in+professional...-a0206866155

57 European Commission (1999), Directorate General X, p.14

58 http://europa.anja-weisgerber.de/en/medien/presseschau/presseschau/article/das-weissbuch-sport-macht-fifa-boss-blatter- richtig-wuetend.html, web

59 Cf. Falconieri et al. (2004), p.

60 http://www.thefreelibrary.com/The+impact+of+pooling+and+sharing+broadcast+rights+in+professional...-a0206866155, web

61 Cf. Késenne (2007), p.20f

62 Cf. Ibid., web

63 Cf. IP/03/1105: Commission clears UEFA's new policy regarding the sale of the media rights to the Champions League, 24 July 2003

64 Cf. European Union (2008), Volume C7, p.1

65 Cf. IP/05/62: Competition: German Football League commitments to liberalise joint selling of Bundesliga media rights made legally binding by Commission decision, 19th January 2005

66 Cf.http://www.bundeskartellamt.de/SharedDocs/Meldung/DE/Pressemitteilungen/2008/18_12_2008_Jahresr%C3%BCckblick- 2008.html

67 Cf. http://www.bundeskartellamt.de/SharedDocs/Meldung/DE/Pressemitteilungen/2012/13_01_2012_DFL.html

68 Cf. http://www.faz.net/aktuell/sport/sportpolitik/eu-kommission-dem-sport-passt-das-weissbuch-nicht-1461256.html

69 Ross / Szymanski (2000), p.4

70 http://www.goal.com/en-za/news/4633/soccerex/2013/04/19/3915253/government-to-push-through-spanish-footballs-switch- to, web

71 Cf. Budzinski/Satzer (2011), p.5

72 Cf. Budzinski/Satzer (2011), p.8f

73 Cf. Evens et al. (2013), p.39f

74 Cf. Budzinski/Satzer (2011), p.8f

75 Evens et al. (2013), p. 38

76 Cf. Budzinski/Satzer (2011), p.11ff

77 Cf. Ibid., p.24f

78 Cf. Byers et al. (2012), p.13

79 Cf. Késenne (2007), p.10

80 Cf. Marques (2002), p.1

81 Cf. dell’ Osso/Szymanski (1991), p.116

82 Cf. http://www.bbk.ac.uk/management/mscmres/publications/seanpublications/agameoftwohalves/Gof2H-chap6.shtml, web

83 Cf. Késenne (2007), p.10

84 Dawson et al. (2009), p.207

85 Cf. Késenne (2007), p.10

86 Cf. Dawson et al. (2009), p.214

87 Cf. Késenne (2007), p.10

88 Cf. Ibid., p.11

89 Cf. Dawson et al. (2009), p.219ff

90 Cf. Késenne (2007), p.10f

91 Cf. Dawson/Downward (2000), p.133ff

92 Dawson et al. (2009), p.234

93 Cf. Dietl/Lang (2007), p.2

94 Cf. Késenne (2007), p.11

95 Cf. Breuer et al. (2010), p.6

96 Cf. Ullmann(2008), p.4f

97 Cf. Groot (2008), p.25

98 Cf. Gaede/Schewe (2002), p.157

99 Cf. Evens et al. (2013), p.41 100 Cf. Lefever (2010), p.86f

101 Cf. Késenne (2007), p.22f

102 Cf. Ibid., p.22f

103 Cf. Dawson/Downward (2000), p.163104 Cf. Ibid., p.21f

105 Cf. Noll (2002), p.32f

106 Cf. Késenne (2007), p.20f

107 Cf. Dawson et al. (2009), p.192f

108 http://www.sueddeutsche.de/sport/kritik-von-innen-fc-bayern-boss-rummenigge-wendet-sich-von-g-ab-1.882895 109 Cf. Peeters (2011), p.5

110 Cf. Gortazar (2012), p.4 111 Cf. Késenne (2007), p.23f

112 Cf. Quitzau (2010), p.9

113 Cf. Késenne (2007), p.22

114 Cf. Dawson et al. (2009), p.234f115 Késenne (2007), p.101

116 Cf. Késenne (2007), p.101

117 Cf. Késenne (2007), p.110ff

118 Cf. Ibid, p.35

119 Cf. Dawson et al. (2009), p.238

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Details

Title
Collective selling of media rights as instrument for competitive balance in European major football leagues
College
University of Southern Denmark  (Economics and Business Administration)
Course
Sports and Event Management
Grade
1,7
Author
Year
2014
Pages
95
Catalog Number
V283662
ISBN (eBook)
9783656833185
ISBN (Book)
9783656833192
File size
1493 KB
Language
English
Tags
collective, european
Quote paper
Jonas Loewe (Author), 2014, Collective selling of media rights as instrument for competitive balance in European major football leagues, Munich, GRIN Verlag, https://www.grin.com/document/283662

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