Hello. I shall now continue with the oral evidence given before the Culture, Media and Sport Committee on the 8th February, 2011.
Jim Sheridan asked Professor Szymanski about the role of football agents because his view was that agents take money out of the game. He also said, that money doesn’t go back into the game; that money goes out of the game. There is a self-interest in agents moving players around clubs in order that they get their commissions fee and so on. Given the fact that there is only one source of income for football, and that is the paying fan who buys the merchandise, the televisions, the tickets, they’re the only people that put the money into football, is there an argument to regulate agents so that they do not move players or encourage players to move around clubs and get these extortionate, ridiculous sums of money? That is money that is leaving football; it doesn’t come back in again.
Professor Szymanski: Before answering, Jim Sheridan's question he touched on a point that was raised earlier and it was about "the trickle-down effect" he disagreed entirely with Jim Sheridan and said "If you go back historically, there never has been a trickle-down effect. If you go back to the very first Government report, the Department of Education and Science’s report in 1968 by Sir Norman Chester, it showed that, in fact, teams in the third and fourth divisions were paying net money to the top division. The trickle-down effect is a myth and that is part of the problem with the whole approach when people talk about it. They do not base the arguments on researched facts. I am sorry, that is not a particular criticism of you, but in general there is a reluctance to look at the data about what we know and more interest in talking about emotions.
The Professor proceeded to then answer Jim Sheridan's question on football agents'..."from the day that agents came into the game, it was clear that the clubs and the football authorities hated them and would like to get rid of them. Why is that? It is because football agents drive up the wages of their clients, and of course they have been unbelievably successful in the last 20 or 30 years in doing that, so you will get a lot of calls for regulation of football agents because of the damage that they allegedly do. If you think about the situation we had before we had football agents, we had the retain and transfer system in football, which effectively tied players to the clubs for their lifetime. Up until 1960, we had a maximum wage rule that said that players could only be paid up to £20 a week maximum. Effectively, all the money that came into football was kept within the clubs, within the organisations that run the clubs, and the players got nothing.
There are two points one could make about that. One could make an ethical case and say, "Is it fair that the people who create the performance on the pitch get a tiny fraction of what is paid?" We could argue about the ethics of that. Most of these people would play for nothing. Any of us would love the chance to play at the top level and so maybe they do not need to be paid that money. But the other question to ask is, when the money did stay with the clubs and the organisations that ran football, was it well used? Was it invested for the future? Was it invested in developing the game? Arguably, that coincides with the period of dramatic decline in English football. It is so easy now, 25 years on, to forget the scale of the crisis in English football that was continuing and persistent over a quarter of a century. The game really was on its knees. Allegedly, Margaret Thatcher talked about shutting down football in this country. It is unimaginable.
Jim Sheridan: Football has changed in 25 years. We have come a long way in 25 years. I am not suggesting for a minute that the clubs keep the money and do not pay the players appropriately, but the bottom line is it the supporters that are paying £50 million for players. That is supporters’ money?
Professor Szymanski: Absolutely, but the supporters willingly part with the money because they go to watch the football and they watch the football. Nobody is forced to go to watch football. Again, if you are talking about any high-quality product, people pay a high price to get that high-quality product. We would not be having a committee here about any other high-quality service that is being provided. We wouldn’t be talking about Gucci shoes or luxury cars and saying, "People are paying large sums of money for this. Why is that money not being used for the right purposes?" The point about this is that the agents negotiate on behalf of their players to get them a reward for their services. This is true not just here in English football, it is true worldwide. If you look at the United States, for example, very much the same situation prevailed up until the 1960s: the players got nothing and the teams took all the money. Then players got freedom of contract, agents came into the game, and the players’ wages went up dramatically. The clubs told everybody and you can look at congressional hearings where the clubs and the franchises all say, "Oh, you’re destroying our game and it’s ruining the game" but the fact is that there, again, attendance has grown, people have become more interested and the coverage has increased.
