13 Oct 2011

Should footballers receive such high wages?

Time and time again, when the topic of footballer's wages gets brought up it seems to be discussed purely on the morality behind it: "Is it fair that one premier league 'super-star' should get paid in a single week the amount that 20 nurses earn in a year" is a common refrain, but unfortunately it's an argument which carries no real weight - there is not an opportunity cost between footballers and nurses in this situation, the choice is not between paying John Terry for a week or 20 nurses for a year - the opportunity cost is in fact: paying John Terry for a week or investing in other football-related talent (either in the form of another player or investing in youth training facilities). Abramovich (Chelsea's owner) has shown no interest in funding the UK's National Health Service, so why people attempt to link the two seems bizarre. There are strong arguments for and against footballers receiving high wages, I'm going to briefly cover some of the best (and worst) cases for each camp, starting with those in favour of high wages. 


STRONG ARGUMENT: Supply and Demand - This is probably the strongest argument which can be raised by the 'yes' camp - each footballer is a unique commodity with individual talents and abilities, there would be absolutely no sense in classifying them all as being of equal value to a particular club. Take Wayne Rooney for example - there is only one Wayne Rooney so the supply is one. However, almost every club in Europe would love to have Wayne Rooney on their books - demand greatly outnumbers supply. Given that in the UK we live in a relatively free-market economy and prices are (usually) allowed to fluctuate based on changes to supply and demand, therefore the price of Wayne Rooney should be adjusted so that demand is equal to supply (i.e. the price is set at a level where there is only one club wants to buy the one available Wayne Rooney). This is a strong argument, people rarely call into question the value of the Mona Lisa or Egyptian artefacts - even though the situation is similar, the value and price of these goods reflects the fact supply is massively outweighed by demand

WEAK ARGUMENT: It's okay to pay them loads because they pay equally massive amounts of tax. The reasons why this statement is wrong on every level should be obvious - The players have such good accountants they can often get away with paying very little income tax - as low as 2% according to the Guardian. "The complex tax structures often surrounding player-controlled image rights companies mean players can legally avoid paying the 50% top rate of income tax on their earnings. By receiving loans from these rights, companies' tax rates can be depressed even further, potentially as low as 2% according to some tax experts." 


STRONG ARGUMENT: The richer premier league clubs are engaging in anti-competitive practices, giving them an almost untouchable monopoly in the major competitions. This, like the argument about supply and demand, is another fair point. In the 2005-6 season, Chelsea went on a massive spending spree regardless of the fact they were operating at a £140m loss. Normally loses of this magnitude would lead to a radical rethinking of strategy - but it didn't, not for a few years anyway. Why? Well, for one - Chelsea won the Premier League that season so saw no reason to adjust their financial strategy, and secondly - Abramovich has the available financial capital to weather such loses. 

This is where the argument about anti-competitiveness practices becomes relevant - surely by being able to operate with such massive loses year on year, even marginally less wealthy clubs are put at a serious disadvantage; especially if they want to try and balance their finances. Alan Sugar, whilst Chairman of Tottenham famously said: "Football is about the only business in the world where it's embarrassing to make money." On top of this it's also important to remember that there are smaller clubs out there too - Bournemouth lost star-striker Josh McQuoid back in 2010 to Millwall for an undisclosed fee, however the Bournemouth Echo reported at the time that the move meant: "[McQuoid] is understood to have seen his weekly wage rocket by almost 600 per cent". 

Another interesting quote comes courtesy of Karl-Heinz Rummenigge: ""I doubt whether in the next 10 years there will be a German club in the final of a European competition (…) given what Abramovich does every summer in the transfer market, how can German clubs stay competitive?"

So what can be done? Well, supporters of a pure free-market economy would argue that there was no case for any intervention, instead we should leave it to the invisible hand of the market and accept the consequences of that are probably for the best. Whilst Keynesian economists on the other hand would insist that there was a role for intervention/regulation to preventing the abuse of monopoly power amongst the larger clubs. However, the only conclusion I want to draw from this blog is as follows: you're welcome to your opinion on footballer's wages, just so long as you argue your case properly and without resorting to soul-searching rhetoric or comparisons with the health service. 

Alan Sugar quote: http://www.allgreatquotes.com/alan_sugar_quotes.shtml

Chelsea stats and Rummenigge quote: http://www.guardian.co.uk/football/2006/nov/28/newsstory.bayernmunich

Bournemouth Echo quote: http://www.bournemouthecho.co.uk/sport/8689819.Cherries__Mitchell_insists_he_had_no_choice_over_Josh_sale/

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