The EPL: A Parable of Globalized Capitalism
Lately, I’ve been doing a lot of reevaluation of my political views; mostly, I’ve been questioning whether political philosophy and theory mean a whole heck of a lot, even when they’re right. A big part of that reevaluation has been a focus on some obvious (to me, anyhow) truths, to wit:
-Political power can always be purchased for the right price, whether by legal or illegal means (and usually the former).
– Those at the top of the economic mountain will always possess political clout greater than their numbers (and vice versa), but how and the extent to which that clout is wielded depends in large part on the individual’s adherence to communal standards. In other words, if we assume people generally seek to act in their rational self-interest, the willingness of a politically powerful person to exercise his/her power in a particular way is going to largely depend on the intangible benefits that person receives from respecting community norms. After all, rational self-interest need not only be about maximizing profits as expressed in monetary terms – “doing well by doing good” has a value for most people that exceeds the dollar sign implicit in “doing well.”
– The marginal value of any given unit of money to a person/entity varies greatly depending on the amount of money that particular person or business entity has. In other words, a millionaire can sit at a $100 blackjack table without blinking an eye, while I would have a heart attack after two hands, no matter the outcome; indeed, this is true even on a percentage basis – a millionaire could gamble 1% of his wealth a hell of a lot easier than I could.
I suspect the above are all truisms under any conceivable scenario. But I have to wonder whether globalization exacerbates their negative effects. Mind you, I still think that on the whole globalization has thus far been a net positive for humanity, but I’m a lot less sure that it will continue to be so for the foreseeable future.
This, to me, is a big part of what the Occupy protests are about, though I don’t here comment on my views of any particular complaints of those protests, nor do I comment on my overall feelings with regard to those protests. Economic power translates easily into political power, but in our globalized era, those with economic power have little to no interest in respecting community norms or in encouraging (or at least not discouraging) economic/social mobility.
Let’s take this out of the deeply personal and political context of the state of the American economy and discuss a case study with low stakes for the average American: the sudden debate as to whether the English Premier League should get rid of its participation in the relegation and promotion system of England’s Football Association (“FA”).*(If you are unfamiliar with relegation and promotion, please see the note below. For purposes of this discussion, it’s useful to think of the FA and the Premier League’s governing bodies (and for that matter, UEFA) as different levels of traditional government, and the team ownership, players, and even fans as both citizens of that government and employees of their chosen teams).
In recent years, thanks to globalization, extremely wealthy foreigners, including several American, have purchased some of the most prestigious and valuable clubs in the FA, virtually all of them currently playing in the Premier League, including legendary clubs like Manchester United, Arsenal, and Chelsea. Indeed, 10 of the Premier League’s 20 current teams are now foreign-owned. It is also safe to say that when these foreigners purchased these teams, the existing rules on promotion and relegation were incorporated into the sale price, as was the presumptively static nature of those rules.
We now learn that these owners are pushing to end the promotion/relegation system. Surely, the promotion/relegation system has both its benefits and its drawbacks as compared to an American-style franchise system, but in general if you place a lot of value on socioeconomic mobility on the one hand, or on the notion that competition and low entry costs (ie, an idealized free market) are goods in and of themselves, then it is difficult to argue that the promotion/relegation system is anything but superior to the franchise system. Although the EPL has revenue sharing, the threat of relegation means that a team’s ownership cannot afford to intentionally put out an inferior product while coasting on the proceeds from revenue sharing. Regardless, the promotion/relegation system is not only , in effect, legally institutionalized, it also undeniably reflects the values of the relevant community.
It also almost certainly depresses the value and profitability of the clubs in the Premier League as compared to an American franchise system. It introduces a huge level of risk into ownership of a club, since relegation means a massive reduction in revenue. On the margins, it reduces interest in the Premier League specifically by increasing interest in lower leagues. The costs of relegation also encourage clubs to invest less in capital infrastructure (ie, stadium expansion), which expands revenue capacity, and more in human capital (ie, player contracts), which decreases the likelihood of relegation and increases the likelihood of the additional revenue opportunities from securing a spot in the Champions League.
