The Increase of English Premier League Soccer Player Wages

The Increase of English Premier League Soccer Player Wages

The Increase of English Premier League Soccer Player Wages

Introduction

Over the years, the world has witnessed a change of football from one of the recreational sporting activities into a high paying occupation and an income generating activity for investors. The increasing interest in the sport is evident from the growing focus of investors who are making a huge investment in the sport while players are making it a full-time activity. Governments around the world are displaying increased focus in the sport due to their funding of their national teams, the allocation of funds to the sport, and provision of facilities such as stadiums and employing players and coaches for their national teams. These developments have elicited varying reactions globally, some supporting the moves while others condemning them. Despite these developments, many people are questioning why the sport is high paying, especially in the English Premier League (EPL), compared to other international sporting contests such as volleyball, basketball, and racing among many others. As such, a study of the factors responsible for the ever increasing wages for football players in the EPL necessary. The findings would improve understanding of the factors and the justifications necessitating the rise. However, the popularity of EPL and its huge fan base around the world is a justification for the high wage.   

Reasons for the Rise in Wages

The growing interest of media owners, particularly in the television industry has significantly contributed to the ever-rising and high wages for players participating in English Premier League soccer. Over the years, televised sports events are increasingly becoming popular, especially in the United States and Europe (Cave and Crandall 4). As such, a significant impact on the broadcasting industry and sports leagues in the two regions of the Atlantic has been experienced. The recent display of interest by BSkyB, a leading pay-television operator in the United Kingdom, to acquire the leading foot club, Manchester United, altered the manner of negotiating broadcast sports rights in the United Kingdom and other parts of Europe. In the past decades, the significance of broadcast revenues to the leading US professional sports leagues is displayed by the revenue it generates (Cave and Crandall 12). In the country, professional footballer earns more than half of the revenues for broadcasting. In the UK, broadcasters have continually displayed favor for live soccer rights in their payments for sports’ rights. The value of these payments has grown over time (Cave and Crandall 15). Before 1964, live or highlights of Football League matches were not televised (Cave and Crandall 19). However, from 1963 onwards, things changed as the live broadcast of soccer began and it became routine to have Saturday evening highlights program. Nevertheless, two broadcasters BBC and ITV took advantage of this opportunity to bid for the sport’s rights and acted collusively (Cave and Crandall 19). This made revenues from the sport’s broadcast rights to remain low but it rose from 1992 when Sky Television, an inexperienced satellite pay broadcaster, entered the market. The broadcaster won a significant package of live rights for an annual rate of £37 million, bidding in collaboration with BBC which retained a highlights package on free-to-air television (Cave and Crandall 19). In 1997-2001 re-auctioning, the annual payment for the rights went up fourfold. Currently, viewers around the world have access to almost every EPL game by subscribing to broadcast satellites services, particularly DirecTV. Most teams currently offer a large number of their games via regional cable networks, local broadcast stations, or both (Cave and Crandall 21). The huge revenue from viewers’ subscriptions has attracted television service providers to seek for game broadcast rights. EPL clubs have taken advantage of these opportunities to charge television providers thereby increasing their revenues that is used to pay players handsomely. 

            The economic components of supply and demand influence the wages given to the players. Because fans are willing to pay more for higher quality sporty competition, the demand for the services of players is on their peripheral influence on product quality (Rosen and Sanderson 48). Individual contributions in sports are comparatively easy to discern and can be assessed from a variety of information on past performances. The ease of production functions in sports and the superfluity of information specifying personal productivity in most of them help make the economic analysis of sports labor markets easier. Sporting contests are hierarchical, therefore, contests between poorly matched rivals are of little interest to fans (Rosen and Sanderson 50). However, teams in the premier and top-rated professional league attract the most attention from supporters since they exemplify the best quality of play (Rosen and Sanderson 5). As a result, comparative and absolute quality of athletic competitions determines their spectator value, with the top contestants receiving the highest concentration of total revenue. Large venues and different media allow many paying fans to watch a sporting event concurrently while at the same time allowing exclusion of nonpaying clienteles (Rosen and Sanderson 6). Few sellers are required to serve the whole market, which is characteristic of EPL soccer, which is televised by a few media channels to millions of fans around the world. In recent decades, television has broadened the scope of these activities. Considering sports demand a lot of labour, revenues can be increased through establishing economies of scale (Rosen and Sanderson 6). Nevertheless, they do not guarantee huge salaries. The scarcity of the most gifted players is crucial for rents to be considered; else wages would be reduced to opportunity costs; for example, the average production worker earnings in anticipated present value. The marginal income product of a specific player is the additional price that a fan is prepared to pay times the number of individuals who are enticed, either in person or on television.

             One of the means that top players attract such large spectators is by not extracting on unit price. Rather, they get the greatest share of rents by appealing to most of the fans. Lower quality marketers get small earnings since the competition in the market efficiently prices them out of the market. The variance in wages between sportsmen and academic professionals such as engineers, doctors, and teachers is justified by the personal scale of operations. In sports the added value is almost similar to entire revenue and most of the expenditure goes to compensation of the player. Apart from the capital charges of a stadium or arena, procured material inputs are minimal. There is no abnormality in this scenario as it technology-based. However, if and when educators use the Internet and other media to individually teach large numbers of students at a time, celebrated teachers will generate income at least as much as a star sportsperson because the investment made to qualify for the teaching profession or any other profession is high similar to that incurred by sportsmen.

