Keywords: sports administration, sports strategies, sports
marketing
1.
INTRODUCTION
The
concern of this paper is turned to the balance among the teams competing for
the Brazilian national football championship. In that context, the more
balanced the teams are, the greater the uncertainty about the results of a
match (and consequently of the championship as a whole) will be. Lack of
balance means not to maximize the amount of fans going to the stadiums or
watching the matches on TV due to the predictability of the result. Thus, the
teams and sport leagues would start incurring the risk of long-term loss of
spectators, with a risk of dominance by some teams while others would go
bankrupt.
Considering
this broad discussion on the competitiveness in football industry, this paper
gives a priority to the study of the risks of some teams concentrating wins and
titles, in contrast to their opponents, which characterizes a dominance of the
former over the latter and impairing the success of the championships in the
long run. This paper also addresses the change in championship model as was
adopted by Brazilian teams in 2003 in an attempt to “copy” the European
national championships, which use the point system. The conclusions hereby,
despite the short time for comparison, are also related to the selection of
that system.
The
main objective of this paper is comparing and interpreting the levels of
competitiveness between Brazilian and European football, more specifically
among the five biggest football centers in the world (England, Spain, Germany,
France and Italy). The interpretation of the results will be related to the
risk of dominance by some teams, bankruptcy by others, and reduced number of
fans in the long term. The characteristics of the structure and management of
the Brazilian football, which might influence the results achieved as well as
the current point-system championship model that follows the patterns of
European national championships, are also analyzed.
Table
1 illustrates the object and subject of this research, as based on Tachizawa
(2002), carrying the type of organization and defined topic.
This
paper makes use of secondary data and championship results disclosed by the
football associations of the studied countries. It is limited to a comparison
of the levels of competitiveness and sports balance in Brazil and in the five
biggest football centers in Europe, namely: Italy, Germany, Spain, England and
France.
Table 1 – Type
of organization and defined topic
THE FOOTBALL INDUSTRY
World
sport has been seen as a growing industry, generating revenues of roughly US$ 1
trillion a year. Playing a major role in this industry, football (soccer) is
accountable for an annual turnover of approximately US$ 250 billion – Brazil’s
share being approximately 1% of that amount.
One
way to understand the football industry lies in the typology proposed in Figure
1, which is based on Westerbeek and Smith (2003, p.89). It suggests that the
sport industry is divided into three main segments, as described by Ducrey et
al. (2003):
·
Sporting Goods –
Manufacturers of equipment, sports materials, licensed products. Examples
include: Nike, Adidas and Reebok.
·
Consulting – Firms
providing services such as consulting, management, sport medicine, amongst
others. Examples include: IMG and Octagon.
·
Sports Services –
Organizations offering the sport as their end product. This segment can be
divided into three categories, as follows:
o The Event – Organizations that generate revenue,
either directly or indirectly, from the spectators. In this category, the
athletes are professional and examples of participating entities include the
teams and Leagues.
o Participants – Entities providing opportunities for
people to engage in sporting activities, at a non-professional level, such as
amateur teams, gymnasiums and sports communities.
o Hybrid – Organizations provide a mix of the
above-mentioned categories: the event and the participants. Examples include
those government agencies developing mass participation and promoting athletes
who could stand out at an elite level.
Figure 1 – The Structure of the Football Industry (WESTERBEEK; SMITH,
2003). Adapted by the author.
Another
view of the football industry is found in Leoncini (2001) and is based on Aidar
et al. (2000), which divides the structure of football as follows: i) Producer
Market; ii) Consumer Market; iii) Intermediate Market (Resale and Industrial).
That perspective is demonstrated in Figure 2, below.
According
to this viewpoint of Aidar et al (2000), the football fans are the consumer
market, who have a direct commercial relation via box office or merchandising
with the Producer Market represented by the football associations. This
consumer market also consumes from the Intermediate Resale Market (TV and
licensed companies) and from the Intermediate Industrial Market (sports
marketing companies). Lastly, the Intermediate Resale Market and the
Intermediate Industrial Market interact with the Producer Market by selling
broadcast rights and marketing operations, respectively.
