Goal! Profit maximization and win maximization in football leagues, P Garcia

Tags: position, LFP, PremierLeague, Spanish Football, fixed effects, RealMadrid, Premier League, Unbalanced Panel, League position, Max Profit, profit maximizing, Getafe Compostela Numancia Albacete, Logrones Leganes Cordoba Murcia Hercules, Valencia Celta Deportivo Athletic Valladolid, Manchester United Arsenal, England Spain Italy Table, Rangers West Bromwich Albion Preston North End Watford Portsmouth Stoke City Millwall Tranmere Rovers, Pedro Garcia-del-Barro1, Universidad Pompeu-Fabra, football clubs, Universidad Internacional de Cataluna, Carlos del Campo, Ministerio de Ciencia y Tecnologia, Angel Barajas, Working Paper Series, Port Vale Stockport County Oxford United Reading Southend United Crewe Alexandra Grimsby Town Oldham Athletic Walsall Swindon, United Aston Villa Leeds United, Everton Fulham Leicester City Middlesbrough Wimbledon Sunderland Bolton Wanderers Charlton Athletic, Tanaka Business School, Profit maximization
Content: Working Paper Series, Paper No. 06-21 Goal! profit maximization and win maximization in football leagues Pedro Garcia-del-Barro1 and Stefan Szymanski2 October 2006 Abstract In this paper we estimate the best responses of Football Clubs to the choices of other clubs in Spanish and English leagues over the period 1994-2004. We find that choices are more closely approximated by win maximization than by profit maximization in both the short term and the long term. We examine club characteristics that might explain variations in choices between Spanish clubs. JEL Classification Codes: L83 Keywords: *We are indebted to Angel Barajas, Miguel Cardenal, Stephanie Leach, Joaquin Serrano, Carlos del Campo, Francesc Pujol, and Emilio Garcia-Silvero for their support and advice. Errors are our own. 1Pedro Garcia-del-Barro, Universidad Internacional de Cataluna, Immaculada 22, 08017 Barcelona. Tel : (34) 93 2541800, Fax: (34) 93 4187673, e-mail: [email protected]; and Universidad Pompeu-Fabra. The author gratefully acknowledges Financial support from the Ministerio de Ciencia y Tecnologia (SEJ2004-04649, Spain). 2Stefan Szymanski, Tanaka business school, Imperial College London, south Kensington campus, SW7 2AZ, UK. Tel : (44) 20 7594 9107, Fax: (44) 20 7823 7685, e-mail: [email protected]
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Table 1. Operating profits in the "Big Five" European football leagues
Profits (million ) English Premiership Spanish 1Є Liga Spanish 1Є Liga * Italian Serie A German Bundesliga French Ligue 1
1996 77 -23 -21 -3 5
1997 129 19 17 8 37 -7
1998 143 -124 -101 a -36 27 -46
1999 104 -170 -143 a -114 47 -70
2000 80 -152 a -46 35 36
2001 2002 2003 2004 121 125 185 223
-295 b -216 87 -41
-511 b -404 100 -98
-302 b -381 138 -61
-341 52 -102
Source: Deloitte&Touche Annual Review of Football Finance (2003, 2005). *Authors' calculations from clubs accounts. Out of the 20 teams competing in the LFP, we mark with "a" the seasons in which 19 clubs' accounts were used, while "b" implies that only 15 or 16 team' accounts were available.
Figure 1. Operating profits (England, Italy and Spain).
400
200
0
-200
-400
-600 1996
1997
1998
1999
2000
2001
2002
2003
2004
England Spain Italy
Table 2. Average revenues and average wages (as % of the revenues) for seasons.
AvRevEuros) Year
Spanish Football
N
1Є division N
2Є division
English Football N PremierLeague N Championship
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
1
4,268,892 1 3,044,909 18 19,630,924 17 6,638,792
5
9,225,842 1 2,686,473 18 24,614,092 16 6,356,702
19 15,620,150 4 2,509,873 18 27,062,053 15 6,815,186
20 24,263,940 5 4,008,501 18 35,646,941 14 8,796,836
18 29,149,850 9 6,243,958 16 50,280,071 16 12,717,063
19 30,519,530 10 4,883,988 18 53,990,072 14 11,092,033
19 34,147,940 11 6,611,016 17 63,663,877 14 13,653,991
16 35,665,650 12 7,079,504 18 74,059,982 16 14,030,414
15 41,772,720 11 5,564,037 19 86,449,068 16 19,887,189
15 48,769,060 11 3,889,198 20 91,877,205 16 16,047,064
11 58,988,410 1 4,143,813 18 100,987,045 18 18,812,340
%AvWage
Spanish Football
English Football
Year
N
1Є division N 2Є division N PremierLeague N Championship
1994
1
1995
5
1996
19
1997
20
1998
18
1999
19
2000
19
2001
16
2002
15
2003
15
2004
11
73%
1
48%
18
68%
1
94%
18
55%
4
68%
18
45%
5
91%
18
54%
9
72%
16
55%
10
102%
18
55%
11
82%
17
70%
12
104%
18
73%
11
138%
19
70%
11
140%
20
63%
1
85%
18
43% 42% 48% 47% 49% 55% 59% 58% 61% 61% 61%
17
60%
16
65%
15
75%
14
67%
16
70%
14
73%
14
94%
16
98%
16
73%
16
90%
18
71%
The records for the English leagues have been converted to Euros at the current Exchange Rate (1GBP = 1.47 Euros). N: indicates the number of teams for which the financial information was available each season.
