Picture the scene: England are playing Brazil in the semi-final of this year’s World Cup. The match has gone to a penalty shoot-out. The score is tied at 4-4 as Frank Lampard steps up to take the kick that could break a 44-year hoodoo. All over the country, soccer fans hide heads in hands, unable to watch — as do the marketing men from the companies selling beer, replica soccer shirts, flat-screen TVs and even garden gnomes dressed in the England kit.
As events in South Africa this week will show, the notion that soccer is just a game is as old-fashioned as lace-up balls and bandy legged wingers. It is both a big business and a subject for serious academic research. Finance directors see it is as a money-making opportunity. Macroeconomists will study whether the competition provides a shot in the arm for South Africa’s growth prospects or the sort of financial burden that dogged Montreal for decades after the 1976 Olympics.
And while England versus Germany or Brazil versus Argentina is the sort of contest that excites the fans, the contest between the top economists and the statisticians to assess which sides will do well this year is just as keen. Fresh from outperforming the bookies in predicting the outcome of the Eurovision Song Contest, the statisticians who compete on the Kaggle Web site are confident they can see off anything that Goldman Sachs, JP Morgan or UBS throw at them.
Since the first World Cup in 1930, only seven countries — Brazil, Italy, Germany, Uruguay, Argentina, France and England — have lifted the trophy. However, recent research has shown that globalization could help to make tournaments more open. A former World Bank economist, Branko Milanovic, looked at the impact of labor mobility on soccer. His conclusion was that the influx of African players into the Premiership made the English domestic game less open, since the concentration of overseas talent at the big, rich clubs made it much harder for a small club to win the title than it was in the 1960s and early 1970s, when there were strict restrictions on foreign players.
By contrast, foreign players such as Kolo Toure benefit from playing in the Premiership and the added experience helps narrow the gap between national teams. If the Ivory Coast give Brazil and Portugal a run for their money in this year’s Group of Death, Milanovic will be proved right.
Another paper has shown that the massive wages paid to soccer players may be worth it. A 2002 study comparing US baseball with English soccer found that the teams paying the highest wages — be they the New York Yankees or Manchester United — tended to outperform teams that paid their players less lavishly. However, only in England was it possible to identify that higher wages led to greater success rather than vice versa.
An economic briefing from Commerzbank suggests, however, that success on the field has not fed down to the bottom line. The bank cites research that shows the 20 clubs in the English Premiership have combined debts of £3.1 billion (US$4.4 billion) on turnover of £1.8 billon, which implies an average debt-to-income ratio of 173 percent. To put that in context, it’s worse than the state finances of Greece.
Nor are the financial problems confined to clubs like Portsmouth, which went bankrupt during the last season. Commerzbank said that the revenues raised by soccer clubs look unimpressive against those of “real” companies.
“To take one example, Robert Wiseman Dairies is one of the smallest companies in the FTSE 250 index, but in the year to March 2010 it generated revenue of £886 million [almost 3.5 times that of Manchester United] and a net profit of £35.8 million, versus a reported loss of £45 million for Manchester United in the year to June 2008,” Commerzbank said.
However, the real money in soccer is not generated by the clubs, but by those industries that have used it as a way of marketing their products. Global TV rights for the World Cup will bring in about US$2 billion with a further US$1 billion or so from corporate sponsorship.
The current Sky contract to televise the Premiership costs £1.62 billion, and it is that — rather than the gate receipts — that allows soccer clubs to spend lavishly in the transfer markets. It is the ratcheting up of transfers and salaries during the most severe recession since the World War II that has left some economists wondering whether soccer will be the last bubble to burst.
Germany, Commerzbank said, organizes its teams differently, with a non-profit-making model under which members of the club own more than 50 percent of the shares.
“This is designed to prevent private investors from owning clubs, and thereby wreaking the sort of havoc on club finances which is now a feature of the English game,” Commerzbank said.
In the meantime, game theorists will be eagerly awaiting those penalty shoot-outs that have so often brought heartbreak to England. A whole branch of the profession now studies penalty data, such as whether the way Holland’s Johan Neeskens took a penalty in the first minute of the 1974 final led to an increased probability of spot-kicks being scored ever since. Memo to Lampard et al: Neeskens stuck it straight down the middle.
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