economics of global markets - lecture 3

GDP

Gross Domestic Product

→ value of all finals goods and services produced in a country in a period

GNP

Gross National Product

→ total value of output produced using resources owned by a coutnry’s residents

GVA

Gross Value Added

→ value added by a single industry; the usual way sport is measured

average GDP developed economies spend on sport

1-4%

what GDP misses

• measures activity not welfare e.g sport injury raises GDP through medicine, surgery, rehabilitation

→ economists call this ‘bads’ = harmful event reducing wellbeing but generate economic activity

• cheaper imported goods raise consumer surplus (willingness to pay-actual price) but reduces GDP

what sport sells?

1. consumption goods

2. investment goods

3. services

consumption goods in sport

bought for use or enjoyment in the present

e.g. replica kit, leisure trainers, match ticket, gym membership

investment goods in sport

bought to generate future productive activity, but only if they earn

e.g. Emirates Stadium (£430m) pitches, courts, pool use is charged

services in sport

activities or experience provided to consumers

→ 70% of GDP in highly developed economies + sport’s fastest growing category

e.g. coaching, personal training, sport tourism, live entertainment

4 changes to goods production - Westerbeek and Smith

1. industrialisation of emerging economies (low-cost manufacturing)

2. firms relocating production and targeting foreign markets

3. de-industrialisation raised service share in developed economies

4. developed economies moved to equipment-intensive, research-heavy goods

why services followed changes to production

1. hallowing-out effect as labour intensive work left developed economies

2. financers project managers, legal advisers followed manufactures abroad

3. deregulation of media, telecoms, airlines and finance opened global competition

4. rising leisure time, affluence and technology erases national boundaries

trite goods VS equipment-intensive goods

trite → many purposes, labour-intensive

Equipment-intensive → one purpose, capital and research-intensive

why brands keep design, marketing and distribution

suppliers are substitutable but the brand is not → dependency runs one way

inelastic sport demand

loyalty blunts price sensitivity → buying habits remain the same the price of product changes

supply in sport

• fixed at the top

• scarcity is engineered → exclusivity windows, limited releases, closed lists

• product is bundled → access, identity, content, community

consumer surplus

gap between what a fan would pay and what they actually pay

→ price rise coverts some surplus into revenue

Pareto improvement

makes someone better off and nobody worse off

→ commercial sport decisions = transfers = fans feel the transfer

imports and exports in sports

imports → money paid to firms outside the host

exports → rights, players, expertise, events sold abroad

import substitution and leakage

substitution → replacing imports with local goods + services keeps more spending in host country

leakage → money generated by sporing leaves host country e.g. athletes, sponsors, contractors

comparative advantage - what it explains and what its limitation

• explains why nations specialise in activities they can produce efficiently

• trade may be unequal = powerful multinational brands capturing profits while exporting countries with little value

Keynesian multiplier

• spending circulates (one persons spendings is another’s income)

• governments stimulate by cutting interest rates and investing in infrastructure

• each round is smaller as money leaks out of the local economy

4 faults in an economic impact claim

1. gross not net

2. displacement

3. leakage

4. ex-ante optimism - bid-forecasts rarely match independent evaluation

why the Premier League broadcast market flipped?

• domestic bidders consolidated (fewer buyers, flat prices)

• overseas market and streamers added income

• kickoffs scheduled for export audiences

• international money shared equally by the clubs

what does a sponsor pay for?

• guaranteed reach and known audience

• association with established identity

• category exclusivity (seller-created supply restriction)

• activation rights

• data

• hospitality

what moves sponsorship price?

• number of credible bidders

• audience growth in new territories

• regulation (gambling, alcohol, high-fat food)

• state-backed buyers with non-commercial aims

Premier League revenue growth 24/25: commercial Vs broadcast

commercial → +13%

broadcast → +2%

commercial income rewards scale and the ‘big 6’ and hold 73% of it

4 ownership models

1. US private equity → multi-club, cost discipline, 5-10 yr exist = wants enterprise value growth

2. leveraged → debt on club = wants return on limited equity

3. sovereign wealth → patient, loss-tolerant = wants reach, standing, diversification

4. member/fan → capped control, slower growth = wants continuity and consent

what predicts club strategy better than owner nationality?

owners time horizon

wages and the wage-to-revenue ration (2024/25)

• Premier League wages hit record £4.4 billion

• global talent market sets wages abroad

• Bundesliga’s 54% produced record operating project

• above roughly 70%, one bad season becomes existential

2024/25 sustainability figures

• £948 million → Premier League aggregate pre-tax losses - up from £135 million

• £942 million → Championship combined revenue - 1/7 of PL

• £90 million → Women’s Super League clubs combined revenue

• only 8 PL clubs has an operating profit - down from 13

why does gaps between tiers exist?

• parachute payments and cliff-edge value of promotion

• money league clubs ranked 11-20 rely on broadcast for half of their income

BRICS

Brazil, Russia, India, China, South Africa

• coined by O’Neill 2001 - South Africa added in 2010

• 40%+ of world population

• Host World Cups / Olympics for prestige and acceptance

MINT VS MIKT

MINT - Mexico, Indonesia, Nigeria, Turkey

MIKT - Mexico, Indonesia, South Korea, Turkey

• lower cost / complexity of entry - consumer markets for apparel forming inside producer nations

Kim and Heere (2012)

market entry - what should entry mode follow?

• uncertainty not ambition

• selling broadcast rights into a territory and founding a league are both entry but different risks

why do sports brands travel?

• demand in multiple markets

• visual identity crosses language

• accumulated audience can’t be bought quickly

• global events give ready platform via athletes

is global brands advantage defensible?

• scale and distribution are imitable with capital

• accumulated audience and cultural meaning are not

• threats → cost inflation, regulation, rival capital, attention competition

• local champions competing on price and identity

reach can be bought but meaning but must be earned

pull towards global brands (country of origin)

• developing-nation consumers read Western brands as higher quality and status markers (Wang & Chen, 2004)

• cultural imperialism (Tomlinson, 1991)

• emulating a lifestyle presented as standard

• purchase as global citizenship

pull against global brands

• consumer ethnocentrism → belief domestic products are the best (Klein, Ettenson & Morris, 1998)

• Ahmed & d’Astous (2001) → developed market consumers favour domestic, developing markets consumers often favour global ones

• consumers respond to brands nation, not the factory’s

strongest case for adaptation over standardisation

global sourcing - definition, wage gap, reputation, governance

a company contracts foreign manufactures to produce its goods for lower wages + expertise

• wage gap → US workers earned $14 an hr compared to $65 a month for Indonesian workforce

• reputation → subtractor operations described as sweatshops from 1994

• governance → brand controls design/distribution not factory floor = responsibility is diffuse and monitoring is expensive

5 economic tests for any decision in sport

1. which revenue stream does it grow, and it is growing or plateauing?

2. what critical resource does it make you dependent on, and who controls it?

3. how much money stays vs leaks?

4. what does it do to the cost base and wage-to-revenue ratio?

5. what is the legitimacy cost, and when does it become financial?