Making money out of football



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Table 6: Regression Results





Dependent variable:













Variables in differences





















0.074

(0.023)


0.049

(0.028)


0.021

(0.036)






















0.231

(0.130)


0.245

(0.133)


0.163

(0.117)




0.102

(0.031)


0.121

(0.037)


0.053

(0.021)


-0.039

(0.025)


-0.034

(0.030)


-0.019

(0.030)


Quotedit

0.047

(0.021)


0.053

(0.025)


0.021

(0.024)


-0.021

(0.052)


-0.031

(0.057)


-0.024

(0.060)


Divisionit

-0.108

(0.022)


-0.115

(0.024)


-0.096

(0.012)


-0.405

(0.037)


-0.399

(0.035)


-0.467

(0.038)


Promotedit

0.055

(0.021)


0.062

(0.023)


0.034

(0.012)


0.190

(0.021)


0.190

(0.021)


0.213

(0.023)


Relegatedit

-0.054

(0.022)


-0.057

(0.023)


-0.035

(0.017)


-0.194

(0.022)


-0.194

(0.022)


-0.192

(0.026)


Variables in levels



















Constant

-0.084

(0.034)


-0.035

(0.047)


0.214

(0.078)


0.313

(0.176)


0.272

(0.160)


1.060

(0.237)




-0.394

(0.131)


-0.488

(0.165)


-0.507

(0.110)






















0.169

(0.075)


0.163

(0.076)


0.106

(0.130)




0.186

(0.053)


0.121

(0.037)


0.106

(0.029)


-0.372

(0.201)


-0.339

(0.189)


-0.739

(0.180)


Quotedit-1

0.038

(0.028)


0.069

(0.038)


0.018

(0.032)


0.051

(0.034)


0.045

(0.034)


0.032

(0.056)


Divisionit-1

-0.051

(0.032)


-0.069

(0.037)


-0.061

(0.031)


-0.168

(0.102)


-0.150

(0.094)


-0.380

(0.100)


Promotedit-1

0.077

(0.020)


0.084

(0.023)


0.066

(0.020)


0.191

(0.024)


0.188

(0.023)


0.251

(0.033)


Relegatedit-1

-0.031

(0.019)


-0.031

(0.021)


-0.030

(0.019)


-0.215

(0.026)


-0.211

(0.024)


-0.216

(0.031)























Time dummies

No

Yes

Yes

No

Yes

Yes

Fixed effects

No

No

Yes

No

No

Yes

observations

604

604

604

621

621

621

AR(1)

0.58

1.3

-2.0

-0.9

-1.2

-0.6

AR(2)

2.1

2.2

0.2

-0.53

-0.7

-2.1

Wit is total company wage expenditure of club i in year t, Rit is company turnover, and Pit is league rank on measured from 1 to 92, treating first place in Division One of the Football League as rank 21, first place in Division Two as 45, and so on. AR(1) and AR(2) are tests of first and second order serial correlation in the errors, distributed as standard normal. Figures in parenthesis are robust standard errors.



profit





Playing success

Figure 1: Profits as a function of club success

Indifference curves for utility maximising owner

profit



Indifference curves for profit maximising owner




Playing success



Figure 2: Indifference curves for profit maximising and utility maximising owners



Indifference curves for utility maximising owner


profits


I1



I0


Indifference curve for profit maximising owner

(PM)*


(U)*


S(PM)*



S(U)*

Playing success



Figure 3: Equilibrium for profit maximising and utility maximising owners

References

Arellano M. and Bond S.R. (1991) ‘Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations’ Review of Economic Studies, 58, 277-297.