Figure 2: The
structure of Football
The
organization of the producer market follows a world hierarchy, whereby FIFA
(International Federation of Association Football) is the maximum authority in
football and below it come the confederations, which accountable for football
in their respective continents, as is the case of CONMEBOL (South-American
Football Confederation) and UEFA (Union of European Football Associations).
Following
that hierarchy, there are the national federations or confederations such as
CBF (Brazilian Football Confederation), the sports leagues and the state
federations, such as FERJ (Rio de Janeiro State federation), and then come the
teams.
Figure 3: The
Football Industry: Production Chain and Customers
In
England, there is also an attempt to classify the consumer market, the football
fan, into: i) virtual fans (who do not go to the stadium); ii) local fans, who
attend the matches at the stadiums in their region; iii) followers, who follow
the team to other regions; iv) Family Supporters, who go to the stadium with
another family member; and v) Corporate Supporters, those who go to the stadium
and require special treatment in the cabins and VIP areas. (LEONCINI, 2001).
One
of the peculiarities of this end consumer in football is that, differently from
ordinary merchandise, his/her relationship with the team is lasting, despite
the service it provides not being one of the best, like for example: no titles,
discomfort and insecurity in the stadiums. As studied by Taylor (1998), this is
an emotional relationship converted into a commercial relationship, the
description of which is described in one of the best known cases in football,
the team Manchester United. Since the team had a higher reputation than the
other English teams, it was a leader in terms of the average public attending its
matches even when it failed to win titles (SZYMANSKY 1995). In Brazil, the
football teams manage to narrow the relationship with the fans even being
relegated to the second division in the league, as is the case of Botafogo, in
Rio de Janeiro, or even down to the third division, like Fluminense, also in
Rio.
That
customer-team relationship suggests that football demand is inflexible in
relation to price (SZYMANSKY; KUYPERS, 1999). Nonetheless, in Brazil, such
inflexibility appears to be discussable as the teams fail to achieve better
revenues at the box offices due to price increase. One factor that might
contribute to such inflexibility is that football is competitor in the
entertainment industry, which provides the society with other alternatives
(such as the cinema, theater, music shows, and other sports), and the Brazilian
society has demonstrated some dissatisfaction with the level of the service
provided in the sports events. That fact demonstrates as a strategic error in
running the business, as described by Porter (1998, p.26), that: “Many managers
concentrate exclusively on their direct antagonists in the fight for market
share and go unnoticing that they too are competing against their customers and
suppliers for bargain power. Meanwhile, they also neglect the attention to the
newcomers or fail to recognize the subtle threat of substituting products.”
Still
regarding end customers, according to Ducrey et al. (2003), the most important
factors for the fans are as follows:
·
The quality of the match – This has to do with aspects
of the show, entertainment, the pleasure to watch the matches and the quality
of the visiting teams.
·
Uncertainty, or unpredictability of the result (of the
match or championship) – Regarding the uncertainty of a match, generally, the
tighter the result expected for a match, the more that match is attracting to
the fans. As to the result of a championship, understanding goes that the
average attendance is influenced by the dispute and that the higher the
competitive balance, more teams have a chance to win the title. Consequently,
the fans consume more as a response to such fierce competition, thus increasing
the commercial activities related to the championship and the teams.
·
The success of that fan’s team – There is a level of
satisfaction in those fans which is achieved by the team’s good performance.
Teams that constantly lose are less attractive to the public.
Michael
Porter (1986) asserts that, in order to reach a defendable position in the
market, the companies can use three types of generic strategies to always lead
some sort of market. One such strategy proposes leadership of one market niche,
if it is not possible to lead the market as a whole, by total cost or by
product differentiation. Therefore, the incentive to leadership and the
possibility to it ensure greater competitiveness in the industry. According to
the championship models of the major European centers, there is an option to
lead niches – one example refers to the intermediate leaders that qualify for a
the UEFA Cup or for the Champions Cup – or to lead the championship as a whole
or the lower block in the standing, which ensures the team to remain in the
first division championship for another year. That model, which encourages
neache leaderships, makes the tournament more attracting even for the fans of
those teams that cannot lead the championship as a whole.