            The existence of rival leagues is instrumental in necessitating an increase in EPL soccer players’ wages. The English Premier League faces rivalry from other leagues that comprise     Serie A, Major League Soccer, La Liga, and Bundesliga. The effectiveness of competition between leagues for players in enhancing their salaries was witnessed between 1876 and 1920 when a competition of professional baseball leagues founding, amalgamation, and dissolving was witnessed (Kahn 76). In the U.S., between 1876 and 1920, baseball was the major league sport, starting with the foundation of the National League in 1876 (Kahn 76). During this period, competition for the services of players from other baseball leagues was intense. The National League developed the reserve clause in 1879, which stipulated that players were restricted to the team that initially bought the rights to deal with them. As a result, team owners had extra monopsony power over players, resulting in the decline of players’ salaries. However, the reduced wages led to the emergence of a new league dubbed the American Association in 1882. The foundation of the new league resulted in a rapid rise in player salaries between 1882 and 1891. During this period, there were increased and frequent movements of players across the two rival leagues. The merger led to a drastic decline in the salaries of the National League players from the first season of the amalgamation. The earnings of a player reduced from $3,500 in 1891 to $2,400 in 1892 and further to $1,800 in 1893 (Kahn 77). In a bid to restrict players’ earnings and movement across leagues, the National League tried to develop its reserve clause imposed by state courts to deter players from moving between leagues. Nevertheless, since state courts had no jurisdiction for restricting player movements beyond a given state, the Leagues application was unsuccessful. This led to an upsurge in player salaries, particularly due to the expectation of the new league. The two leagues combined in the course of the 1903 season, after which the first competition in the World Series was held. This situation continues to be replicated in the EPL since competition for soccer players in the league has led to a continued rise in player wages, especially among stars. Just like baseball, the American soccer industry experienced league rivalry. The United States Football League (USFL) emerged after the 1982 labor strife in NFL strike. A large number of NFL players moved across leagues and this gave opportunity to USFL to sign some high-profile college players like Anthony Carter and Herschel Walker. Although there was a continuous rise in player wages during NFL period, the emergence of USFL led to higher rises. For instance, between 1977 and 1982 the rise in players’ wages averaged 4 percent per year before the USFL, but rose to 5 percent per year between 1985 and 1989, just after the USFL (Kahn 80). Nevertheless, low television ratings for the USFL led to its demise.  

            Free agency is also a key factor in the continued increase in soccer players in the EPL. Before 1976, players in all of the four leading sports were restricted by the reserve clause to continue with their original team, except that team opted to sell or trade them to another team (Kahn 80). The players were not permitted to act as free agents who could trade their expertise to any team. The journey toward free agency began in baseball. In 1952, The Major League Baseball Players Association (MLBPA) was established, but it did not become a modem union until Marvin Miller, the former negotiator of United Steelworkers, took over in 1966. In 1968, the MLBPA secured a collective bargaining agreement. Subsequently, in 1970, the National Labor Relations Board directed the rivals to apply outside arbitrators for tackling complaints. In December 1975, an arbitrator decided that the reserve clause intended that the team could retain a player for only one year after the expiration of any existing contract. Due to the reserve clause in place, nearly all teams employed players fully for one-year contracts. This decision would have discharged almost all of the expert players after the 1976 season. The continued adoption of the short-term player contracts has to date enabled players to shift between EPL teams, the teams competing for star players resulting in increased wages to win them. Since March 5, 2001, the transfer fee system and regulations limiting the number of foreign players that could be used by a club was annulled by Mario Monti, the new EU Competition Committee’s leader, and Sepp Blatter, the Federation Internationale de Football Association (“F.I.F.A.”)’s leader agreed to abolish them. Since then, the freedom of players to move from clubs after the expiry of their contact terms was established (Gary 295). Consequently, the fee system has never been reinstated and has been adopted in different leagues including EPL, giving players a chance to move across teams and make personal decision for their new clubs. The competition for star players coupled with the scarcity of talent has contributed to salary increment due to the demand and supply effects.  

            The emergence of free agency has given players the freedom to choose teams that offer high wages. This has been displayed by the developments in professional baseball where the establishment of free agency in 1976 enabled players with a minimum of six years of service in the leading leagues could sell their expertise to the highest bidder upon fulfillment of their contractual obligations (Lackritz 4). Originally, free agency was a negotiating strategy for players, who usually multiplied the value of their contract at a particular time as much as fourfold by comparing the teams against one another. For this reason, salaries continued to increase from an average of marginally more than $50,000 in 1976 to about $450,000 in 1990. Team owners, who initially increased the stakes in enjoyed bidding wars, found themselves with increased payrolls during a rash of free agents who had not lived up to the terms of their contacts. As such, the liberty of EPL players to choose the team of their choices after the lapse of their contracts has promoted the rise in their wages. The desire among players for higher wages and the competition among clubs for their services compel clubs to opt for salary increments as a strategy to attract them, particularly if they have displayed exemplary performance in their earlier contracts.

