Economic Concepts Applied to Football

Simple supply and demand

For most sides in the Premier League there is excess demand, but perfectly inelastic supply. Whilst this is hardly ideal for these clubs, inequalities between supply and demand can be fatal for smaller clubs. Darlington Football Club are the classic example of this – only their demise came about due to excess supply. Up until 2003, the club played at Feethams, with a capacity of 8,500. The average crowd they pulled in this season was 3,312 – whilst significantly lower than capacity this is the norm for clubs of that level. However, it was an ill-fated move to the Reynolds Arena in the 2003-04 season that sparked the beginning of the end for the club. Bizarrely, the chairman had chosen to build a 25,000 all seater stadium despite the low crowds Darlington attracted. This was an economic disaster and the money spent on the stadium was simply never recouped from entrance fees. Add this to the fact that money was raised for construction from high interest loans and the club was always going to be in trouble. The maintenance and running costs for such a large stadium were huge, and it wasn’t long before the club was driven into administration – just 6 months after they moved in. Whilst money was raised to keep the club going in the short term it was simply not sustainable and the club went bust in 2011

Veblen goods

Veblen goods do not follow the standard demand curve. They are goods for the elite that contain more status value than utility for consumers. A rise in price would lead to a fall in demand for normal goods but not for Veblen goods. This can be applied to certain tickets for football matches at the top level. The ‘Club Wembley’ is a perfect example of this. It is certainly not your average football fan who would buy tickets for these exclusive seats, with prices at £173 per person per event with there being an average of 12 events per year. Despite these high prices there are a number of people who are happy to pay these prices; mostly corporate businessmen. According to theory of Veblen goods, the tickets are for status rather than utility and a higher price would make the tickets even more exclusive – driving up the status of the tickets. Whilst this may price out a few smaller businessmen who cannot afford the rising prices other richer people may be attracted by the enhanced status they will gain by buying the tickets instead. It therefore makes sense economically to raise the prices of Club Wembley membership significantly to raise prices without a significant cost on demand, with the overall result being an increase in revenue

‘Pay what you want’ theory

For many clubs in the lower reaches of English football raising crowds and therefore income is a major priority. There have been a number of strategies to do this, with simply lowering prices the most common one. This rarely works however as demand for tickets at such small clubs is relatively inelastic with so much competition from live football on TV – most clubs have a relatively consistent fan base. More drastic measures are needed to raise attendances then. One of these methods is the ‘pay what you want’ scheme in which spectators may pay whatever they please to attend the game, where standard ticket prices are usually between £10 and £12. Ayelet Gneezy did some interesting research into this idea, with the results very striking. 2 scenarios were set up at a theme park photo booth – a simple ‘pay what you want’ scheme and a similar scheme where half the money paid went to a charity. Perhaps surprisingly 8.39% of people offered the first option bought the picture, whilst only 4.49% bought the picture when half of the money went to charity. However the average price paid without money going to charity was $0.92, compared to an average of $5.33 for the other option (with $2.67 of that going to the photo booth). The way forward for small non-league clubs it would seem then is having a ‘pay what you want’ day with it being advertised that half the money donated would go to charity. Dulwich Hamlet did just that on 6th September 2014 for their Ryman League fixture against Hampton and Richmond. The attendance was an astonishing 2,856, given that the league average that season was just 392. Whilst detailed accounts of the day were not published, it was reported that Dulwich had made a profit themselves whilst raising a significant sum for charity and raising their own profile. This strategy could well be the way forward for small clubs looking to make a name for themselves, and a bit of money to keep the club running

Behavioural economics

The rational man would make decisions based on how much the cost of something is, and how much utility he could gain from it. Applied to football fans, the theory dictates that fans are much more likely to follow their team when they are performing well (high utility) and prices are low (low cost). This may be true to an extent, especially applied to what you might call ‘floating fans’ that stop paying to see their team play as soon as things show any sign of going wrong. However you will often see a side struggling towards the bottom of the league bring thousands of fans away from home on a Monday night despite the tickets often being over £20. This is certainly not rational behaviour! Using an example from football is just one way to show human beings are often irrational in their behaviour

Marginal utility

Marginal utility is the gain in pleasure after each unit of consumption, winning a football match in this case. Your first football match, at least the first match you win, is likely to provide the most enjoyment. However, if you support a side like Bayern Munich for example where you win comfortably every single week that ‘feel-good feeling’ after 3 points begins to be taken for granted – marginal utility is lower. It is entirely likely that after years on end of winning absolutely everything that people simply get bored and lose interest as marginal utility becomes negative. In a way this is why it is often said it is better to support your local side instead of one of the bankrolled sides at the top of the Premier League, even if they are not as good. Quite simply, there needs to be the possibility of defeat to keep things interesting and making sure marginal utility when you do win is maximised. At the same time, losing every week is not what you want either! In the lower leagues even if you are the best side in the league and get promoted it is highly unlikely you’ll do in again in the league above – each win becomes more significant and brings about the most utility, which is what people seek in consumption.

Contributed by Johnnie Lowery 12MKY

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