Another
perspective on the structure of football shows that the performance of a team
can be understood by the characteristics of the industry (structure and
behavior) and by that team’s strategy (LEONCINI, 2001). This analysis was
performed by Szymansky & Kuypers (1999), who identified critical factors
that could explain the logic of the football business, namely: i) Sport
Performance – the team’s performance in the championship; ii) Operating Profit
– The difference between the revenues generated by the team and its overall
expenses before Income Tax; iii) Salary Expenditures – The expenditures on
salaries, especially those of the technical department (players, coaches,
trainers, etc.); iv) The Result from Player Transfer – the financial income
from the operations in the players market.
Despite
a proven relation between performance in the field and financial performance
does not exist, such factors would indeed making up the basis for two
relationships studied in the definition of a football team’s strategic
management scope, namely: i) salary expenditures x performance in the field;
ii) performance in the field x generated revenues (LEONCINI, 2001).
According
to Dell’Osso and Symanski (1991), salary expenditures might have a direct
relationship with the performance in the field. However, the expenditures on
high wages also represent a threat to the financial balance of the teams, thus
making that equation more difficult to be solved. An aggravating factor is that
one team may invest in great players for a short-term performance, win titles
and yet have losses in the end of the fiscal period. In Europe, specifically in
the English football, the concern with that threat of the high wages is visible
in the administration reports of the teams, as is the case of the 2003 annual
report of Liverpool: “As we see it, the team continues to exercise careful
control over the costs related to the wages paid to the players”. (Authors’
Translation)
Lastly,
it is possible to analyze the football industry through its sources of revenue,
as per Leoncini (2001), whereby the most common commercial relationships for
Italian/English leagues and teams can be classified on the basis of the
following types of revenue: i) the relationship with TV (transmission rights);
ii) the relationship with the main sponsor; iii) the relationship with the
Lotteries; iv) the relationship with the fan (box office/merchandising); v) the
relationship with the technical sponsor; vi) the relationship with merchandise
producing companies (operating the brand via licensing / advertising signs);
vii) the relationship with other teams / federations (trade of players).
This
paper makes use of the classification of the revenue sources described in the
reports of the richest teams in the world in terms of revenue by DELOITTE &
TOUCHE, namely: i) Commercial, which is divided into a) Merchandising and
Licensing; b) Sponsorship and Supply of sport material; ii) Box office; iii)
The Media. The comparative analysis between the sources of revenue of European
teams and the Brazilian teams is included in section 3.2.4 on Brazilian
football.
2.
METHODOLOGY
The
research on competitive balance was firstly conducted on the basis of what the
literature on industrial economics and the economic regulation presents as
industrial concentration measures. These are measures demonstrate, ex-post,
what can be regarded as a dominating position or even, in terms of regulation,
as a market power a company holds in view of its competitors. Such industrial
concentration measures include the concentration ratios and especially the
Herfindahl-Hirschmann Index (HHI) as an indicator that is also used in the
analyses of the concentration actions by economic regulation agencies such as
the US Federal Trade Commission.
Concerning
the specific research on competitive balance, the work of Oughton & Michie
(2004) summarizes the main techniques used in sports leagues. Such measures are
listed in Table 2 of the Appendix to this paper. In the specific case of the
competitive balance in football, item “b” of Table 2 shows the different papers
addressing this sport which are classified in accordance with the objectives of
the research, such as: i) long-term dominance, ii) seasonal; iii) match.
In
the analyses of the papers on the balance in football and sport leagues, the
HHI is observed to be used both for long-term dominance concerns and
seasonally, which is in accordance with the delimitation of the proposed study.
Thus, in view of the acceptance of this indicator as a measure of concentration
as well as in the publications about sports leagues and football, this paper is
intended for calculating the results of the five largest European football
markets (Germany, Spain, France, England and Italy), having the HHI as a
measure of analysis.
The
time period to be studied is ten years, considering the difficulties to obtain
the figures for the Brazilian Championship before that period of time due to
the different formats the teams used.
