Banning relegation from the Premier League: More Investment certainty, less excitement?

There has been a bit of talk recently about abolishing the promotion and relegation system in the English Premier League, mainly coming from the Foreign owners of Premier League clubs. A couple of quotes from this article sum up the argument, which is really about investor certainty:

a growing cartel of owners believe the Premier League should adopt the American franchise model to end financial fears linked to the massive cost of dropping out of the elite

Obviously, if I was an American owner and I owned a football club, or I was an Indian owner, I might be thinking I would like to see no promotion or relegation. My investment is going to be safer and my shares are going to go up in value

Relegation results in a massive drop in revenues so I can see an argument that owners will be more willing to invest in the clubs if they know that they will not be regulated. Basically, getting rid of relegation would give more certainty on the firms future cashflows. Interestingly, the Premier League already gives “parachute” payments to relegated clubs to help compensate for this.

The other side of this argument, voiced quite passionately by Sir Alex Ferguson, is that this would “kill English football”. For once, I’m inclined to agree with red nose. The Premier league would be so much more boring without relegation. Given the gulf between the top 6 or so teams and the rest of the 20 team league, the majority of the games would become relatively meaningless. Similarly, the Championship (England’s second division) would become pretty boring too. Given the big prize of promotion would disappear, who would actually care who wins the 2nd division??

Now you are probably wondering where the economics is, this is an economics blog after all. If the league is less exciting due to getting rid of the relegation system then fewer people will watch games on TV, go to games etc.. which means the league will suffer financially. My hypothesis is that supporters of the big teams would be still be just as interested, but supporters of the teams at the mid to bottom end would be less interested and that the Championship would die.

So there is a trade-off here. It’s possible that by giving owners more certainty through a “franchise model” the entire Premier League would become more even as owners would be willing to plow more money into their teams, this may make the league more exciting and make more people watch. But there would be a countervailing effect of potentially less revenue available to teams as fewer people bother tuning in (which is particular important with UEFA’s financial fair play rules coming).

 

  • D.J. Taylor

    It would certainly be the end of english football as we currently know it that’s for sure.

    If this were to transpire, I suspect that the Championship teams etc would break away and form their own new “Premier” league system to rival the “rebel” franchise league. The English championship is the worlds most popular second division and the teams involved still have world wide appeal and support (ableit not on the scale of say Manchester United or Liverpool) but I think that generating interest in this new league would be viable. They could even invite the top Scottish teams like Celtic and Rangers (who have longed wished to escape the confines of the SPL) to join this new league which would garner further interest as these two teams have some of the biggest global followings.

    In summary, what I can see is the radical formation of two distinctly different english football leagues (one traditional and one franchise). If anything, as oppossed to dying out, I think there is a possibility of those outside the current elite gaining somewhat from this.

    PS: And no, I have no idea how this would work when we start to think about english involvement in European (UEFA) competition ;-)

    • http://www.tvhe.co.nz agnitio

      Interesting points. Reading your comment makes me think that Franchises would really be the beginning of the European Super league that has also been floated.

      The point about the scottish teams is a good one, that would certainly help make the remaining league credible.

      Another idea I have seen floated around is a franchise system with two divisions. So you basically lock the teams in the Championship and EPL, have relegation/promotion between the two of them, but Championship teams can’t get relegated to league 1. I think this is an interesting compromise.

  • http://billbennett.co.nz Bill Bennett

    Hey Agnito you’re an economist… how about an economic argument against the change? 

    … wouldn’t changing the championship in this way mean a massive increase in the value of the clubs entrenched in the top echelon and a decrease in the value of the clubs lower down the system? There would also be a calculable difference in the future gate and TV revenues of all the clubs involved. 

    So it would be possible to feed some numbers in to this and work out if the overall effect would be a net benefit or a net loss?  

    I’d say this project could make a great dissertation for an up and coming economist.