Seminar Paper, 2016
II. List of Figures
1.1 Recap of the current situation
2. The economic factors of markets
2.1 General Information about Supply and Demand
2.2 Differentiations between goods
3. Details and conclusions of The British Premier League TV deal
Graphic 1: Supply and Demand
Graphic 2: Switch in Supply and Demand
As we look into the summer of 2016, there´s a huge sports event in Europe upcoming which has a high influence on the economy, especially on the economy of the country France. In July, the European Soccer Championship is taking place in France, a country, which was affected by a situation of terrorism during a match between Germany and France. This tournament has a high international attention and will be watched by millions of people all over Europe and even besides the borders of Europe. During this competition, a lot of famous soccer players have the chance to show them and proof their skills to maybe get hired from a more successful club and get a new contract with a higher income. The situation of hiring players for a very high transfer fee is becoming more and more realistic and usual. The current top transfer worldwide is officially held by Gareth Bale, when he moved to Real Madrid for an amount of 86 Million GBP (cf. Most expensive transfers). It is expected that the prices of transfers will increase even more in the future. The following assignment will be a connection between the soccer market, mainly focused on Europe, and the economic aspects, which have an influence with market factors, especially the supply and demand parameters. After doing a short recap of the current situation, the main economic aspects will be explained. After this mainly scientific part, a connection between a situation with a high impact in the European Soccer Market will be connected to the scientific aspects to show an overview of the switch in some economic factors due to this situation. Afterwards, an example with a short financial comparison will undermine this example, before closing with a short future view.
When talking about the European Soccer Market, there are several countries with different leagues and reputations in Europe. The major countries which represent most of the top clubs in the European Champions League are Spain, Italy, Germany and England, followed by France and Portugal. The European Football Association (UEFA) has developed a ranking system which shows the success of the different leagues (cf. UEFA rankings for club association). This ranking has a high influence due to the fact that it defines how many clubs of a league play in the international season. Therefore, a national league has a high interest in being top of the UEFA ranking to get the most slots for their national clubs. This has on the one hand marketing reasons, because the UEFA Champions League and the UEFA Europa League have a high reputation and the representing clubs are placed in international television and get more attention. On the other hand, there are financial reasons. Every club which represents his league in a European tournament generates more turnovers and can strengthen the national league.
In addition to the income due to European tournaments, one of the major sources to generate turnover for the clubs is income due to TV-contracts. For the different leagues, there are negotiations between the representative league and the suppliers for this market, for example Sky. Normally, those contracts last for some years and the suppliers pay an amount for the rights to publish the matches of the league.
In Europe, there are some differences between the major leagues regarding the concept of selling the TV-rights to suppliers. The Spanish “La Liga” had a de-central concept, where the club itself negotiates with the main suppliers. After long discussions and influence from the government, the Spanish Liga will switch to a central system which has a high influence especially on the earnings of the lower clubs (cf. Example la Liga). In most other top leagues in Europe, the central TV-marketing system is established.
To summarize those facts, a league has a high interest of generating as much earnings as possible to ensure clubs get the best players and coaches to be successful in European Tournaments and collect points for the UEFA ranking, so the national league gets the most slots as possible to send their clubs to the Champions- or Europa League. Representing their league there, the clubs get reputation which increases the potential viewers of the national league and therefore generates earnings.
The following part will give an overview of the economic background information needed to analyze the market factors and build up the basic knowledge to analyze the changing impact of situations in the market.
When talking about economic factors, the two most popular words that are mentioned in every article or scientific source are “Supply” and “Demand”. For sure, there are several more factors in economic markets. But as Mankiw and Taylor mentioned “supply and demand are the forces that make market economies work” (Mankiw, Taylor; 2010; Page 63). Those two aspects are part of Macroeconomics. The whole economic research is mainly structured in the two parts of Microeconomics and Macroeconomics. One of the first steps to understand how economic markets work is to understand what the differences between Microeconomics and Macroeconomics are. Microeconomics is mainly focused on the decisions of just a few parties in a market, for example two companies competing about a local market situation. Compared to that, Macroeconomics is looking on how decisions of all parties in the market, not just a small focused group, have an influence on the economic factors (cf. Miles, Scott, Breedon; 2013, Page 8). In general, both parts are linked together. Macroeconomics is the sum of hundreds or thousands of markets, which are all explained by Microeconomic principles (cf. Burda, Wyplosz; 2005; Page 11).
Going into deep with those two factors, we start with the demand factor. The demand factor represents for which price of a good or service which quantity is demanded. The normal case is that with an increasing price of a good or service, the demand decreases.
The second factor is the supply factor. It represents to which price how many goods or products are supplied by the suppliers of a market. In a standard market approach, the supply curve increases with an increasing price, as the suppliers are getting more turnover. In addition to these two factors, the price is an important factor to find the spot where supply and demand meet (cf. Mankiw; 2013; Page 8 and 9).
The following graphic shows the relationship between the supply factor, the demand factor and the price in a typical market situation.
Graphic 1: Supply and Demand Abbildung in dieser Leseprobe nicht enthalten Source: Own creation, according to Mankiw; 2013; Page 9
The graphic shows as that for a price of zero, the demand for this good or service is 10. With an increasing price P, the demand for the good or service is decreasing until there is a demand of zero when the price is ten.
Watching at those two graphs, one increasing and one decreasing, we see the fact that those two graphs are crossing each other at one point. This point is called the market equilibrium. This situation shows the point where the demand meets the supply. Coming back to the above mentioned graphic, the equilibrium price and the equilibrium quantity are at a point of five.
An important factor is that like nearly all models, the above mentioned example is a simplifying one. There are no personal preferences of an individual and assumes that all pizzerias are same quality, same price and same location, which is not the case in real market situations. In fact, different pizzerias can have different prices for the same pizza (cf. Mankiw; 2009; Page 11).
This fact is important to understand the usage and the assumptions of this model. If we take the supply and demand factors as our major ones from the above shown model, both of these factors are highly dynamic and can change quickly.
If we stay at the above mentioned pizza-case, the factor demand can change in two directions. It could increase or it could decrease. One reason for this can be a change in the individual budget which could result in an increase or in a decrease, depending on a positive or a negative change in the individual budget. If we assume that we will spend still the same percentage of our income on eating pizza, which is the assumption of the simplified model, then an increasing income would result in an increase of our pizza demand. We are willing to pay more. The demand curve would then change, if the price stays the same.
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