Arellano M. and Bover O. (1995) ‘Another look at the instrumental variables estimation of error component models’ Journal of Econometrics, 68, 29-51.
Baltagi B.H. (1995) ‘Econometric Analysis of Panel Data’ Chichester, John Wiley and sons.
Cheffins, Brian. 1998. “Sports Teams and the Stock Market: A Winning Match?” UBC Law Review 32: 271-291
Conn, David, 1997. The Football Business: Fair Game in the ‘90s? Mainstream Publishing
Fort, Rodney and James Quirk. 1995. “Cross Subsidization, Incentives and Outcomes in Professional Team Sports Leagues” Journal of Economic Literature, XXXIII, 3, 1265-1299
Inglis, Simon. 1988. League Football and the men who made it. Willow Books. London.
Késenne, Stefan. 1996 “League Management in Professional Team Sports with Win Maximizing Clubs”, European Journal for Sport Management, vol. 2/ 2, pp. 14-22
Késenne, Stefan. 2000. “Revenue Sharing and Competitive Balance in Professional Team Sports” Journal of Sports Economics, Vol 1, No 1, pp56-65.
Mason, Tony. 1980. Association Football and English Society, 1863-1915. Brighton, UK: Harvester Press.
Morrow, Stephen. 1999. The New Business of Football. London: Macmillan.
Nickell S. J. (1981) ‘An investigation of the determinants of manufacturing employment in the UK’ Discussion paper No. 105, Center for Labor Economics, London School of Economics.
Quirk, James and Rodney Fort. 1992. Pay Dirt: The Business of Professional Team Sports, Princeton N.J.: Princeton University Press.
Scully, Gerald. 1989. The Business of Major League Baseball. Chicago: University of Chicago Press.
Sloane, Peter. 1971. "The Economics of Professional Football: The Football Club as a Utility Maximizer", Scottish Journal of Political Economy, 17, 2, 121-146.
Szymanski, Stefan. 2003 “The Economic Design of Sporting Contests” Journal of Economic Literature, forthcoming.
Szymanski, Stefan and Tim Kuypers. 1999. Winners and Losers: The Business Strategy of Football. Viking Books, London.
Szymanski, Stefan and Ron Smith. 1997. “The English Football Industry, Profit, Performance and Industrial Structure” International Review of Applied Economics, 11, 1, 135-153
Tischler, Steven. 1981. Footballers and Businessmen. NY: Holmes & Meier.
Vamplew, Wray. 1988. Pay up and play the game: Professional sport in Britain 1875-1914. Cambridge, UK: Cambridge University Press
Vrooman, John. 1997. “A Unified Theory of Capital and Labor Markets in Major League Baseball” Southern Economic Journal, 63, 594-619
Vrooman, John. 2000. "The Economics of American Sports Leagues" Scottish Journal of Political Economy, 47, 4, 364-98




























1 Corresponding author: The Business School, Imperial College London, 53 Prince’s Gate, Exhibition Road, SW7 2PG, UK. Tel : (44) 20 7594 9107, Fax: (44) 20 7823 7685, e-mail: szy@imperial.ac.uk

2 Indeed, collective selling will impair competitive balance if it leads to a disproportionate fall in the marginal revenue from winning for the small market team, see Szymanski and Kesenne (2003) for an example of this possibility.

3 The finances of football clubs can be hard to understand. In many cases wealthy patrons stand ready to guarantee debts, or local government is involved, directly or indirectly in financial support of the teams.

4 All of the teams in the Premier League in the current season (2002/03) were limited companies by 1920. For more details on the early history of English football clubs see Mason (1980), Vamplew (1988) and Tischler (1981) and Inglis (1988).

5 A third reason is that the FA disapproved of the profit motive in football and took action to try and limit commercialism by means such as imposing a limit on the maximum dividend payable by football clubs. But by the 1980s restraints such as these had lost their significance (there are other ways for clubs to reward shareholders) and the will of the FA to restrain commercialism had largely evaporated.

6 Although this is perhaps odd given the prevailing view that team owners in North America are dyed-in-the-wool profit maximisers. See Cheffins (1998) for a critical discussion of this issue.

7 Another reason why profits may decline as success increases is that fans may become disinterested in the competition because it is too predictable- this is the uncertainty of outcome hypothesis (see Szymanski (2003)) for a review of evidence on this hypothesis.

8 Szymanski and Smith (1997) derive a similar relationship.

9 Since Tottenham, Millwall and Manchester United were listed during this entire period their performance has not been considered.

10 Both of these drew heavily on the work of Roger Noll from Stanford University who dissected the profits statements of Major League Baseball teams on behalf of the players’ union in the 1980s and found that reported accounting profits significantly understated economic profits.

11 I.e. all other clubs experienced greater losses than before flotation. Chelsea Village also appears to have had higher profits before flotation, but the series is too short to make a reasonable comparison.

12 The sample is not balanced, and there are about 6% more observations in the second half of the panel.

13 There is quite a lot of variability in financial performance. Manchester United, the largest and most profitable club by far is often cited as an outlier, but omitting them from the set of clubs whose status did not change does not alter the profile of profitability that much. Without Manchester United the 92-96 average is a loss of £0.2m compared to a loss of £0.7m in the 97-01 period.

14 Preston’s performance improved by an average of ten places, which would be a significant accomplishment in the Premier League but is less impressive on the borders of the First and Second Divisions. West Bromwich’s improvement is largely associated with the last two seasons (and their subsequent promotion to the Premier League).

15 Unless the club possesses some distinctive capability that enables them to extract a better level of performance from a given player than any other club. See Szymanski and Kupyers (1999), chapter 6 for a discussion of this possibility.

16 Not least because in 1999 the UK competition authority blocked the takeover of Manchester United by the Sky broadcasting organisation, effectively prohibiting media ownership.



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