Football economics
Football economics is the discipline of economics focused on its relationship to association football, also known as soccer in the U.S. This field examines the economic complexities and peculiarities of professional football. Professional football is a significant subject of economic analysis, drawing interest from academic researchers since the mid-1950s. This field examines various aspects, including competitive balance, player salaries, the transfer system, and the economic impact of major events.
FIFA, football's world governing body, generates substantial revenue, primarily from selling TV broadcast rights for tournaments like the World Cup. In the 2015-18 cycle, FIFA earned $6.4 billion, with $4.6 billion from TV rights, and for 2019-2022, revenue reached a record high of USD 7.57 billion, with broadcasting rights accounting for USD 3.426 billion. Other significant revenue streams include marketing rights, ticket sales and hospitality, and licensing rights. FIFA also covers considerable costs, such as prize money and expenses for World Cup host countries. Hosting the World Cup involves massive expenditures for the host nation; Qatar's preparation for the 2022 tournament, including infrastructure like stadiums, was estimated to cost as much as $220 billion, significantly more than Russia spent in 2018.
More recently, Saudi Arabia has become a major financial force in global football as part of its Vision 2030 plan for economic diversification, with the Public Investment Fund acquiring stakes in clubs like Newcastle United and four major Saudi Pro League teams. This has led to significant spending on high-profile international players and a substantial increase in the Saudi Pro League's revenue and global profile, although it has also attracted criticism, including allegations of "sports washing".
History
Academic interest in the economics of professional team sports dates back as far as the mid-1950s. Much of the academic literature originated in the United States, dominated by studies of sports such as baseball, basketball, and football. These early writings shed light on issues like determinants of player compensation, joint production in team sports, competitive balance, and the contribution of managers to team performance. Professional sports, due to the availability of data, offer opportunities for empirical economists to investigate economic propositions that may be difficult to test in other areas.Simon Rottenberg is widely credited with writing the first academic analysis of the economics of professional team sports. His paper, ‘The Baseball Players’ Labor Market’, published in the Journal of Political Economy in 1956, analyzed the economic implications of the reserve clause in US professional baseball. Rottenberg argued that free agency in the player labor market would not necessarily lead to the concentration of the best players in the richest teams, contrary to the defense of the reserve clause at the time. He suggested that the distribution of playing talent is determined by the incentive to maximize the capitalised value of players' services, a result he argued would be yielded by a free market.
Other significant early contributions include the work of Walter Neale, who distinguished between sporting and economic competition and suggested that sports leagues exhibit characteristics of a natural monopoly, and Peter Sloane, who questioned whether the league or the individual club is the relevant economic decision-making unit in European football and proposed that clubs may be utility maximizers rather than solely profit maximizers.
International Football Economics
The Fédération Internationale de Football Association (FIFA) was formed in 1904 to oversee, organize, and promote international football competitions. FIFA is the sole body charged with organizing the Men’s World Cup and the Women’s World Cup. These competitions are major global sporting events. The Men’s and Women’s World Cup competitions are held every four years.FIFA's revenue streams
FIFA accrues a large amount of money, essentially manufacturing a product that everyone wants but costs almost nothing to make. Revenue has seen substantial growth over recent cycles. The 2015-18 cycle brought in $6.4 billion. The 2019-2022 cycle saw revenue reach a record high of USD 7.57 billion, an 18% increase compared to the previous cycle. Even in a single non-World Cup year like 2021, FIFA took in $766 million.The majority of FIFA's revenue comes from the sale of rights related to the World Cup. For the 2019-2022 cycle, USD 6,314 million, or 83% of total revenues, was generated by the FIFA World Cup Qatar 2022™, making it the most profitable World Cup in FIFA's history.
FIFA's main sources of income include:
Television broadcasting rights: This is the largest share of FIFA's income. In the 2015-18 cycle, $4.6 billion came from TV rights. For the 2019-2022 cycle, this category generated USD 3,426 million, accounting for 45% of full-cycle revenue and representing a 10% increase from the previous cycle. Europe was the largest sales territory, contributing USD 1,061 million, followed by Asia and North Africa with USD 1,025 million. The FIFA World Cup is considered the single most-watched televised event globally. The FIFA World Cup Qatar™ was the most-watched edition in the tournament’s history, with over five billion viewers following the action. According to a 2022 budget projection, TV broadcast rights for the Qatar World Cup were expected to account for $2.64 billion of FIFA's expected revenue for that tournament.
