Market Reforms Score Big in Soccer
What Accounts for Europe's Recent Dominance of the Sport?
DECEMBER 01, 1998 by L. JACOBO RODRGUEZ
L. Jacobo Rodríguez is assistant director of the Project on Global Economic Liberty at the Cato Institute. This article is a revised and expanded version of an article published in the Wall Street Journal Europe on July 16, 1998.
Last summer, European nations once again asserted their dominance of world soccer at the World Cup in France. That dominance culminated with a surprise win by France over Brazil in the final game. Since 1986, when the World Cup adopted its current playoff system, only four non-European teams have made it to the quarterfinals of the quadrennial tournament: Mexico (1986), Argentina (1986, 1990, and 1998), Cameroon (1990), and Brazil (1986, 1994, and 1998).
At the club team level, European dominance is even more impressive. European leagues—in particular, those of England, Italy, Germany, and Spain—are by far the most competitive in the world, attracting the best players from around the globe. For instance, the whole starting lineup for the Argentine team plays in either the Spanish or the Italian leagues; six of 11 starters for the Brazilian team also play in Europe, and another three played in the continental leagues until recently. One of the best European club teams, Barcelona, sent 11 players to the World Cup. The European leagues have become to soccer what the National Basketball Association is to basketball: the only place where players can get an accurate measure of their talents and skills and achieve superstar status. That was not always the case. Pelé, the greatest soccer player of all time, never played for a European club team.
What accounts for Europe’s recent dominance of the sport? Organized soccer has been played on the old continent for about a century now, and teams have well-organized farm systems in which players acquire from an early age the discipline and physical fitness necessary to play competitive soccer. But while that may account for the emergence of European stars, it does not explain why non-European players want to go to Europe to prove themselves. At least part of the answer lies in market-oriented reforms, particularly in the media and immigration.
The Commercial Spirit
For starters, clubs need money to sign the best players, foreign or domestic. Until the mid-to-late 1980s, only a handful of teams in Europe could hire the top players from South America and from other European countries. Today almost any team playing in the first division of a top European league has the resources to sign world-class players.
Teams today get the lion’s share of their revenues from television contracts, advertising fees, and merchandise marketing. In addition, some English teams have gotten an infusion of capital by becoming publicly traded corporations, an example that other European teams are following. The lucrative TV contracts became possible because of the emergence of private television networks in many countries of continental Europe. Networks always had been exclusively government owned and operated. However, beginning in the mid-1980s, the proliferation of direct-broadcast satellites put a de facto end to that monopoly.
Thus, technological advances—and the spread of satellite dishes—led to the deregulation of television, which opened the door for soccer leagues to negotiate lucrative contracts with different TV networks, much as professional sports leagues in the United States do. In the case of Spain, for instance, deregulation occurred in 1990, and one of the private networks immediately signed a deal with the Spanish first-division league for exclusive broadcast rights of Sunday night games in an attempt to gain a significant market share.
Second, as revenues increased, the artificial barriers to the hiring of foreign players were for the most part removed. Today, players from any European Union country can play in the league of another EU country and count as domestic players. And non-EU players who have been playing in an EU league for a number of years also count as nationals, often taking advantage of liberal naturalization laws that apply to players from former colonies of a European country. Finally, the maximum number of non-EU foreign players per team has been increased from two to three or four, depending on the league. All in all, such measures have had the effect of bringing the supply of talented foreign players more in line with the demand for them.
TV networks have also profited from the removal of artificial barriers to hiring foreign players. Fans in the players’ home countries avidly follow the action. The European leagues and networks have been able to sell broadcasting rights to networks in those countries, especially in South America. Of course, the greater exposure has probably had the effect of driving up advertising fees, providing additional revenues to the networks and the leagues.
The third factor is cultural, not political. Talented players are willing to move from one team to another, even if the latter team is in another country. That is a simple but crucial fact. Not only are South American, eastern European, and African players going to western Europe to play against the best, but players also move around within the European Union, which is very unusual for EU labor markets, where institutional and cultural barriers to labor mobility are well documented.
Market-oriented policies such as TV deregulation, flexible labor markets, and salaries determined by the interplay of market forces have allowed Europeans to be in a league of their own when it comes to soccer, an activity they are very passionate about. One can only hope EU leaders, realizing what freer markets have done for soccer, will push for more reform to help other sectors of their often rigid economies and to stop the drain of human capital.