Institutional Economics of Minor League Football in Europe Gijón, Asturias/Spain, Universidad...

Institutional Economics of Minor League Football in Europe

Gijón, Asturias/Spain, Universidad Laboral, May 9-10, 2008

International Association of Sports Economists (IASE) 10th Annual Conference

Findings from the German 2nd & 3rd Division

Session X Institutional Issues in the European Soccer

Senior Lecturer | PhD Economics

Dept. of Sport ManagementSchool of Sport Science

Ruhr-University Bochum (GER)

Markus Kurscheidt

A joint research of the RUB Dept. of Sport Management

Overview

• Introduction- minor leagues in European football

• Some Theoretical Considerations- institutional economic characteristics & incentives- marketing strategies in minor leagues

• The German 2nd & 3rd Division of Football- institutional background & design - comparative analysis of economic key figures

• Marketing Strategies & Case Studies - “shooting stars”, “defenders”, “yo-yo teams” & “fallen angels”

• Conclusion

Introductionminor leagues in European football

• Europ. minor leagues (in football): Astonishing lack of research– Literature on football dominant in European sports economics– BUT little knowledge on:

(1) national team (vs. club team) competitions, (2) minor leagues in club football, (3) impact & management of promotion/relegation, (4) business strategies in football (esp. of “small” or average clubs)

– Comparative approaches missing (e.g. club location, other team sports)

• Relevance of econ. analysis of Europ. minor leagues (in footb.)– Real institutional trends: league reforms in European football– League & club management advice: esp. coping with financial distress– Basic research: collecting facts & figures (data bases), theoretical

description & explanation of structures, incentives, market results

• The German case is illustrative & insightful!– Introduction of national 3rd division planned for the season 2008/09– (Lower) part of “Big Five”; but: post-World Cup, positive econ. trend…

Specific economics of minor leagues?→ Strategic advice for league & club

management!(method: comparative statistics & case studies)

Some Theoretical Considerationsinstitutional economic characteristics &

incentives• Minor leagues & clubs (in football) as product markets

– Intermediary markets (rank-order of league divisions):exogenously defined product quality, only temporary stability (i.e., one season)

– Higher impact of promotion/relegation compared to 1st division:upper & lower bound of (market) performance affected (“sandwich” position)

– “resource-weak” environments: low/no TV revenues, many small town clubs, maybe high local competition, maybe weak club/business locations

• Industrial & institutional economics of minor leagues– Arms (or rat) race closer than in the top league (European competitions aside):

struggle on promotion/relegation (rank-order contest, cut-throat competition)– Exaggerated “betting on” or “bidding for” promotion attractive/lucrative:

risk of sunk costs & the winner’s curse– Positionality & “adverse signaling”:

dysfunctional branding by labeling the league “2nd” & “3rd” etc.

• “Strategy (and incentives) follows structure” (or vice versa?)– Chandler (1962) vs., e.g., Bower (1970): SSP debate– Strong incentives for “catching up” (marketing/sporting) strategies– Investment decision: highest Return-on-Inv. and/or strategic leverage?

→ invest in “legs” (players), “stones” (stadium) or “white collars” (managers)?

Strategic management implications in more

detail…

Some Theoretical Considerationsmarketing strategies in minor leagues

• Creating competitive advantage in general business– Generic strategies (Porter), product-market strategies (Ansoff), etc.– Cost vs. quality leadership, focusing (niche strategy), diversification– Innovation, market entrance, market enlargement/diffusion– Growth strategy, mergers & acquisitions

• Specific strategic options for minor league teams– Aggressive growth

(“up or out” → sporting success first)– Hit-and-run competition

(consolidate in the major, attack in the minor league → sporting-financial balance)

– Defending the market (just stay in the league → financial viability first)

– Turnaround or rebalance financial and sporting success(reestablish competitiveness → after mismanagement, bad luck on the pitch)

• Result: strategic success & competitive position (strategic groups)– “Shooting stars”– “Defenders”– “Yo-yo teams”– “Fallen angels”/

“One hit wonder”

Where to start (pitch vs. stadium & office)?

