The behaviour of firms in spectator sports Essay
The behaviour of firms in spectator sports
Spectator sports are a very complex type of market structure, with 2 main features of profit maximisation and club success, an issue for clubs is that weather they put sporting success ahead of profit, supporters surely want supporting success, rather than profit maximisation. The premier league has seen great diversity between super elite clubs, whilst others are facing falling revenue, endangering the competition of the league.
The market structure is heavily segmented, with a larger number of spectator’s sports in any one sport, with different sports being a Weak substitute this is due to brand loyalty, as viewers will often mainly watch team
For instance both Chelsea and Manchester city have spent vast amount of money in the transfer market to improve their strength of their team, by purchasing talented player and other staff. These clubs are backed by wealthy owners. Profit maximisation of player sales is not required; owners are more willing to peruse to improve the success of the club, this includes beating rivals, winning cups and leagues in the future. Number of owners of UK sports clubs especially within football, which don’t see their club as a business, owner of football club may see that success on the pitch may be in turn paying for more talented players and increasing their wage, making the connection of the mangers role of the club down to performance rather than profits earn.
Over the recent years there are more ways that firms within the spectator sports industry are able to gain more revenue and profits, such some clubs are listed and public limited companies. This is heavily linked with the objective of profit maximisation as they want a higher share price, done by improving stance of supernormal profit. With demand quite inelastic price discrimination will be used to turn consumer surplus into additional revenue for the firm, supply of firms is relatively fixed for home firms and dependent on the nature of the opposition the away fans supply may change, such as rival’s will bring higher demand. Selling seats empty seats should be done that marginal revenue is greater than marginal cost. Clubs charge different prices according to age, stadium seat, and degree of competition on the game.
Profit maximisation may be required for these teams which have the lack of backing of wealthy owners; clubs such as Everton and Blackburn lack wealthy owners, profit maximisation is needed for them to financially survive. Cost are very substantiation in this market and continuously rising from players wages and transfer fees, if profit maximisation is not regarded, and success of the club in the longer term they will see a negative flows
There is often dispute between the stakeholders within the firms, such as shareholders would want profit maximisation as the main objective, rather than the manager’s success, subjected to a minimum profit constraint, Profit satisfying, may be a better approach to clubs allowing more objectives of the firms to be met rather than having maximum profit, this provides the foundation of other objectives in the long term, like growth and survival.
Growth maximisation is another objective for firms within the spectator sports, growing such football teams is different from profit maximisation, is such that extra profit is reinvested into the football team and improving and strengthening team. Such have been seen in Arsenal of the last years with a huge improvement in their infrastructure. With this increase in the size of the firm will bring many additional funding such from advertisements and sponsors, making ti difficulty to take over the club, resulting into economies of scale and letting AR not increasing as much or even falling, producing where MR=0, but subjected to a minimum profit constraint.
Other firms objectives may be survival financially and able to maintain league status (not being regulated to lower league), with such objectives is important for sporting clubs like wolves and Bolton, with the absent of wealthy owners who want to overspend on teams, they will have a reduce financial flow from lower advertising sponsors, and general demand of the clubs will fall. Affecting the level of quality of the pitch with the team unable to pay talented players wages.
Social Objective some clubs offer positive externalities such as health and improve quality of lives in deprived areas, government funding is vital in smaller clubs allows more resources to be used e.g. labour and better maintenance of pitch. Government subsidy may be required to keep the club for survival.
There are conflicts between the polices the sporting club adopts, also the view between different stakeholders of the firm is not homogenous
The distinction must be made between the short term and long term of behaviour of the firms, such objectives will conflict with profit maximisation. Such during the short term sales maximisation is required but this is linked with growth of the team, Regulation has greatly changed in spectator sports and currently on the verge to change to improve the level of contestability and engage healthy competition between teams which is fairer.
Overtime also the contestability of the league (market) will likely to change; this is positively determined by the strength of the extent of barriers to entry and exist. With changes especially within the football industry have seen a higher concentration ration of clubs of gaining major trophy, they have the available amount of capital used to improve clubs performance. This is decreasing the contestability of the market; smaller teams are unable to compete with elite clubs. Manchester united was owned by BskyB, but the deal blocked by the competition commission, this will increase the substantial monopoly Man Utd already has, and damaging the competition of the premier league and other cups, such a merger will increase television rights, acting a barrier to entry for other teams.
Regulation in the future and present will affect the market, and hopefully making it more competitive. Such introducing more home-grown players and transfer market limits.
From here the market is greatly segmented, with a large number of sub markets (different leagues), spectators sports clubs are not a group which can be viewed as homogenous, there is vast differences between objectives of firms within the whole spectator sport industry, and the different stakeholders of a firm
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 11 July 2017
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