Marketing rights: Global brands pay FIFA for the right to advertise at its events. The biggest brands can partner with FIFA on its development and social responsibility plans, while others advertise specifically at the World Cup. In the pre-2018 World Cup cycle, marketing rights deals landed FIFA $1.66 billion. For the 2019-2022 cycle, marketing rights revenues amounted to USD 1,795 million. This includes revenue from FIFA Partners like Adidas, Coca-Cola, and Visa, as well as FIFA World Cup Sponsors and Regional Supporters, totaling 32 partners and sponsors for the Qatar tournament. All available sponsorship packages for the Qatar World Cup were successfully sold. Even in 2021, revenue from the sale of marketing rights amounted to $131 million. A 2022 budget projection estimated marketing rights for the Qatar World Cup would bring in $1.35 billion.
Licensing rights: FIFA draws in cash through licensing its brand for merchandise, retail, and gaming. The sale of licensing rights generated USD 769 million in the 2019-2022 cycle, which was 28% higher than the 2015-2018 cycle. In 2021, FIFA made $180 million from licensing its brand. The partnership with Electronic Arts for the FIFA football games is well-known, and EA reportedly generated sales of $20 billion over its 20-year partnership. EA was understood to pay FIFA around $150 million annually for the right to use the FIFA name. In the 2019-2022 cycle, FIFA ran its largest licensing and retail program, including launching a permanent store at Doha's Hamad International Airport and the ecommerce site fifastore.com. Licensing revenues also came from branded licensees and collectibles like Panini. FIFA also launched or relaunched core esports tournament brands and introduced FIFA+ Collect, a blockchain platform for digital collectibles.
Hospitality rights and ticket sales: This is another significant money-spinner. The entire income from ticketing rights goes to a subsidiary company wholly owned by FIFA. In the 2015-18 cycle, this brought in $712 million. For the 2019-2022 cycle, revenue from hospitality rights and ticket sales reached a new high of USD 949 million. Of this, USD 686 million was generated through ticket sales and USD 243 million through hospitality sales for the FIFA World Cup Qatar™, with USD 20 million coming from other events. Total revenue generated by FIFA in ticket sales and hospitality rights for the Qatar World Cup was USD 929 million.
For the Qatar World Cup, 3,182,406 tournament tickets were sold, generating USD 686 million. The average attendance rate across matches was 96.3%. Tickets were made as affordable and accessible as possible, with prices ranging from $100-$1,100, and Qatar residents having exclusive access to cheapest Category 4 tickets starting at QAR 40. Demand from the general public accounted for approximately three quarters of sales.
Six hospitality products were offered for the Qatar World Cup, and 259,116 packages were sold, generating USD 243 million. This revenue was USD 95 million higher than the amount earned from Russia 2018.
A 2022 budget projection estimated ticket sales and hospitality rights for the Qatar World Cup would amount to $500 million.
Other revenue and income: This category totaled USD 629 million in the 2019-2022 cycle, nearly double the amount from the previous cycle. The increase was primarily due to a USD 201 million award from the US Department of Justice in 2021 as compensation for losses due to corruption., It also includes contributions received for the operational event costs of hosting the FIFA Arab Cup™ and the FIFA World Cup, break fees from contract cancellations, and gains from property sales.
Rising trend of foreign investment in European Football
Recent years have seen a rising trend of foreign investment in European football, notably from Saudi Arabia. This investment is significantly influenced by the Saudi Arabian Public Investment Fund (PIF), the country's sovereign wealth fund with approximately $925 billion in assets under management. The PIF invests on behalf of the Saudi government.As part of Crown Prince Mohammed Bin Salman’s Vision 2030, which aims for economic diversification away from fossil fuels, the PIF has become prominent in both local and foreign football leagues. In 2021, the PIF acquired an 80% stake in the Premier League club, Newcastle United F.C. This move diversified Saudi investments and leveraged sports for growth. In 2023, the PIF purchased a 75% stake in four major Saudi Pro League (RSL) clubs: Al Nassr, Al-Ahli, Al-Ittihad, and Al-Hilal. These ownership changes are intended to unleash commercial opportunities across various sports.
Saudi Arabia's financial presence has significantly impacted the European football landscape and player market. In the summer 2023 transfer window, Saudi Arabia spent $875 million purchasing foreign players, contributing significantly to the overall spending increase in the global transfer market. This financial power has made it difficult for European clubs to compete with the high wages offered in the RSL. This trend is highlighted by high-profile transfers like Cristiano Ronaldo to Al-Nassr in December 2022, who received an annual base salary of around $75 million, along with substantial commercial deals. Other notable players who have moved to the RSL from top European clubs include Neymar Jr., Karim Benzema, and Roberto Firmino. The RSL's growing financial power allows them to attract not only aging players but also younger, talented individuals, affecting the talent pool available to European teams.