Jim Sheridan asked Professor Szymanski about the role of football agents because his view was that agents take money out of the game. He also said, that money doesn’t go back into the game; that money goes out of the game. There is a self-interest in agents moving players around clubs in order that they get their commissions fee and so on. Given the fact that there is only one source of income for football, and that is the paying fan who buys the merchandise, the televisions, the tickets, they’re the only people that put the money into football, is there an argument to regulate agents so that they do not move players or encourage players to move around clubs and get these extortionate, ridiculous sums of money? That is money that is leaving football; it doesn’t come back in again.
Professor Szymanski: Before answering, Jim Sheridan's question he touched on a point that was raised earlier and it was about "the trickle-down effect" he disagreed entirely with Jim Sheridan and said "If you go back historically, there never has been a trickle-down effect. If you go back to the very first Government report, the Department of Education and Science’s report in 1968 by Sir Norman Chester, it showed that, in fact, teams in the third and fourth divisions were paying net money to the top division. The trickle-down effect is a myth and that is part of the problem with the whole approach when people talk about it. They do not base the arguments on researched facts. I am sorry, that is not a particular criticism of you, but in general there is a reluctance to look at the data about what we know and more interest in talking about emotions.
The Professor proceeded to then answer Jim Sheridan's question on football agents'..."from the day that agents came into the game, it was clear that the clubs and the football authorities hated them and would like to get rid of them. Why is that? It is because football agents drive up the wages of their clients, and of course they have been unbelievably successful in the last 20 or 30 years in doing that, so you will get a lot of calls for regulation of football agents because of the damage that they allegedly do. If you think about the situation we had before we had football agents, we had the retain and transfer system in football, which effectively tied players to the clubs for their lifetime. Up until 1960, we had a maximum wage rule that said that players could only be paid up to £20 a week maximum. Effectively, all the money that came into football was kept within the clubs, within the organisations that run the clubs, and the players got nothing.
There are two points one could make about that. One could make an ethical case and say, "Is it fair that the people who create the performance on the pitch get a tiny fraction of what is paid?" We could argue about the ethics of that. Most of these people would play for nothing. Any of us would love the chance to play at the top level and so maybe they do not need to be paid that money. But the other question to ask is, when the money did stay with the clubs and the organisations that ran football, was it well used? Was it invested for the future? Was it invested in developing the game? Arguably, that coincides with the period of dramatic decline in English football. It is so easy now, 25 years on, to forget the scale of the crisis in English football that was continuing and persistent over a quarter of a century. The game really was on its knees. Allegedly, Margaret Thatcher talked about shutting down football in this country. It is unimaginable.
Jim Sheridan: Football has changed in 25 years. We have come a long way in 25 years. I am not suggesting for a minute that the clubs keep the money and do not pay the players appropriately, but the bottom line is it the supporters that are paying £50 million for players. That is supporters’ money?
Professor Szymanski: Absolutely, but the supporters willingly part with the money because they go to watch the football and they watch the football. Nobody is forced to go to watch football. Again, if you are talking about any high-quality product, people pay a high price to get that high-quality product. We would not be having a committee here about any other high-quality service that is being provided. We wouldn’t be talking about Gucci shoes or luxury cars and saying, "People are paying large sums of money for this. Why is that money not being used for the right purposes?" The point about this is that the agents negotiate on behalf of their players to get them a reward for their services. This is true not just here in English football, it is true worldwide. If you look at the United States, for example, very much the same situation prevailed up until the 1960s: the players got nothing and the teams took all the money. Then players got freedom of contract, agents came into the game, and the players’ wages went up dramatically. The clubs told everybody and you can look at congressional hearings where the clubs and the franchises all say, "Oh, you’re destroying our game and it’s ruining the game" but the fact is that there, again, attendance has grown, people have become more interested and the coverage has increased.
Regardless of the ethical question, in terms of does it damage the health of the game, I think not. Partly the reason is that the agents have the incentive to go and find new players. What they have done is the quality of football has gone up, I would argue, because there has been this persistent search globally to find the best possible players.
