Soccer is eating itself. Something has to give. Or will it?

            Real Madrid is broke. Real's biggest rival-Barcelona is also broke. How do the mentioned statements sound to you? Well, in simple terms, signs of inevitable economic collapse in European football are distinct. Virtually, financial crisis such as huge debts, cash crunches, and mismanagement is happening everywhere, in any European soccer clubs.  Soccer is eating itself!

           Over the past years, there is no doubt that European football leagues have dominated the soccer market, for they have been popular and reputable since decades ago. The most popular ones consist of English Premier League, Spanish La Liga, Italian Serie A, and German Bundesliga. These so-called ‘Big Four’ leagues has possessed indisputable control over the soccer market, notably prices charged for broadcasting, match tickets, signings of players, advertisements and even betting activities. Therefore, it is said that the ‘Big Four’ has made up an oligopoly market structure. In particular, it is regarded as homogeneously oligopoly, since all leagues offers entertainments connected to football. There might be slight differences in services provided such as different time of kick off for different leagues, but pricing for services such as broadcasting, ticketing are near identical, making the time factor insignificant.

Back to the main objective, how will the domination of ‘Big Four’ affect the economy of soccer market in Europe? First of all, the nature of oligopoly must be identified. The usual dilemma faced by oligopoly firms is that whether to compete or cooperate with each other. Definitely, English Premier League and Spanish La Liga can never collaborate with each other, for the football clubs are from different countries, and it is ridiculous for international soccer matches to be carried out at a weekly basis.  Furthermore, since entertainment services is offered, it is impossible for output to be restricted for football matches has to be carried out continuously, unless the entertainment terminates-football shuts down forever. Therefore, ‘Big Four’ must compete within each other.

  However, the mentioned oligopoly market structure lies in a completely undesirable situation. Instead of competing in terms of profitability, almost all clubs consider staving off bankruptcy as the only real financial objective. This is because clubs are locked into short-term thinking, and there's no concern for the long-term. Specifically, the emphasis of club objectives is based solely on signing the best players, paying beyond what you can afford them. Therefore, clubs are saddled with mountains of debts simply because they overpay for players in the transfer market. All in all, accumulation of collective debts in European football leagues has resulted in a seemingly inevitable economy crisis.

         One may ask: Why are clubs so ‘daring’ in spending beyond their financial capacity? Well, a critical quote from Mr Simon Chadwick, a professor of sports business strategy and marketing at Coventry University may answer the question: “The prevailing thinking in the Premier League is that there's always someone out there to underwrite the debt you have accrued.” However, think of a day when banks, creditors, governments and celebrities finally realize the naked truth that lending money to soccer clubs is tantamount to buying debt loans. Will they still spare their share of wealth in soccer?

  Inevitably, at least someone or something has to give. If not, are we still able to see players like Christiano Ronaldo and Lionel Messi running on the field?

Reference website: http://espn.go.com/sports/soccer/news/_/id/5580467/european-football-eating-itself