By Manav Khindri
Illustration by Keo Morakod Ung
Since the Premier League’s inception in 1992, England has grown into the powerhouse of professional football. At the summit, big teams like Manchester United, Liverpool and Arsenal have grown into global brands – so big, in fact, that the past few years have seen the biggest and richest in the sport wanting to break away from their domestic leagues and form a ‘Super League’, seeking even more control, money, and power. Fortunes at the foot of England’s four-tiered professional pyramid have long fallen the other way; 2019 and 2020 saw the liquidation of local pillars of the community (and 140-year-old institutions), Bury and Macclesfield. In the case of the former, Bury’s proximity to billionaire- and state-owned Manchester United and Manchester City stuck out extremely sorely. It prompted the government into action as they launched the independent football regulator, expected to come into force this summer 2025. As uncertainty over the future looms, the situation begs the question: how have we got here, and how does the future of the professional game look?
As early as the 1960s, US economist WC Neale described the ‘peculiar economics’ of professional sports. Traditional Economics, he theorised, tends not to apply perfectly when considering the individual club as the ‘firm’. A monopoly in this case, i.e. one wildly dominant team, tends to draw very little consumer interest, and clubs need strong competitors to create the uncertainty that generates enthusiasm, and thus, revenue. While logically simple, it is clearly contrary to typical economic thought.
However, when viewing the league as the economic agent, Neale comments that there is a tendency towards a strong centralised national league – a natural monopoly in which smaller competing leagues become unprofitable, either being driven out of business or absorbed by the monopolist. In many ways, Neale was ahead of his time; the US’ modern-day professional football league, MLS, came into being in 1993 and takes on many of the qualities described; the league owns all franchises within it, rules exist to secure ‘competition’ with no relegation or draft-style selections, and legislation is in place to prevent wage competition among franchises fighting for a player’s signature. No other divisions can compete with the MLS’ national power, nor is there much clamour for one.
But the American experience struggles to translate directly to England. Sport is not consumed solely as entertainment our side of the Atlantic, and football especially is deeply entrenched in local communities, helping to forge regional identities and grow economies. While US franchises can move to wherever the money may be, English clubs are a symbol of their areas – Bury and Macclesfield themselves were formed in 1874 and 1885 respectively. The English game, society and identity needs all four divisions to be protected and supported.
Moreover, Neale’s theory was published long before the commercial boom and the meteoric rise in TV revenues. When the Premier League split from the Football League (the body now governing the other three professional tiers of English football) in 1992, decades of falling enthusiasm in the game was threatening its future. The split was both refreshing and necessary, giving the Premier League sponsorship, broadcasting, and commercial independence. And the gamble paid off; in 1993, the Premier League’s central income was £45m, compared to an eye-watering £3.5bn in 2023. In that time, the Football League has also seen its revenues grow healthily. But when you consider their relative growth rates, a more sinister trend emerges. Thirty years ago, the Top Division’s income was 1.33 times higher than the EFL’s, but that multiple is now a whopping 17.5. As the gap in riches for the ‘Top 20’ in the top flight and the ‘bottom 72’ in the rest of the pyramid has exploded, the system has had to contend with dangerous adverse incentives.
Put simply, the current system incentivises recklessness. The mean wages-to-turnover ratio for season 2023/24 for Premier League clubs was 68% and varied from 43-96% from club-to-club – generally regarded as healthy, sustainable figures. In comparison, the average ratio across the Football League is deep into the nineties, and was as high as 93.1% in the Championship (second division) in the same season. In a highly competitive and cost-pressured league, many clubs operated on very fine margins and ran seriously risky operations in pursuit of promotion to the ‘promised land’, where even the bottom-placing team is guaranteed £95m. In contrast, first place in the Championship only guarantees £6m.
The tale of recently departed Reading owner, Dai Yongge, illustrates this sustainability issue. He took control of the club in 2017, with the club in the second tier. The aim was clear – get back into the Premier League. The incentive gamble was also clear – spend heavily on the best talent, secure promotion, and reap the rewards. But they never went up, and by 2021 they were spending 234% of revenues on player wages, more than doubling the league’s allowance on pre-tax losses over a five-year period. The result was points deductions, and relegation to the third tier.
Also, while he was the owner, it was not Yongge who bore the brunt of the punishment – staff and players went months with unpaid wages; the club was hit with multiple points sanctions, and fans in the local community suffered the most. If Reading had made it to the top flight, Yongge would have experienced all the benefits, however the consequences of his failure and reckless management were not absorbed solely by him. These perverse incentives are, naturally, horrifically unsustainable.
As previously mentioned, the government is planning to introduce an independent football regulator because it has become clear that the sport’s existing bodies cannot regulate themselves. As a government department, it should have the access to data and means to impose sanctions, if a club’s books show threat of insolvency. More importantly, however, it ought to impose much stricter fit-and-proper persons tests on prospective owners. Dai
Yongge’s access to funds to cover costs and debts was significantly impacted by China’s restrictions on capital movement. Tests for prospective owners ought to be able to incorporate and recognise these potential risk factors.
Ultimately, a fine line and caution would be recommended. Act too leniently and nothing changes. Make sweeping demands to the Premier League, and you risk provoking new plans for a breakaway league once more. To reincorporate the Premier League into the Football League would no doubt be a big step in the wrong direction, and drag down profitability for all. That being said, a renegotiation in the financial aid that trickles down the system has to be a priority, and teams in the Premier League ought to understand the importance of a strong professional system in totality. Since 2022, wage bills in the top flight have gone up a massive £850m in total, putting an even greater strain on Championship clubs who want to show ambition; the divergence in fortunes only seems to be accelerating. It is especially frustrating when the rise in wage spending is mainly a result of intra-league competition, not duels with foreign teams.
What we may be left with is almost the closed league described by WC Neale’s decades-old theory, with merely the same four or five teams consistently going up and down, too rich for the second tier but too weak to compete in the top flight – creating their own ‘quasi-league’ in the middle. Without formally banning promotion and relegation, the competitive nature which English football prides itself on would become outdated. Some argue we have already reached that point of no-return – ‘solidarity payments’ from the Premier League for relegated clubs do already exist, a tacit admission of the system’s unsustainability. Either way, professional clubs can only rely on fanbase engagement so long as the illusion of competitiveness remains, or risk indifference, or even the clamour for reckless spending in order to compete, accelerating the race to the bottom. A fall in engagement would be a crushing blow to Football League clubs, whose revenues are reliant on commercial deals, increasingly volatile amid dwindling viewership. Whichever side of the wealth fence your club falls on, the system’s health demands true competition.
UCL Rethinking Economics 