Patrick Collins said, "I think they are a scar and a stain on the game. The money the agents have taken out––we cannot be sure because all the figures are not available. Everyone has terrible stories about football agents because so many regard them, not as Stefan seems to, but as leeches and parasites. There was one 12-month spell around 2009 when Premier League clubs paid them a total of £70.7 million. That is money the game will never see again, and for what? It is money that is just lost to the game and I think that is quite scandalous. He gave 2 examples:
"When Wayne Bridge moved from Chelsea to Manchester City, the agent, Pini Zahavi, was paid £900,000. Now, Bridge wanted to go to Manchester City, Chelsea wanted to sell him and City wanted to buy him. Both clubs had chief executives who could have picked up a telephone and done the deal in about five minutes, I would guess, yet Zahavi took £900,000 from this deal and nobody thought that was appalling. Years ago, in 2004, Manchester United paid an agent named Rodger Linse £1.3 million for renegotiating the contract of Ruud van Nistelrooy––not negotiating a contract but renegotiating it, and he got £1.3 million for it. Yet there is something called the Association of Football Agents whose chairman is somebody called Mel Stein, and he wants them to have a seat on the FA Council, because he says, and I quote, "Agents perform a valuable role and should be acknowledged as stakeholders in the game." Those arguments, at the moment, go unchallenged by the football authorities. We need people there who will take on this nonsense and we do not have them at the moment.
Sean Hamil made a very brief observation and said "The thing about agents is that it is legitimate. I have done a bit of active trade unionism myself. It is legitimate that you have a representative, but the problem with agents is that there has been so many abusers taking money from both sides and so on, but there is also potential for corruption. At the heart of the Calciopoli scandal in Italy in 2006, agents had players who they effectively controlled on both sides in a game. The role of agents in sport is much more complex than it is say, for example, in movies, and for a whole lot of different reasons it needs to be very aggressively regulated".
David Cairns reflected on what had been said and it struck him that there was a connection, which is that when all this money goes on wage inflation and to agents, it is the people who make Gucci handbags and Lamborghinis who benefit from this. Maybe we should get them in as part of it. He then went onto to speak about redistribution and although this was primarily focusing on England, there were clearly implications for Scotland and Wales and all the rest of it in terms of fit and proper persons, leveraged buyouts and foreign ownership, so we will bear that in mind. He said, "One of the things that rankles in Scotland is that the clubs that get relegated from the premiership get 30 times more money than the team that wins the SPL. Isn’t this parachute payment-it is a form of redistribution and I understand the logic of it-just a big fat reward for failure? You come last, so you get extra money for it. It is a Fred Goodwin model of rewarding people. Worse than that, doesn’t it import into the championship wage inflation that would otherwise not be there, because of this grotesque distortion?
Professor Szymanski: The point you make about rewarding failure is a very important one, because the Committee will think a little about the American model and why something like the NFL––we just had the Superbowl––is so incredibly successful. One of the points people make about that is that it is a system that rewards failure as well. The traditional football model we have in Britain, Europe and most of the world is a model that punishes failure through relegation, and that is one of the things that drives the clubs to live financially on the edge. They live financially on the edge in order to avoid relegation and to get promoted up the system, so we have a hyper-competitive system. This is true not just of this country; it is true everywhere in football. It has always been true, because of the nature of the incentive system.
The NFL is the most profitable football sports league in the world by a country mile. The 32 owners are incredibly wealthy and they get incredibly wealthy out of American football, and they do this by being, as they describe themselves, 32 socialists who vote Republican, because what they do is they share everything in common: 40% of the gate money goes to the visiting team. They share all the broadcasting money absolutely equally, they share all the merchandising income equally. Imagine Manchester United sharing its shirt income with Stoke. That is what goes on in the NFL: every team shares equally. They also have a salary cap, which limits the amount that they can pay players, and they have a draft system, which rewards the worst performing team with the first pick in the draft, which in addition gives them exclusive negotiating rights, which helps to keep the wages down. They have designed a system that keeps wages down.
David Cairns: What is the salary cap?
Professor Szymanski: I cannot remember the latest. It has changed. They are just about to have a big strike probably because of the collective bargaining agreement they have.
David Cairns: It is socialism then?
Professor Szymanski: It is socialism. Again. In America all the players are represented by strong unions. The old agreement I think was 58% of revenues. I think it was 58% but I would have to check the figure.