In
this setting, two problems become relevant for the research and are presented
below and solved in section presenting the two calculations to be used.
i) The
changes in the championship model for the Major League (‘A’ Series) of the
Brazilian Championship
Before
2003, the model adopted in the Brazilian Championship was known as qualifying
phase model. After (and including) 2003, the point system model was selected.
Thus, like in 2002, for example, the first eight teams of the first phase of
the tournament would qualify for the second phase. This means that a given team
could have more points, or better performance, throughout the championship and
not be the champion, since the advantages achieved in the first phase could be
lost in the second phase. Moreover, some teams (those classifying for the next
phase) ended up playing more matches than others (which would not classify),
thus impairing the calculations.
ii) The
amount of teams competing in the championships
Both
in Europe and in Brazil there are cases whereby the amount of competing teams
varies from year to year within the historical sequence to be studied. Also,
the number of teams that vie in the tournament varies from country to country.
These
problems are solved below in the demonstration of the two types of
calculations.
·
Calculation
1: HHI – Oughton & Michie (2004) Model – Seasonal
This
calculation is used in papers such as that of Oughton & Michie (2004), and
also used by Depkin (1999), by calculating the HHI on the classification table
and the performance in percentage for each team. For demonstration purposes,
the table below describes the HHI, for the example of the maximum unbalance
possible, for 20 teams.
The
calculation is done on the performance of each team in the championship and by
the sums of the squares of that performance, as per the formula below, whereby
Si is the performance of each team in relation to the potential maximum points
total:
Table 2: Teams
Performances and Maximum HHI
PPG – Points per
game
The
table below shows that maximum and minimum HHI in accordance with the number of
teams competing in the championship. Thus, in the case of a 20-team
championship, if the HHI calculation reaches, for instance, “0.4789” in a given
year, it means that for that particular year the HHI is 70% from the maximum
HHI, that is, from the maximum unbalance, which in that case would be “0.0684”.
Thus, problem “ii” above, with relation to the number of teams competing in the
championship, would be solved since using a percentage of the maximum HHI would
act as a standard setter is independent from the number of teams.
Table 3: Maximum
and Minimum HHI.
·
For
calculating the HHI Max, it does not matter whether the format is for one shift
(one leg) or double shift (two legs).
This
way, it will be possible to calculate, for the five largest European
championships and for the Brazilian championship, a history for those ten years
in relation to the maximum HHI and a trend curve, thus allowing for comparing
the Brazilian competitive balance in relation to the other championships.
Moreover,
in order to avoid problems regarding the amount of matches to be played, in the
case of Brazil, for the years in which the championship did not follow the
points system (before 2003), data corresponding only to the first phase (the
qualifying phase) will be used.
Yet,
despite being one of the best indicators for comparison, using such data means
assuming problem “i” presented above, whereby the champion may not have the
best performance of all teams in the tournament, in the case of the Brazilian
championship before 2003. This problem shall be offset in calculation “2”
herein.
•
Calculation
2: Model of Dell’Osso. F & Symanski, S (1991)
This
paper also uses the measure proposed by Dell’Osso. F & Symanski, S (1991),
included in the paper ‘Who Are the Champions?’, as a simple calculation to
supplement the previous analysis by granting 1, 2 and 3 points for first,
second and third places in the championship, respectively, and by verifying the
concentration of the same teams in the first positions in the championship,
thus representing a long-term dominance.
This
methodology shall be complemented by using the HHI in order for us to
demonstrate the concentration of such teams in the first positions of the
tournaments over a period of time, in this case, ten years. This methodology is
based on Gerrad (2004) and Eckard (2001) for long-term dominance.
Also,
for this calculation, the figures achieved with the maximum HHI are compared.
In that case, the “Maximum HHI” represents the maximum concentration of times
in the first three positions, representing the most unbalance possible, as
shown next.
The
comparison of this “maximum HHI” (example 1) will be made against another more
balanced situation (example 2). In example 2, the historical HHI for the
ten-year period studied accounts for only 32% of the Maximum HHI, which would
represent the maximum unbalance.
