The Reading Room

The Economics of Modern Soccer

With the World Cup concluding yesterday, some readers will be quietly relieved at not having to pay attention to soccer for another four years, while others will be anxiously awaiting the European season’s restart with the English Premier League’s Boxing Day fixtures. With apologies to those in the former camp, I want to talk briefly with those in the latter about the economics of modern club soccer.
As anyone who watches European soccer regularly knows, both commentators and a fair number of fans have deep concerns about the current economic situation of soccer. That model is seen as both unsustainable (and already driving many smaller clubs into bankruptcy) and responsible for the lack of competitiveness in leagues across Europe.
Concerns about the current economics of soccer are not limited to commentators and fans. Last year, at least ostensibly in response to the economic losses brought on by the Covid-19 pandemic, Real Madrid president Florentino Pérez announced the formation of a European Super League. Initial investment had been secured from JPMorgan Chase and participation from the largest clubs from Spain, Italy, and especially England (with the assumption that they would eventually be joined by the two largest clubs from Germany and France’s sole super club, Paris Saint-Germain).
While there is significant room to doubt that Pérez and his co-conspirators really believe that their businesses are in peril, Super League club Barcelona’s recent financial struggles suggest the shaky business foundations of even the most successful soccer franchises (though it is worth noting that part of those struggles come from regulatory rules that practically limit Barcelona’s capacity to borrow rather than from purely market forces).
Whatever the realities, fans were certain that the proposed Super League was an exacerbation of rather than a solution to the problem. Public protests by English fans led all six proposed English members to withdraw from the Super League, scuttling the plan within three days of its announcement.
The pandemic and resulting machinations of super club owners, however, are simply the latest in a long-standing cycle of concerns. At the end of the last World Cup, Theodore Dalrymple wrote two posts for the Online Library of Liberty’s sister site, Law and Liberty, reflecting on a French book by Pierre Rondeau and Richard Bouigue entitled Is Football Going to Explode? — For a Regulation of Football’s Economic System. In the first, he laid out the underlying reasons that many fans, including this book’s authors, felt that soccer’s then-current economy might be unsustainable.
In his second post, however, Dalrymple pointed out an error in the book’s economic thinking, focusing on the then-recent sale of Neymar for a still-record €222 million transfer fee (who, in case you missed it, scored one of the best goals in this year’s World Cup against Croatia). Dalrymple explores the authors’ questionable use of a just price theory in judging Neymar as overpaid. As it happens, I have also written on Neymar’s transfer on my own blog, focusing on how it reveals the regulatory capture of UEFA’s Financial Fair Play system by the super clubs it supposedly regulates.
Near the end of that post, I included a video by Stefan Szymanski, a leading sports economist. Szymanski is the author and co-author of a number of brilliant books on the economics of soccer, and I would highly recommend his work to anyone interested in a deeper understanding of the topic.
His 2005 book, National Pastime, co-authored with Andrew Zimbalist, offers a comparative analysis of the economic models of Major League Baseball to European and international soccer. In 2009, he teamed up with popular soccer author Simon Kuper for a book titled Why England Lose, but quickly rebranded for the American market as Soccernomics. That book has been re-released with small updates for each successive World Cup, and is full of sharp and fascinating observations about the game.
First and foremost, Soccernomics undermines the notion that football clubs are big businesses in any ordinary sense of the word. Though huge amounts of money run through them, almost none of it ends up as profit. And yet, counter-intuitively, European soccer clubs virtually never go out of business—and in the extremely rare cases when they do, they are almost always immediately replaced by a “new” club that is largely identical to the old one except for ownership group and financial liabilities. 
A notable recent example is Glasgow Rangers, who were liquidated in 2012 and yet since 2016 have not finished lower than 3rd place in the Scottish league, or since 2018 lower than 2nd, their tradition position in the Scottish duopoly (or “Old Firm”). It would doubtless have taken even less time had Rangers not been forced to return to the 3rd tier of Scottish soccer and play their way back up, earning two promotions in the three intervening seasons. This year, they reached the Europa League final.
Those seeking an even more rigorous analysis of the economics of soccer should consult Szymanksi’s 2015 Money and Soccer. That book offers a systematic analysis of the business of European soccer from top to bottom, and is full of insight. Probably most significant is Szymanski’s explanation of how the promotion and relegation system—the sacred cow of European soccer (and of American Europhiles like myself)—inevitably leads to the economic and sporting inequalities decried by those same fans.
Briefly: in a closed sports league like those of all major US sports, owners will eventually come to understand that financial success is more about growing the whole pie than about fighting to secure the largest piece of that pie (though the best owners will surely adopt a have-their-pie-and-eat-it-too strategy). But in a system where every year two to three owners are relegated to a much smaller pie, the only sensible strategy is to seek a degree of dominance so great that relegation is not possible. In short, a world of super teams.
As a final farewell, I’ll close with one last World Cup tidbit from Soccernomics. In thinking about the tournament, Kuper and Szymanski restate the conventional (to economists) debunking of the supposed economic benefits of state-sponsored sporting events like the World Cup—but then close with an innovative public choice analysis. Looking at the boost in self-reported happiness amongst Germans following the 2006 World Cup, they argue that, at least for developed nations, no other public expenditure is likely to produce a comparable increase.
Whether Americans will collectively experience a similar happiness boost in 2026 is perhaps open to debate, but for readers who have stuck with me this far, I have little doubt. I look forward to speaking soccer with you in another four years.


Marty Finkler

Nice piece, Garth. You provided something for everyone and done a nice job capturing the essence of the Economics of European soccer. You might further enrich the discussion with details about the movement of star players such as Christiano Renaldo, Lionel Messi, and Gareth Bale. Such movement has affected the ability of some nations to build teams for the World Cup.
Of course, I'm willing to chat about such topics (over a beer perhaps) before the WC returns to North America in 2026.