Table 3. Revenues and league position. Dep.variable: logRelRev = log(Rev/AvRev)
Spanish LFP
(1)
Unbalanced panel (1994-2004)
ols
(2) fixed effects
(3) IV fixed effects
LogRank logRelRev(-1) Constant
0.295 (9.75) 0.636 (14.3) -0.412 (-8.83)
0.240 (6.06) 0.338 (4.91) -0.499 (-9.64)
0.241 (5.94) 0.333 (3.08) -0.501 (-7.53)
Instruments R2 F-statistic * No teams No obs.
no 0.867 736.6 37 189
no 0.862 36.97 37 189
wages(-1) 0.861 385.7 37 189
Premier League
(1b)
Unbalanced Panel (1994-2004)
ols
(2b) fixed effects
(3b) IV fixed effects
LogRank logRelRev(-1) Constant
0.184 (10.1) 0.698 (20.6) -0.150 (-9.10)
0.183 (12.9) 0.477 (13.1) -0.215 (-13.0)
0.173 (11.7) 0.561 (11.9) -0.189 (-9.89)
Instruments R2 F-statistic * No teams No obs.
no 0.913 2812 57 432
no 0.909 242.6 57 432
wages(-1) 0.913 1217 57 432
Ols using robust standard errors. (t-statistics) in parenthesis. * Chi-2, instead of F-statistic, for model (3).
Table 4. League position and wage expenditure. Dependent variable: logRank = - log(leaguePosition/(43 - leaguePosition))
Spanish LFP
(1)
Unbalanced Panel (1994-2004)
ols
(2) fixed effects
(3) IV fixed effects
log(Wage/AvW) logRank(-1) Constant
0.706 (6.86) 0.357 (6.27) 0.734 (7.27)
0.618 (3.09) 0.189 (2.97) 0.798 (6.60)
0.634 (3.10) 0.177 (2.47) 0.812 (6.40)
Instruments R2 F-statistic * No teams No obs.
no 0.643 173.3 40 236
no 0.639 15.73 40 236
Win%(-1) & Div(-1) 0.637 190.0 40 236
Premier League
(1b)
Unbalanced Panel (1994-2004)
ols
(2b) fixed effects
(3b) IV fixed effects
log(Wage/AvW) logRank(-1) Constant
0.963 (9.67) 0.512 (9.75) 0.211 (3.89)
1.032 (6.17) 0.324 (5.82) 0.273 (4.91)
0.889 (5.14) 0.414 (6.68) 0.223 (3.85)
Instruments R2 F-statistic * No teams No obs.
no 0.744 608.3 57 432
no 0.739 76.31 57 432
Win%(-1) & Div(-1) 0.743 181.6 57 432
Ols using robust standard errors. (t-statistics) in parenthesis. * Chi-2, instead of F-statistic, for model (3).
Table 5. Profit maximizing and win-maximizing positions in the football leagues.
