Empirical Analysis of the European Football Industry: The Role of Sports Performance, Media Visibility, and Brand Value in Revenue Generation and Talent Compensation.

Abstract

This doctoral thesis examines empirically the sport industry as part of the entertainment sector, focusing on European football, whose business competes with other leisure and sports activities in a global context. The thesis comprises four articles that analyse economic issues in the sport industry: the degree of media visibility of the most relevant sports leagues, the rationality behind decisions affecting revenues and talent investment of European football clubs, and the role of the historical brand status. The different empirical analyses are carried out with data for the period between 1996 to 2016. The structure of this research work responds to the nature of the professional sport industry in the current time. Actually, the analysis of modern sports demands taking into account their degree of exposure in the media and the fact that entertainment activities benefit from the expanded worldwide market due to the new technologies. The analyses shown in these pages progress from a general view of the sports industry, and its evolution over time, to eventually focus on professional football, an entertainment activity where brand consolidation and development plays an essential role. The first chapter addresses the economic dimension of the sports industry and introduces an empirical analysis between leagues’ revenues and their visibility in the media. It further examines the economic contribution of the sports and entertainment sectors to total output and employment for the European Union (EU-28) and the United States. Then, the comparative status of the main team-sports leagues, both North American and European, is compared globally using two approaches: the first one, based on total annual revenues; and the second one, using the Google Trends tool. The latter procedure permits comparing the intensity with which Internet users search for contents related to each of the selected top sports leagues. An empirical analysis is carried out to explain the relationship between leagues’ annual revenues and the degree of media visibility. Finally, this chapter studies the extent to which football clubs have capacity to generate revenues and to retain popularity status, regardless of their recent sport achievements. The appraisal of the potential revenues and visibility status that are not contingent on the risk attached to poor sport achievements is captured by estimating the clubs’ time-invariant fixed effects, after having filtered out their sport performance. The second chapter deepens the analysis of the comparative status of professional team-sports leagues and empirically compares the capacity to transform the degree of visibility into both total revenues and broadcasting revenues; the analysis includes the principal North American and European leagues. The outcomes obtained from the Google Trends approach are used to compute multiplying and weight factors, and a market penetration index, which allows us to explain the extent of internationalisation of the “Big-5” European football leagues, including shifts to non-traditional markets. The empirical analysis introduces a number of econometric models to understand the prospects of the leagues concerning popularity and capacity to transform the degree of the fans’ interest into total and broadcasting revenues. The third chapter offers a comprehensive empirical analysis of the behaviour of European football clubs concerning investment in talent (and wage compensations) and the annual revenues. To this aim, we use a rich dataset that includes financial data of the clubs playing in the 1st division category of the English Premier League, Spanish La Liga, Italian Serie A, and French Ligue 1. A thoroughly regression analysis is made to estimate behavioural equations of annual revenues and annual wages in order to test hypotheses regarding the impact of current, recent past, and historical sport performance, along with the role of media visibility and brand status of the clubs. In addition to the traditional sport performance indicators, the empirical study introduces two innovative variables: the Elo Rating, as a proxy variable for the clubs’ historical sporting status (or brand value); and the Media Visibility Index, obtained with the MERIT approach, to capture the clubs’ ability to awake the interest of fans and the public. The econometric analysis, performed for variables expressed in levels and in deviations from the mean, involves estimations by means of Ordinary Least Squared (pooled models), Fixed Effects models; as well as some Dynamic Panel-Data analyses and several diagnostic tests. This chapter is the core of the thesis and its complexity has offered the opportunity to learn how to perform genuine applied research in economics. The fourth chapter presents a systematic review of the literature related to the brand management of football clubs. It provides a descriptive analysis of brand equity, brand drivers, and brand strategies research in the football industry. The exhaustive revision of the previous research on this topic lead us to identify models to assess brand value, brand drivers, and some main strategic factors to build a strong football brand. Thus, the last chapter is a natural extension to complement the understanding of how football brand may be developed and reinforce, given the crucial role it plays concerning the financial outcomes and economic perspectives of the football clubs.