Example 1:
Champion: 3 points;
Vice Champion: 2 points; Third place: 1 point.
Example 2:
Champion: 3 points;
Vice Champion: 2 points; Third place: 1 point.
This
way, it will be possible to calculate this figure for the five largest European
championships and for the Brazilian championship around a figure that analyzes
the concentration difference of the same teams in the first divisions. This
becomes an effective measure of long-term dominance.
Moreover,
complementing calculation “1” proposed above, this becomes a way to solve
problem “i”, in such a way that the first places in the final classification
are those acting as the basis for comparison..
3.
RESULTS
The
results for the studies are demonstrated as per the two calculations described
in the methodology. The first of them is based on the model of Oughton &
Michie (2004) and on other works such as that of Depkin (1999) for determining
the seasonal competitive balance. The second is based on authors such as
Dell’Osso. F & Symanski, S (1991), Gerrad (2004) and Eckard (2001) for
long-term dominance. The interpretations on the results and the comments about
other sports and about future researches are presented next.
a. SEASONAL CALCULATION
The
seasonal calculation considered the annual classification for each championship for
the 10-year period. Firstly, the data for each country are presented – such
data being calculated on a yearly basis and compared with the maximum unbalance
possible for the number of teams competing in the tournament. These data are
presented as a table in section a.1.
Next,
the graphs with the curves are presented. Firstly, the graphs are related to
that maximum unbalance and, secondly, they are related to the trend curve in
logarithms of the previous graph. These data are presented in section a.2.
a.
1 Tables.
- 2 Graphs.
b. DOMINANCE CALCULATION
The
dominance calculation considered the final positions of the yearly
classifications. From them, the concentration of the same teams in leading
positions (first, second and third place) was calculated by using the HHI
concentration indicator for the 10-year period and through a comparison amongst
the various national championships.
The
tables below show the calculations by National Championship and, next, a table
is presented in order of unbalance, which summarizes the data presented.
b. 1 Tables.
b. 2 Grouped Table
The
table below groups the results shown above in maximum unbalance order, from the
long-term dominance viewpoint. Thus, the English Championship, over the past
ten years, has the highest unbalance index, represented by the concentration of
the same teams in the first three positions in the final standing.
c. 2 Grouped Table
4.
CONCLUSIONS AND RECOMMENDATIONS
In
order to avoid dominance by some teams, and the consequent bankruptcy of
others, thus bringing about serious losses to a very profitable business such
as the football industry, the balance of forces among the teams competing in
the Brazilian championship should be pursued, in spite of the data favoring
Brazil, as presented in the table grouped in the results of this paper. By
comparing the levels of competitiveness between the Brazilian championship and
the championships of the five biggest world football centers (England, Spain,
Germany, France and Italy), and by interpreting the results, it can be inferred
that:
1. The
change in championship model as adopted by the teams in Brazil in 2003, which
involves the point system format with options for classification to other
football cups, has been leveraging the balance amongst the competing teams;
2. Repatriating
high-renowned veteran players, on moderate-cost wages, represents an attempt in
Brazil to improve the quality of each match. This factor (the quality of the
match) is one of the three most important factors, along with result
uncertainty and unpredictability and team success, in order to keep the end
customers, the followers, in the stadiums.
These
arrangements are making the matches in Brazilian football less predictable and
more attracting, thus bringing more fans to the stadiums and increasing the
number of viewers of the matches broadcasted on TV, consequently increasing the
revenue of the football industry, which comprises the sales of merchandise;
consulting, especially sports medicine consulting; and the sports services,
like the matches and sports activities provided for the population as a whole.
On
the other hand, a recommendation based upon this study should be made in order
to enhance the financial balance and the balance of forces amongst the teams
vying in the Brazilian championship:
Selling
tickets for the championship matches in advance, by means of payment booklets
that allow for an easier way for the stadium-goers to pay for their tickets,
also represents an example provided by the main European championships of
converting emotional relationship into commercial relationship, which should be
followed in Brazil since the Brazilian demand does not seem to be as inflexible
regarding ticket prices as verified by Szymansky and Kuypers (1999) in European
football.
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