Premier League Average 1993-2004 Manchester United Arsenal Liverpool Chelsea Newcastle United Aston Villa Leeds United TottenhamHotspur West Ham United Southampton Blackburn Rovers Everton Fulham Leicester City Middlesbrough Wimbledon Sunderland Bolton Wanderers Charlton Athletic Coventry City Derby County Manchester City Ipswich Town Sheffield Wednesday Birmingham City Nottingham Forest Crystal Palace Wolverhampton Wander Barnsley Bradford City Sheffield United Norwich City Queen's Park Rangers West Bromwich Albion Preston North End Watford Portsmouth Stoke City Millwall Tranmere Rovers Burnley Gillingham Huddersfield Town Port Vale Stockport County Oxford United Reading Southend United Crewe Alexandra Grimsby Town Oldham Athletic Walsall Swindon Town Luton Town Bury
.(1) Real Position 2 3 4 6 7 8 8 11 12 13 13 14 14 14 15 15 20 20 20 21 21 22 22 22 22 23 25 27 27 28 29 30 30 30 32 32 32 33 34 34 34 35 35 37 37 38 38 38 38 39 39 40 41 41 42
.(2) Max Wins 5 9 11 9 8 12 12 12 14 14 19 16 20 14 17 15 14 14 16 19 20 18 18 19 19 20 18 18 20 19 22 20 26 15 23 24 25 20 24 23 23 18 27 25 25 30 29 23 22 28 24 24 26 22 31
.(3) Max Profit 23 29 33 30 29 33 34 33 35 35 38 36 39 35 37 36 35 35 37 38 39 37 37 38 39 39 38 37 39 38 40 39 41 36 40 40 40 38 40 40 40 38 41 41 41 42 42 40 40 42 41 41 41 40 43
Spanish LFP Average 1994-2005 RealMadrid Barcelona Valencia Celta Deportivo Athletic Valladolid RealSociedad Mallorca Malaga Betis Alaves Espanyol AtMadrid Zaragoza Oviedo Racing Sevilla RayoVallecAno VIllarreal Tenerife Recreativo Sporting LasPalmas Salamanca Getafe Compostela Numancia Albacete Levante Lleida Logrones Leganes Cordoba Murcia Hercules
.(4) Real Position 3 3 5 7 8 8 10 10 10 10 11 12 12 13 14 16 16 17 19 19 21 22 23 24 24 27 27 27 28 28 31 34 34 35 35 41
.(5) Max Wins 6 5 6 6 9 10 12 10 12 13 8 14 12 12 15 15 18 16 15 16 18 22 23 18 24 30 25 25 25 22 30 31 27 31 25 37
.(6) Max Profit 17 15 18 18 21 24 26 24 26 27 21 28 26 25 29 29 32 30 30 30 32 34 35 32 36 38 37 36 37 35 39 39 38 39 37 41
Table 6. Deviations from the profit-maximizing and winmaximizing position.
Variable
Spanish LFP (unbalanced) English leagues (unbalanced)
N mean
sum
N
mean
sum
(pm - p)
189 12.12
392
15.55
(wm - p)
189
-0.48
392
-3.61
((pm - p)^2)/N 189
190.62 392
368.75
((wm ­ p)^2)/N 189
39.11 392
140.47
(pm - p) is the difference between the profit-maximizing position and the real one. (wm - p) subtracts instead the actual position from the win-maximizing (or zero-profit) position.
9
Table 7. Factors explaining deviations from the profit maximizing position.
Spanish LFP (1Є and 2Є Division) Spanish LFP (1Є Division)
Variables
Coeff.
t-stat P-value Coeff.
t-stat P-value
SecondDivision
-11.75 ** -12.82 0.000
HistoricalStatus
-1.43 **
-2.66 0.009
-1.33 *
-2.18 0.031
RelegationRisk
2.74 **
2.98 0.003
3.18 *
2.55 0.012
AssociativeClub
-0.98
-0.59 0.559
-1.58
-0.88 0.380
ControlConcentr
-0.45
-0.52 0.603
-0.39
-0.38 0.705
DirectorReward
-0.64
-0.74 0.461
-0.07
-0.08 0.939
AtleticBilbao
1.89
0.86 0.393
3.61
1.62 0.108
HomeGrown%
3.53
1.28 0.201
1.42
0.46 0.646
YearsPresident
-0.19 **
-3.08 0.002
-0.26 **
-2.70 0.008
Businessman
2.80 *
1.99 0.048
3.69
1.43 0.156
Constructor
4.49 **
2.76 0.006
7.54 **
2.60 0.011
Economist
-2.52
-0.84 0.402
-3.82
-0.75 0.454
Lawyer
2.69
1.50 0.136
4.37
1.55 0.123
MedicalDoctor
2.47
1.20 0.232
4.74
1.51 0.134
_cons R2 No obs. F-statistic
14.76 ** 0.59 189 18.2 **
9.14 0.000
13.83 ** 0.22 135 2.69 **
5.14 0.000
Cook-Weisberg Shapiro-Wilk
0.791 0.127
0.809 0.030
** Indicates significant at 1% and * at 5% Dependent variable LeagPositPurch number of positions that the club "purchase" respect to the maximizing-profits position [=profitmaximizingPosit - realPosition]
explanatory variables
SecondDivision dummy gathering the teams in the second division league.
HistoricalStatus ranking of the teams as indicated by the historical cumulative points obtained in the 74
editions of 1Є division LFP, until 2005.
