The previous chapter analysed the motives behind inbound FDI in the Premier League. This chapter considers the effects of FDI entering the Premier League. The nature of these effects will be considered in three broad groups. The first relates to the sporting consequences of FDI for football clubs including the effect on the competitiveness, stature, league standard, and on-field productivity. The second group considers football as a business in terms of revenue, transfer costs, wage costs, profits, and debt and non-financial aspects related to club management (elements of both on and off-field), as well as infrastructure (i.e. stadia and training ground development). The third group investigates the wider consequences of the investment for local regions and supporters. The consequences within these groups will be considered as direct effects (on the acquired club), or wider spillover effects (on non-acquired clubs, the league, or the local region). These effects can also be expressed as a league effect (e.g. on competitiveness or stature).
In order to explore the effects, three case study clubs (Fulham, Manchester City, and
Manchester United) will be utilised. Alongside the case studies, the primary data will also be used to address the effects of FDI. Furthermore, secondary data has also been collected from across the Premier League. This data focuses on the period of 2001/2002 to 2010/2011. In this period, the vast majority of FDI inflows took place, and as a result, the Premier League was transformed from a league where the majority of clubs were domestically owned to where around half were controlled by foreign investors.
7.1 Sporting Consequences of FDI
What are the consequences which have arisen from FDI in relation to the sporting aspect of a football club?
7.1.1 Competitiveness of the Premier League
In chapter’s four and five, we saw that sporting competitiveness can be more easily measured than many other sporting related economic indicators.
FDI has been claimed to have a positive impact on the competitiveness of the Premier League. In contrast to the expected outcome, some have argued that foreign ownership has created a more competitive Premier League. However, such changes did not immediately occur (Dimond, 2009).
Clubs under foreign control, who were classed as “mid table” Premier League clubs were able to vastly increase spending on wages and transfers as a result of foreign ownership. However, Dimond (2009) also suggested that problems encountered by the big four clubs (Manchester United, Chelsea, Liverpool, and Arsenal) helped to increase the level of competition at the top of the Premier League. Whilst these clubs were not performing as expected under foreign
ownership, ironically, Dimond (2009) also stated that it was other clubs under foreign ownership who were flourishing.
In the qualitative evidence some also suggested FDI has benefitted sporting competitiveness:
“In terms of the competitiveness of the league that is one of its strengths….we used to talk about the big four but you’d argue four has perhaps become six now” (Respondent F)
“I think to have more competition in the Premier League is good. It’s [FDI] that has shaken up the Manchester United Arsenal domination [Chelsea]. Then it’s shaken up the Manchester United
Chelsea domination” [Man City] (Respondent E)
However, the creation of new duopolies through the entrance of FDI has not necessarily lead to greater competition. Instead, one duopoly has been simply replaced by another club. But for insiders, even when dominance was recognised, it tended to be treated in a more positive light:
“I Know it’s a negative…. fourteen clubs avoiding something [relegation] but it still heightens tensions, makes it exiting, makes it a dynamic league” (Respondent F)
This suggests the existence of sub groups within the Premier League, with fourteen of the twenty clubs evenly matched. To some degree this is what occurred in the 2010/2011 season, where Fulham in eighth place recorded ten more points than Birmingham who were relegated in eighteenth. However, in 2009/2010, the eighth placed club (Everton) scored thirty-one more points than the eighteenth placed club (Burnley). For some at least, the Premier League is considered as the most competitive in Europe:
“Because it’s [Premier League] the most competitive league” (Respondent F)
Responses from the questionnaire compiled by domestically owned clubs revealed more mixed feelings as to whether FDI had affected competitiveness with the Premier League. One
respondent indicated FDI to have had some effect, but the other considered FDI to have had little effect. Nor was it clear whether effects had been positive or negative. Some outsiders offered a more critical view of FDI’s effect:
“Somebody will say is there going to be anyone that is going to break into that top six and they will just chuck a few names up in the air, knowing full well that it’s not going to happen”
(Respondent D)
“foreign investment in the Premier League, has financially doped it to the extent that it will be the same clubs time and again” (Respondent D)
The implication of this narrative is that it becomes more difficult for clubs outside of the elite to compete for top positions in the Premier League. As a result, it is unlikely that clubs from outside this group will achieve any sustained long-term success unless they are acquired by a foreign investor.
Having established this mostly positive view of the relationship between competitive balance and FDI, the next phase of the chapter is to investigate some of the actual measures of sporting competitiveness (the Herfindahl Index, C5 Ratio, plus the Lorenz Curve identified in 5.9):
The Herfindahl Index scores from the 1992/1993 to the 2010/2011 season are shown in Figure 7.1, together with the average Herfindahl Index score over the nineteen seasons (indicated by the blue trend line).
Figure 7.1: Herfindahl Index 1992-2011
(Source Author Calculations)
The larger figures for the index indicate a decline in competitive balance. According to Michie &
Oughton (2004) a perfectly balanced, twenty team league should generate a score of 0.05, whilst a perfectly unbalanced twenty team league would show a score of 0.07. In relation to the results in Figure 7.1, the first three seasons (1992/1993 to 1995/1996), show much lower results but this is a twenty-two team Premier League, which reduces the Herfindahl Index (Michie &
Oughton, 2004).
The period of interest for this study is from 2001/2002 to 2010/2011, when foreign ownership became more prominent. In this period, the competitive balance score has risen above from the 0.05 perfectly balanced score. The scale of the decline between 2001/2002 and 2007/2008 was 3.6%, a level which Michie & Oughton (2004) consider to be significant. In contrast, the
0.04
1992/1993 1993/1994 1994/1995 1995/1996 1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011
Index Score
Season