In other words, a Premier League club owner interested solely in maximizing a club’s profitability would see little reason to preserve the existing relegation/promotion system. Yet in the 133 years of England using a relegation/promotion system, it seems there has never previously been a meaningful movement to dump the system by the top flight. Even when the top English division seceded from the rest and reformed as the EPL in 1992 to declare its financial independence and take advantage of a lucrative TV deal (admittedly resulting from globalization itself), the promotion/relegation system was preserved. It is worth wondering why native ownership has long been so uninterested in ending the system, while foreign owners seem so interested in ending it. The answer, I would submit, is that when one shares or at least respect the values of a community, one derives a direct and valuable, but intangible, benefit from succeeding or failing within the stricture of those values.
If promotion/relegation were ended, the result would be disaster for every single club left out of the EPL, the fans and owners of those clubs, the players on those clubs. The sole way to build a club that could compete in the EPL and make large profits as a club owner would be to have the incredible amount of money necessary to purchase such a club. The lower-division clubs would see their values crash overnight even as the EPL clubs saw their values skyrocket.
And yet, I suspect that the end of the relegation/promotion system is inevitable as long as foreign owners continue to purchase EPL clubs. Economic power is, after all, political power if you’ve got enough of it. To end the relegation/promotion system, the foreign owners will need 14 out of 20 votes from the EPL, of which they already own 10, plus a non-veto from the FA, which at least nominally represents all of the clubs from not only the EPL, but also all of the lower leagues. It would not take much to get those 14 votes solely by the exercise of the foreign owners’ economic clout – how difficult would it be for those 10 to offer to pay for infrastructure improvements for the other 10 or, failing that, threaten to form a separate league on their own, depriving the EPL of its most prestigious and revenue-generating clubs? Nor in the long run would it be all that difficult to force the FA’s hand (nor ultimately, UEFA’s or FIFA’s to the extent they have a say) with similar threats and bribes – wouldn’t it be a pity, they might say, if we were to refuse to release our highly-compensated players for internationals and refused to participate in domestic tournaments?
And so, eventually, the rich will get richer, and everyone else will get poorer, only now with any hopes of joining the ranks of the rich permanently squashed.
Will this be a failure of the free market? Or a failure of government (here played by the FA/UEFA/FIFA/EPL governance)? I don’t know – surely, getting rid of the rules governing relegation/promotion is deregulation, but just as surely limiting membership to existing members is increased regulation. What it certainly will be is the use of preexisting economic clout to obtain and exercise political control that changes the rules of the game under which that economic clout was actually obtained. Competence, and success at putting out a quality product within the rules of the game will have little to do with the eventual outcome. And globalization will be the mechanism by which it will have occurred.
To turn back to my original observations at the top of this post, the fact is that globalization brings more people/entities to the table for any given sale of capital. Many of these people/entities will have vastly more money to spend than wealthiest local interests, but – as outsiders – little to no interest in intangible benefits of respecting communal traditions and practices to the table for any given transaction. This means a strong willingness to exercise political clout to change the rules of the game to maximize personal profits, regardless of the price to everyone else, and regardless of whether it makes economic mobility for everyone else more difficult, or even impossible. Because these outsiders have vastly more money than even the wealthiest local, they are willing to pay more for a given item of capital even though they do not hope to obtain many, if any, of the intangible benefits associated with the entry into the community that comes along with the purchase of the capital. They are as a result willing to exercise the political clout that comes with ownership of capital in a way that one invested in the community would never consider.
Again, I continue to think that globalization has, on the whole, been good for the world. I hope that it will continue to do so. I also am undecided on whether rising economic inequality is a bad thing in and of itself, and even if it is, it may well be that eventually a state of equilibrium will be achieved and inequality trends reversed. But if a lot of people feel like global capitalism has taken control of their own destiny away from them, I can’t say that I much blame them.
*In European soccer, most countries organize their professional soccer teams in a tiered system in which the top teams from each tier at the end of a season are promoted to the next highest tier for the following season, while the bottom teams are demoted (“relegated”) to the next lowest tier for the following season. The Premier League is England’s top league. An American analogue would be if the four or five MLB teams with the worst records in a given year were forced to play AAA the following year, while the top four or five AAA teams were permitted to play in MLB the following year. I previously discussed how the promotion/relegation system was more emblematic of free market values than the American franchise system here.