RelegationRisk dummy for teams that, on average in the period, find themselves within 4 positions
from the relegation-promotion positions (namely, between position 16 and 24 or
between 38 and 46).
AssociativeClub dummy for the clubs which are not shareholders companies [namely: Barcelona,
RealMadrid, Bilbao, Osasuna].
ControlConcentr dummy for teams with a high degree of control concentration (the proportion of shares
controlled by the same owner or entrepreneurial group is above 80% of the total
capital). Based on Barajas (2005), Table 4.2, p. 121.
DirectorReward dummy for teams which rewarded the members of its Board of Directors at 30/6/2000.
Source: Barajas (2005), Table 4.3, p. 124. (1: teams that pay; 0: do not pay. Teams for
which this information was not available were given value zero).
AtleticBilbao dummy for the Athletic Club de Bilbao.
HomeGrown% percentage or share of home-grown players for each team and season.
YearsPresident years in which the same president is in the club.
Businessman dummy for teams whose president is a businessman.
Constructor
dummy for teams whose president is a manager in a construction company.
Economist
dummy for teams whose president is an economist.
Lawyer
dummy for teams whose president is a lawyer.
MedicalDoctor dummy for teams whose president is medical doctor.
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Table A1. Profit maximizing and win-maximizing positions in the football leagues.
Premier League Average 1993-2004 Manchester United Arsenal Liverpool Chelsea Newcastle United Aston Villa Leeds United TottenhamHotspur West Ham United Southampton Blackburn Rovers Everton Fulham Leicester City Middlesbrough Wimbledon Sunderland Bolton Wanderers Charlton Athletic Coventry City Derby County Manchester City Ipswich Town Sheffield Wednesday Birmingham City Nottingham Forest Crystal Palace Wolverhampton Wander Barnsley Bradford City Sheffield United Norwich City Queen's Park Rangers West Bromwich Albion Preston North End Watford Portsmouth Stoke City Millwall Tranmere Rovers Burnley Gillingham Huddersfield Town Port Vale Stockport County Oxford United Reading Southend United Crewe Alexandra Grimsby Town Oldham Athletic Walsall Swindon Town Luton Town Bury
.(1) Real Position 2 3 4 6 7 8 8 11 12 13 13 14 14 14 15 15 20 20 20 21 21 22 22 22 22 23 25 27 27 28 29 30 30 30 32 32 32 33 34 34 34 35 35 37 37 38 38 38 38 39 39 40 41 41 42
.(2) Max Wins 0 0 1 1 0 1 2 6 3 1 8 11 4 2 12 1 10 2 2 17 23 38 7 31 12 22 11 25 6 32 18 20 44 6 5 41 41 28 41 30 21 4 41 34 20 45 45 45 4 42 45 31 45 45 45
.(3) Max Profit 0 0 5 5 2 6 11 25 16 6 29 32 20 13 33 8 31 14 14 37 40 44 27 43 33 40 32 41 25 43 37 39 45 24 23 44 44 42 45 42 39 18 44 43 39 45 45 45 18 45 45 42 45 45 45
Spanish LFP Average 1994-2005 RealMadrid Barcelona Valencia Celta Deportivo Athletic Valladolid RealSociedad Mallorca Malaga Betis Alaves Espanyol AtMadrid Zaragoza Oviedo Racing Sevilla RayoVallecano Villarreal Tenerife Recreativo Sporting LasPalmas Salamanca Getafe Compostela Numancia Albacete Levante Lleida Logrones Leganes Cordoba Murcia Hercules
.(4) Real Position 3 3 5 7 8 8 10 10 10 10 11 12 12 13 14 16 16 17 19 19 21 22 23 24 24 27 27 27 28 28 31 34 34 35 35 41
.(5) Max Wins 2 1 2 3 4 5 9 10 7 8 4 8 8 7 13 12 17 14 19 13 17 22 26 24 28 38 30 27 32 24 37 38 34 35 29 43
.(6) Max Profit 6 5 7 9 13 15 22 5 19 21 13 21 20 19 27 27 31 29 13 28 31 36 38 16 39 43 40 29 41 37 43 43 33 37 39 44
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Table A2. Deviations from the profit-maximizing and win-
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Spanish LFP
English leagues
Variable
N mean
sum
N
mean
Sum
(pm - p)
36 8.92
55
5.42
(wm - p)
36 -1.26
55
-5.26
((pm - p)^2)/N 36
96
55
111
((wm ­ p)^2)/N 36
18
55
145
(pm - p) is the difference between the profit-maximizing position and the real one. (wm - p) subtracts instead the actual position from the win-maximizing (or zero-profit) position.
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P Garcia

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