Financial Fair Play: Europe and Italy. An Economist s Viewpoint

Transcription

1 Financial Fair Play: Europe and Italy An Economist s Viewpoint Gianmarco Ottaviano Professor of Economics, LSE & U Bologna Bocconi U, Milan 12 January 2016

2 Financial Fair Play Rules (FFPR) as Industrial Policy Two key issues: 1. Should football clubs be considered as profit-maximizing businesses (vs. benefactor owners, community assets, non-profit organizations, etc.)? 2. Should competitive balance (i.e. the uncertainty in the outcome of the contest) be considered as a unique defining feature justifying special treatment for the football industry?

3 Competitive (Im)balance It is not the type of outcome you ever expect to see in a match involving one of the world's greatest football teams, played in one of the world's finest leagues (Daily Mirror, 21 December 2015)

4 Competitive (Im)balance Real Madrid score 10 - become first top European side to hit double figures in THIRTY years (Daily Mirror, 21 December 2015) Last time in: England (Dec 1963): Fulham - Ipswich Town 10-1 Italy (May 1948): Torino - Alessandria 10-0 Germany (Oct 1984): Borussia M - Eintracht B 10-0 France (Sept 1965): Bordeaux - Stade F 10-0 Spain (Feb 1960): Real Madrid - Elche. 11-2

5 Popular View among Economists The importance of competitive balance and the fact that clubs are not profit-maximizing businesses makes football different from other industries FFPR: Impose regulations based on the opposite idea that clubs are profit-maximizing businesses Are likely to have a negative impact on competitive balance On both counts FFPR seem to be besides the point and therefore misplaced

6 Alternative View Economists tend to focus too much on details and thus end up missing the reality of European football in the XXI century Considering football as a special industry, they tend to forget that football faces pretty much the same challenges and opportunities of other industries in the age of globalization and accelerated technological change European football increasingly competes for attention (and thus survival money) with other sports and also other forms of (thrilling) entertainment UEFA can be seen as a showcase ("cartel"?) for European football that allows clubs' brands to better compete globally with their rivals (not only in football, e.g. recent bombardment of NBA coverage in Italian media)

7 Key Issues 1. A first issue is whether clubs should indeed be considered as profit-maximizing businesses : The answer affects how contributions from equity participants and/or related parties should be treated 2. A second issue is whether the defence of competitive balance is indeed a sound reason not to consider football clubs as profit maximizing businesses: The definition of competitive balance is itself debatable (e.g. dispersion of what, at which level: national or supranational)

8 Key Issues (Continued) 3. A third issue is that there is very little evidence on the value of competitive balance for football fans and clubs: Ample room for more evidence-based discussion 4. A fourth issue is that the extent to which the pre-ffpr situation preserved competitive balance is itself questionable

9 My Conclusions Based on all this, my opinion is that football clubs should be considered as profit maximizing businesses With some specificities football is a "joint product" FFPR can help protecting European football from bad business practices, dangerous injections of sometimes opaque and often volatile benefactor money as well as from the perverse effects of debatable instances of financial alchemy (such as TPOs and TPIs) Through their exemptions, FFPR also encourage broader goals in terms of investments in tangible fixed assets, youth development, community development that were at the origin of the football movement (traditional values and financial stability can go hand in hand)

10 My Conclusions (Continued) In essence, FFPR should be seen more about making the future of European football sustainable than about defending competitive balance per se: In several industries globalization and technological change are fostering the concentration of resources (finance but also talent ) towards the most efficient firms This concentration in turn promotes industry efficiency We should start thinking much more in terms of competition between European football and rival forms of (sport/nonsport) entertainment than in terms of competition within European football Synergies between the "showcase" and the "brands"

11 Some (Very) Selected Further Readings Bellinazzo Marco (2015) Goal Economy. Come la finanza globale ha trasformato il calcio, Baldini e Castoldi. D Andrea Angelo and Donato Masciandaro (2016) Financial Fair Play in European Football: Economics and political economy, BAFFI CAREFIN Centre Research Paper Series No D Orsogna Paola e Gianmarco Ottaviano (2011) Review of Football Economics and Policy, Journal of Economic Literature, Vol Szymanski Stefan (2010) Football Economics and Policy, Palgrave Macmillan.