How to stay competitive? Catching up? Repositioning? –

Demanding!!!

The German 2nd & 3rd Div. of Football institutional background & design

• 1963 – 74: introduction of a national 1st “Bundesliga”– so-called “Regionalliga” (now 3rd div.) was the 2nd div. with five tracks

(north, west, southwest, south & Western Berlin city league)

• 1974 – 94: introduction of a national 2nd “Bundesliga”– until 1981 in two tracks (north & south), then one track– abolition of “Regionalliga”, frequent changes of 3rd div. structure– 1991/92: 48 teams in two-track 2nd BL; 92/93: 24 teams, one track

• 1994 – 2008: introd. of the “Regionalliga” as general 3rd div.– highest “amateur” league, but actually professional (later with audit)– until 2000: four tracks of 18 teams each (north, northeast, west/

southwest & south), then 36 teams in two tracks (north & south)

• 2008 onwards: introduction of a national 3rd “Bundesliga”– one-track 3rd BL of 20 teams; 4th div.: three-track RL (18 teams each)– 5th div.: “Oberliga” of regional FA’s, several tracks

→ many reforms, trend towards national one-track leagues = indicator of professionalization

The German 2nd & 3rd Div. of Football institutional background & design

League structure until 2007/08

DFL

1st Bundesliga – 18 Teams

3 Relegations

2nd Bundesliga – 18 Teams

3 Promotions

4 Relegations

DFB

Regional FA‘s Northeast & Southwest

5 Relegations

RL-South18 Teams

4 Relegations

2 Promotions 2 Promotions

RL-North19 Teams

Licencing

NEW: 1st Bundesliga – 18 Teams

3 Relegations

3 Promotions

2nd Bundesliga – 18 Teams

2 Relegations

Relegation matches 3rd weakest 2nd div. vs. 3rd best of 3rd div.

2 Promotions

3rd Bundesliga – 20 Teams

3 Relegations

RL 118 Teams

1 Promotion

3 Relegations

RL 218 Teams

1 Promotion

3 Relegations

RL 318 Teams

3 Relegations

1 Promotion

The German 2nd & 3rd Div. of Footballcomparative analysis of economic key figures

Features of the data set

in total 241 teams in two/three (football) divisions of four team sports(football = benchmark; others: ice hockey, handball, basketball)

quantitative data (mainly cross-sectional): about 75 variables per team (88 football teams, 1st – 3rd div.) (specificity: socio-economic data on the team location)

qualitative data – comprehensive expert’s interviews (about 1½ h) 145 in total (52 on football, i.e., 59% of all teams)

The German 2nd & 3rd Div. of Footballcomparison of league averages (season 2005/06)

* stands for: 1 before 1900

2 1900 – 1945

3 1946 - 1990

4 after 1990

(league averages) 1st BL 2nd BL RL total RL North RL South

founded* 1.72 2.06 2 2.33 1.71

club members 20,959 3,476 1,548 2,083 1,073

budgets in million € 34.62 8.38 2.81 3.83 2.14

stadium capacity 48,963 24,241 17,062 20,609 13,242

attendance 40,333 12,836 4,141 5,828 2,324

city size (inhabitants) 702,882 228,513 256,810 382,505 121,446

location ranking (prognos)

112.11 140.67 135.81 166.07 103.23

unemployment 15.40% 13.84% 13.43% 16.17% 10.47%

team

data

location

data

= 4 x = 3 x

= 3 x = 3 x

= 6 x

(club averages in thousand €)

2nd div. 02/03 to 2004/05

promotion to 1st div.

1st div. 03/04 to 05/06

following year

Difference between 1st and 2nd div.

revenue 20,133 33,779 67.8%

costs 20,628 31,538 52.9%

operating profit -495 2,241

(club averages in thousand €)

1st div. 02/03 to 04/05

relegation to 2nd div.