            The entry of foreign investors into the English league has resulted in an upsurge in the earnings of players. Towards the end of the 19th century, a majority of football clubs transformed into joint stock companies (Rohde and Breuer 244).  Companies, businessmen, and sports investors began to acquire English football clubs’ shares. Immediately after Tottenham Hotspurs finalized the first football club IPO in 1983, a boom in stock exchanges was witnessed among English football clubs from the 1990s, most of them going public. In 1997, Mohamed Al Fayed bought Fulham, making him the first foreign investor to purchase most of the share of an English football club. The next foreigner to acquire a club was Roman Abramovich, a Russian businessman who bought Chelsea London in June 2003. Currently, over 90 percent of English Premier League and Championship belong to private majority investors. Almost 60 percent of Premier League and about half of the owners of Championship clubs are not from England, a majority of the investors being from the Middle East, the United States, and South-East Asia. Also, the establishment of the Premier League in 1992 resulted in a large increase in revenue among English football, which effectively influenced the wages of players. A comparison between domestic and foreign privately-owned clubs among other clubs confirms that foreign-owned ones pay more wages than others (Rohde and Breuer 243). A Deloitte Annual Review of Football Finance report revealed that in 2011/12, a domestic private owners paid an annual average of €66m to Premier League to its players, clubs owned by its member association, or those that had distributed ownership paid an annual an average wage of €60m whereas those owned by foreign investors paid €137m, more than double the others. 

            The performance of players determines their contribution to a club, a factor which shapes their salary. In the absence of restrictions such as salary caps, draft rules, and reserve clauses in the labor market, the reward given to a player is determined by their marginal product (Frick 90). As a result, the salary of a player is a function of his contribution to his club’s income, which is, in turn, determined by his talent, experience and his appeal to the fans (Frick). Moreover, the scarcity of soccer talent and its high demand in English soccer leagues have caused the rise in the players’ salaries. Since teams are guaranteed high returns by hiring talented and popular players, the owners are willing to pay talented players high to raise revenues from tickets, TV rights, and merchandising, and to boost their team’s performance (Carrieri, Principe, and Raitano 3). As a result, talented and most famous players earn more than those considered less productive. This situation is complicated further by the spread of soccer talent across the world, denying every country the monopoly of soccer talents (Haan, Koning, and Witteloostuijn 15). The spread of talents across the world motivates competition for the scarce talents, making salaries an effective tool for attracting top performers.

Conclusion

Research highlights the numerous factors that justify or cause the continuous rise in wages of players who participate in the English Premier League. They include the ever-growing interest of the owners of media houses, particularly in the television, to own the live-airing of English Premier The entry of foreign investors into the EPL clubs’ ownership market has instigated competition for the leading teams in the region, resulting in the hiking of salaries to win players. This situation has been intensified by competition between leagues for star players and free agency which allows performers to change teams after completing their contract terms, high salaries being the major factor influencing their destination. Most talented players are attractive to cubs due to their contribution to their performance, revenue, and fan base. Competition for star players coupled with the scarcity of soccer talent compels club owners to hike their awards to popular and talented players.

Works Cited

Carrieri Vincenzo, Principe Francesco, and Raitano Michele. “What Makes You ‘Super-Rich’? New Evidence from an Analysis of Football Players’ Wages.” (2017), pp. 1-28.  

Cave Martin and Crandall Robert W. “Sports Rights and the Broadcast Industry.” The Economic Journal, vol. 111, no. 469, (2001), pp. F4-F26.

Frick Bernd. “Performance, Salaries, and Contract Length: Empirical Evidence from German Soccer.” International Journal of Sport Finance, vol. 6, no. 2, (2011), pp. 87-118.

Gary Jesse, “The demise of sport – The effect of judicially mandated free agency on European football and American baseball.” Cornell International Law Journal, vol. 38, no. 1, (2005), pp. 293-325. Retrieved from https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1640&context=cilj

Haan Marco, Koning Ruud H., and Witteloostuijn Arjen. “The Effects of Institutional Change in European Soccer.” Jahrbücher für Nationalökonomie und Statistik, vol. 232, no. 3, (2012), pp. 318-335.  

Kahn Lawrence M., “The Sports Business as a Labor Market Laboratory.” The Journal of Economic Perspectives, vol. 14, no. 3, (2000), pp. 75-94.

Lackritz James R., “Salary Evaluation for Professional Baseball Players.” The American Statistician, vol. 44, no. 1, (1990), pp. 4-8.

Rohde Marc and Breuer Christoph, “The Financial Impact of (Foreign) Private investors on team investments and profits in professional football: Empirical Evidence from the Premier League.” Applied Economics and Finance, vol. 3, no. 2, (2016), pp. 243-255.  

Rosen Sherwin and Sanderson Allen, “Labour Markets in Professional Sports.” The Economic Journal, vol. 111, no. 469, (2001), pp. F47-F68.

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