Capitalism and European Soccer League

The problems created by the concentration of economic power, a trend that's now universal across business segments and geographies, has been a recurrent theme of this blog. Corporate interests invariably seek to change rules of the game and raise entry barriers, thereby lowering competition and blunting capitalism's productive forces. 

A recent reassuring example that not all is lost in the fight against such anti-competitive form of capitalism came from European football league. 

On April 18th a dozen of Europe’s top football clubs announced plans to disrupt the game with a breakaway “Super League”... The plan was for 20 clubs to compete in a Europe-wide league, kicking off in August. Fifteen “founding” clubs would be guaranteed a spot every year, with the remaining five places awarded competitively... Investors cheered. But fans revolted, broadcasters turned up their noses and governments vowed to block the plan. Within 48 hours half of its founding members dropped out. It was soon declared dead... The 12 clubs that broke cover comprised England’s “Big Six” (Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham), plus three from Spain (Barcelona, Atlético Madrid and Real Madrid) and three from Italy (ac Milan, Inter Milan and Juventus... JPMorgan Chase was to stump up €3.3bn ($4bn) of financing to get the league off the ground.

This interesting snippet explains the motivations,  

The venture’s stated aim was to give the world’s best clubs more chances to play each other than Europe’s main existing club competition, the Champions League. Barcelona and Bayern Munich have faced each other fewer than a dozen times in their history. Big clashes would bring in more viewers and more money: the Super League’s organisers had hoped that broadcasting rights might generate €4bn a year, nearly double the €2.4bn brought in by the Champions League in the 2018-19 season... 

Automatic qualification looked even more appealing. Unlike American teams, European sides play in open leagues, where poor performers get demoted to a lower tier, with stingier broadcasting and sponsorship deals. Club owners thus gamble on making it to the top, investing generously at the expense of profits. In closed contests like America’s National Football League (no relation to what Americans insist on calling soccer), clubs face no risk of relegation and so co-operate more. “Draft” systems allocate talent more equally and wages are often capped—something that the Super League hinted it might do, via an agreed “spending framework”. Clubs in closed leagues must worry only about economic competition from rival leagues, which require more upfront investment to start than an individual club. The combination of less risk and less competition for talent produces higher profits for owners. Forty-three of the world’s 50 most valuable sports teams are American, according to a ranking last year by Forbes magazine. By contrast, European sport is a dicey business: between 1992 and 2014 there were 45 insolvencies in the top three tiers of English football, 40 in France and 30 in Germany. “Football is essentially insolvent,” notes Stefan Szymanski, a sports economist at the University of Michigan. Without their deep-pocketed owners, most clubs would not be going concerns.

The backlash among fans was so much that JP Morgan apologised for backing the breakaway league. The FT has this long read about the episode.  

Some observations

1. The theory of Econ 101 inform us that competitive markets create fair and efficient outcomes. It is argued that business competition spurs dynamism and innovation, which in turn enhances quality and lowers prices. It's also argued that this competition keeps everyone honest and thereby prevent market abuse. 

However, in the real world, markets across sectors, when allowed to operate untrammelled, increasingly end up concentrating market share among a few companies. The dynamics of market evolution - aided by trends in technology, consumer tastes, marketing, and regulatory capture - leads to the emergence of dominant firms. The death-blow to competition comes from the emergence of entry barriers, often implicit or innate to the service or product. This results from the dynamics of the prevailing elite-captured political economy. 

Karl Marx was profound in claiming that there is an inexorable trend with the internal dynamics of capitalism which leads to exploitation and market abuse. The "competitive" world of European soccer league has resulted in this deeply anti-competitive denouement, one which US reached several decades back.

2. On a related note, despite its enduring image as the land of competitive capitalism, there is a case that American capitalism was always characterised by corporate power. It's success may have been because despite the dominant trend, there were always spaces available within the system which allowed for innovation and disruption. Anyways, in the world of multiple equilibriums, the US economy, for whatever reasons, had settled on to its own unique equilibrium which fortunately turned out to be productive and innovative. 

The US soccer league is a great example of such closed-club capitalism. The cabal which run NFL have effectively captured the market with its captive consumers, and nobody even realises it. The entry barriers are insurmountable. 

3. As the example of JP Morgan's support shows, Big Finance is never far away when Big Corporates make their moves. Thanks to financialisation, Big Finance and Big Corporates are all part of one Big Capital universe. With the scale of economic inequality, Big Capital has managed to seize control of the decision-making processes in the political system.  

4. The example of the European soccer league highlights the power of organised consumers, in this case fans. When consumers can overcome collective action problems and come to collectively exercise their preferences, that's a powerful check against Big Capital. It helps that European clubs are strongly tethered to their cities and communities of origin. 

Unfortunately, unlike club football and fans, collective action failures are the norm elsewhere. Machiavelli famously alluded to the "uncertain support of the powerless many (customers and community) compared to the strong enemity of the powerful few (the oligopolists)". New entrants face the same forces in modern capitalism.

Update 1 (30.04.2021)

FT reports that PE fund Silver Lake has taken a 12.5% stake (at USD 281 m) in the commercial rights of the entity that runs the New Zealand's All Blacks rugby team, despite opposition from players' association. 

The deal, if approved by the association, would initiate a battle for influence in one of the world’s most popular sports between Silver Lake and rival CVC Capital Partners at a time when the Covid-19 pandemic has smashed the rugby revenue stream. Luxembourg-based CVC already owns minority stakes in the English Premiership, Pro14 club competitions and the Six Nations. It has also held talks with South Africa, the reigning world champions, about buying a 15-20 per cent stake in the sport’s commercial arm in the country... New Zealand Rugby made a loss of NZ$34.6m in 2020 on a NZ$55m revenue fall caused by the coronavirus pandemic, which has disrupted fixtures.