2nd div. 03/04 to 05/06

following year

Difference between 1st and 2nd div.

revenue 27,775 19,795 -28.7%

costs 27,210 21,491 -21.0%

operating profit 565 -1,696

Promotion

Relegation

source: DFL (Bundesligareport, 2007, p.179)

The German 2nd & 3rd Div. of Footballaverage financial impact of promotion/relegation

(club averages in t€) season 2003/03 season 2003/04 season 2004/05 season 2005/06

sponsorships 1,046 1,106 1,108 1,466

gate receipts 422 831 1.088 933

TV revenue 548 649 570 819

miscellaneous 1,410 1,101 1,746 1,014

total 3,426 3,687 4,512 4,232

1.046

422548

1.410

1.106

831

649

1.101

1.108

1.088

570

1.746

1.466

933

819

1.014

0

1.000

2.000

3.000

4.000

5.000

2002/03 2003/04 2004/05 2005/06

sponsorships gate receipts TV revenue misc.

in 1

,oo

o €

The German 2nd & 3rd Div. of Footballaverage 3rd div. club finances over time (north)

source: DFB

(club averages in t€) season 2003/03 season 2003/04 season 2004/05 season 2005/06

sponsorships 1,451 1,296 898 1,176

gate receipts 309 374 341 336

TV revenue 644 686 424 409

miscellaneous 1,040 1,045 735 787

total 3,444 3,401 2,398 2,708

1.451

309644

1.040

1.296

374686

1.045

898341424735

1.176

336409787

0

1.000

2.000

3.000

4.000

5.000

2002/03 2003/04 2004/05 2005/06

sponsorships gate receipts TV revenue misc.

in 1

,oo

o €

The German 2nd & 3rd Div. of Footballaverage 3rd div. club finances over time (south)

source: DFB

team sport mean maximum minimum % of club data

1st div. football

ice hockey

handball

basketball

34.6

5

2.7

2.2

60

8

5.3

5

14.5

2.7

1.2

1.05

100%

100%

100%

100%

2nd div. football

ice hockey

handball

basketball

8.4

0.8

0.6

0.2

15

1.15

0.9

0.4

4.5

0.5

0.2

0.11

100%

14%

21%

13%

3rd div. football 2.8 6.4 0.96 46%

The German 2nd & 3rd Div. of Footballcomparison between team sports (season

2005/06)

Budgets (in m€)

x 6,25x 4,5x 11

team sport mean maximum minimum capacity utilization % of club data

1st div. football

ice hockey

handball

basketball

40,333

6,064

4,484

3,519

72,346

12,453

10,484

6,922

20,175

2,489

1,944

2,500

83%

70%

68%

78%

100%

100%

100%

100%

2nd div. football

ice hockey

handball

basketball

12,837

2,022

952

934

40,803

3,179

1,831

2,187

3,860

1,243

539

249

52%

48%

50%

62%

100%

100%

100%

100%

3rd div. football 3,241 17,231 462 23% 100%

The German 2nd & 3rd Div. of Footballcomparison between team sports (season

2005/06)

Attendance

x 3x 4,7x 3,8

Explanatory variables B Beta Sig.

2nd div. (dummy) -34.622 -.792(-10.461)

.000***

3rd div. (dummy) -32.000 -.937(-12.379)

.000***

Explanatory variables B Beta Sig.

2nd div (dummy) - 18.786 -.569(-5.701)

.000***

3rd div. (dummy)

- 21.483 -.609(-5.408)

.000***

corporation (dummy)

regional ranking

local competition(team sports)stadium size

attendance

6.486

.013

1.502

-2.85E-006

.000

.197(2.886)

.090(1.442)

.146(1.982)

-.003(-.025)

.296(1.833)

.006**

.157

.054*

.980

.074

Model 1 Model 2

The German 2nd & 3rd Div. of Football Explaining Club Budgets – two regressions

Dependent variable: club budgets

R2 = 78%

Dependent variable: club budgets

R2 = 87%

(league averages)

