Gate-Sharing and Talent Distribution in the English Football League

Abstract

Using a database of the movements of more than 2,000 professional footballers in the top two divisions of the English Football League between 1969 and 1995, this article examines the impact on talent distribution via the movement of players after abolition of gate revenue sharing in 1983. We compare the results with the predictions of the Walrasian and Nash theoretical models presented in the sports economics literature. Our key finding is that the termination of gate revenue sharing brought about increased rates of transfers of quality players towards top division teams. We also find that there is an increased probability that better quality players will be transferred within divisions to bigger teams. These results go against one of the main theoretical predictions of the sports economics literature – that gate sharing will have no effect on competitive balance. Instead, they offer support for models based on win maximisation rather than profit maximisation.

Key Words:

• Revenue Sharing
• Player Mobility
• Football
• Competitive Balance.

JEL classifications:

• L83.

The authors would like to thank Stefan Szymanski and Paul Madden for their comments on previous versions of this paper.

Notes

1. Gate revenue sharing was retained for FA Cup and League Cup knockout matches where fixtures are determined by random draw. The seasonal revenues from these competitions are typically much smaller than for regular League games.

2. In this same 1917 meeting, the League introduced a 1% levy on gate receipts which went into a pool account. This money was distributed equally between the 92 clubs. This policy continues, although the levy has varied over the years.

3. These models assume just two teams competing in a league. Késenne (2000, 2007) shows that the extension of theoretical results from two teams to n teams is not straightforward and requires additional assumptions.

4. Sandy, Sloane, and Treble (2006) show that by slightly modifying the assumptions of the Walrasian model, that is, by adding unshared post-season revenue or by modelling the largest market team as a dominant firm with a rising marginal cost of talent, gate revenue sharing improves competitive balance.

5. Fort and Quirk (1995) find that under profit maximisation, the presence of unshared local broadcast revenues can overturn the invariance result. Whilst acknowledging that broadcast revenues did exist during our period of investigation, they only became significant towards the end of the period and therefore should not impact on the findings.

6. The theoretical literature remains unsettled with an ongoing debate between Szymanski (2013) and Winfree and Fort (2013).

7. The SDWP and SDP are commonly used measures of win and points dispersion. A draw was counted as a half a win for the SDWP calculation. The C5 ratio is the five-club concentration ratio and measures the extent to which the points won are dominated by the five top clubs. The HHI index is the Herfindahl–Hirschman index which measures inequalities between all clubs in the league. Some of these measures will have been affected by changes in the number of teams in these leagues. For the 1987–1988 season, the 1st division was reduced to 21 teams, and the 2nd division increased to 23 teams. For the 1988–1989 season, the 1st division was reduced to 20 teams, and the 2nd division increased to 24 teams.

8. For surveys of measures of competitive balance, see Humphreys (2002) and Humphreys and Watanabe (2012).

9. Goddard and Wilson (2009) model transitions using initial divisional status, retention, and divisional transition as categories in a study of possible links between racial discrimination and (lack of) career progression in English football.

10. We thank an anonymous referee for encouraging us to adopt this classification.

11. For example, agencies such as Prozone™ collect data on almost every aspect of athletic performance in football, although these remain proprietary.

12. This website has sadly ceased to exist at the time writing.

13. In contrast, Maxcy (2009) finds that an extension of a revenue sharing scheme results in an increased movement from low to high revenue clubs. As mentioned above, the EFL scheme was not progressive, so an increase in the GRS rate from 20% would not provide any incentive to reduce local revenue of divest talent as in the MLB case. In fact, the opposite would be the case (depending on the assumptions of the theoretical model). Moreover, a further disincentive to divestment of talent lies in the promotion/relegation system in the English league. Drastic divestment of talent would lead to a descent through the league pyramid and possible liquidation. This cannot happen in MLB.

14. See Rascher (1997) and Madden (2012) for theoretical analysis along these lines. Madden and Robinson (2012) offer an empirical model of football club governance based on a utility-maximisation model.