But they have these arrangements, which mean that things are held in common. One interpretation of the parachute payments, to come to your question, is that in fact the Premier League is setting about doing the same thing. One implication of the parachute payments is that teams that benefit from these payments are very likely to get promoted again. They have just extended the parachute payments, so in other words they are reducing the size of the club that can participate in the Premier League.
One way of thinking about what they would ultimately like to do to run it, to be successful and to avoid all the financial problems that they have, is to become a closed league like the NFL, get rid of promotion and relegation entirely. In many ways, when you think about the mechanisms that you might think about to bring financial security to the Premier League, you might be helping to move it towards an NFL style organisation in the future. I think that is something you should bear in mind in your discussions.
Patrick Collins: I would agree with Stefan’s analysis, though perhaps I would not share his sympathies. One of the principal reasons for sport is winning and losing. You win, you succeed; you lose, you suffer the consequences. But I do agree that the Premier League, deep down, wants to be a closed shop. Phil Gartside, the chairman of Bolton, has tried once or twice to bring in this idea of no relegation, keep the whole thing, so you won’t have to worry about losing vast sums when you go down. It was a rather subtle way of doing it. In order to bring this about, the parachute payments, which I think are a really important subject with regard to this inquiry, have now grown to enormous size. They are £18 million for the first two years and more over the next two. This seems a lot anyway, but when you realise that, from television alone, every old-time second division club gets £1 million whereas every Premier League club gets £45 million, the gap is horrendous. The parachute payments involve going down with £18 million in your pocket when everyone else has got £1 million and so the likelihood is, as Stefan says, they will come straight back.
The idea of at least a two-division Premier League is still lurking there. In that sense, again it is what I was saying earlier, the whole thing has become who can wave the biggest cheque, and I don’t think sport should be like that. It should be more than a battle between billionaires, and the public rightly expects more of it than that, but that is the way it is going at the moment.
Sean Hamil: Stefan is correct when he says that an obvious solution to the loss-making is to have a closed league and the increase in the parachute payment looks very like a de facto attempt at that. But you can deal with that within the European system of promotion and relegation, and the way you deal with it is to say through some version of financial fair play it is written into your membership of the league that if you get relegated you have to renegotiate your salaries. I am not a fan of the football creditors rule, I don’t think it is sustainable in the current environment, but the leagues have enormous power because they control ownership. If you want to play in the league, you have to get the league’s permission, and if the league is really serious, it can say when you get relegated, particularly if you have the financial principle that you cannot spend more than you earn, then written into every player contract is renegotiation of salaries. It can be done. There has to be radical thinking about this. The key thing about sport is that it is a joint product. The reason why the Republicans vote socialist is because they recognise the peculiar characteristics of sport. Even the children in the schoolyard know "I pick one, you pick one" if you want to have a competitive product. Only in sport do you want a strong competitor, and it is not for any political, ideological reasons that you need to regulate. You need to regulate because of the peculiar nature of sports competitions, and this particular conundrum is just one more example.
You just need to be a little bit imaginative. We can still have all the good things of promotion and relegation. Hopefully AFC Wimbledon are going to embody that by getting back in the Premier League soon from starting again in 2002. The problem with a closed league is you get rid of that romance and that magic, which is at the heart of the economic power of English football.
I just want to add one thing. Salomon Brothers in 1997 brought out a report on how you value a football club. It was a very insightful piece of work by a group of hard-headed analysts. They said fans’ emotional attachment to their clubs––fan equity––you can put an economic value on it, because they won’t substitute. You know if you get relegated and you’re Leeds United you will still have 28,000 supporters and you can borrow against that. They did borrow against that and it was a disaster, but that is not the point. The point is that you can put economic values on these factors. They understood the peculiar nature of fans’ relationships, and because they were clever and imaginative, they were able to define it in financial terms. That is the challenge here. Let us try to understand the peculiar nature of this industry and to come up with regulatory measures, like the renegotiation of players’ salaries when you get relegated, which are a moderate response to that problem, unlike the radical response that would be a closed league.
David Cairns: As a Merton councillor at the time that the local community was stabbed in the back by Wimbledon FC, I entirely agree with you about AFC Wimbledon.
My next blog posting will be about SUPPORTERS'.
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