1st div. seasons

2nd div. seasons

season2006/07

season 2005/06

season 2004/05

season 2003/04

season 2002/03

1st div. 27 8 18 15 15 13 15

2nd div. 12 9 18 11 9 6 6

3rd div. north

2 4 19 12 11 8 8

3rd div. south

0,4 3 18 12 11 11 11

Marketing Strategies & Case Studiesmarket dynamics & strategic groups

Sporting success & league fluctuation

„Shooting stars“• TuS Koblenz• Arminia Bielefeld• FC Augsburg

„Fallen angels / One hit wonder“• Union Berlin • Preußen Münster• Waldhof Mannheim• SSV Reutlingen• SSV Ulm

„Defenders“• Erzgebirge Aue• Holstein Kiel• SV Wehen• Greuther Fürth

„Yo-yo teams“• Eintracht Frankfurt• VfL Bochum• Energie Cottbus

Strategic groups

02/03 03/04 04/05 05/06 06/07

4th Divison

2nd Divison

3rd Divison season league budget in m€attendanc

e

02/03 4th div. ca. 0.9 --

03/04 4th div. ca. 0.9 --

04/05 4th div. ca. 0.9 --

05/06 3rd div. 1.7 5,747

06/07 2nd div. 6.5 8,600

populationprognosranking

per-capita income in €

unem-ployment

102,634high future opportunity

14,650 € 14.3%

name sizeyear of

renovationstadium type

Ernst AbbeSportfeld

12,000 2006 multifunctional

Marketing Strategies & Case Studies“shooting star” – e.g. FC Carl Zeiss Jena

Sporting & financial success

StadiumClub location

season league budget in m€attendanc

e

02/03 2nd div. -- 4,703

03/04 2nd div. 2.8 4,632

04/05 2nd div. 6.3 5,523

05/06 2nd div. 7.2 4,658

06/07 2nd div. 8.5 5,966



unem-ployment


15,936 € 9.4%

name sizeyear of


Wacker-Arena


Marketing Strategies & Case Studies“defender” – e.g. Wacker Burghausen



02/03 03/04 04/05 05/06 06/07

3rd Divison

1st Divison

2nd Divison


e

02/03 2nd div. 20 23,681

03/04 1st div. 34 36,911

04/05 2nd div. 22 33,901

05/06 1st div. 43.5 48,942

06/07 2nd div. 34 42,331



unem-ployment


18,100 € 15.1%

name sizeyear of


Rhein Energie Stadium


Marketing Strategies & Case Studies“yo-yo team” – e.g. 1. FC Köln



3rd Divison

1st Divison

2nd Divison

02/03 03/04 04/05 05/06 06/07


e

02/03 2nd div. -- 5,782

03/04 2nd div. 4.5 6,267

04/05 2nd div. 5 5,594

05/06 3rd div. ca. 3.5 2,852

06/07 4th div. -- 2,596



unem-ployment

220,033balanced

opport.-risks15,411 € 16.4%

name sizeyear of


Niederrhein Stadium


Marketing Strategies & Case Studies“fallen angel” – e.g. RW Oberhausen



02/03 03/04 04/05 05/06 06/07

4th Divison

2nd Divison

3rd Divison

Conclusion

• Analyzing minor leagues in European (football) sports fruitful for future research

• Strategic perspective should be more intensely pursued(sport policy, league management, club management)

• But: - Troublesome data collection- Relationships complex for empirical testing

• Further research & our next steps:- Inference testing of hypotheses- Content analysis of expert’s interview (success factors?)

Institutional Economics of Minor League Football in Europe

Gijón, Asturias/Spain, Universidad Laboral, May 9-10, 2008

International Association of Sports Economists (IASE) 10th Annual Conference

Findings from the German 2nd & 3rd Division

Session X Institutional Issues in the European Soccer

Senior Lecturer | PhD Economics

Dept. of Sport ManagementSchool of Sport Science

Ruhr-University Bochum (GER)

Markus Kurscheidt

A joint research of the RUB Dept. of Sport Management

Institutional Economics of Minor League Football in Europe Gijón, Asturias/Spain, Universidad...

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