The economics in European Super League

    The rise and fall of the European Super League (ESL) within a few days must be one of the most important sports news this year. On 18th April 2021, it was confirmed that 12 most prestigious European football teams, from Spanish, Italy, and UK, will form the ESL. The new league, if succeeds, will become a competitor of the existing football organizer in Europe, the Union of European Football Associations (UEFA), which organizes the important UEFA European Championship and various leagues and cups. As a unique organizer (the only association of all football associations in Europe), it serves as a governing body of European football, controlling the prize money, regulations and media rights in these competitions. Hence, it is expected that UEFA strongly opposed to the idea of ESL and threatened to punish those teams and footballers who may join ESL. What is less expected is that others also reacted strongly, including UK prime minister and France president. Eventually, within 48 hours, the plan of ESL was doomed to fail as UK teams first announced that they would withdraw. Other teams also withdrew later and 3 teams remained at the time when this post is written.

   When I heard the news of the establishment of ESL, I immediately sensed that there must be some interesting economics in this issue. However, I am not a fan for football and really ignorant of the current situation of European football games. Thus, at that time I did not have concrete idea of the issue. My initial thinking is that the issue is likely related to the business downturn due to pandemic. It is about money. Those who form ESL want more money. In the past, they already want it. But when football business is in its good days, people normally can be more tolerant. When bad days come, people can no longer tolerate the original scheme that disables those super teams in earning more or sharing more of the profit. That's why ESL was formed. 

   It turns out that this initial thinking can at best be partly true, or represents only a minor point in the whole issue. Later, I read some comments made by those who know football. The following points are a summary of these comments that I read:

1. The issue is related to the differences in sport cultures and sport business models between Europe and US. In US, the four biggest sport leagues are a franchise system: there is no promotion or demotion of a team to or from the league. The team which ranks last can also retain in the league and expects to share TV broadcasting revenue. New teams must obtain all existing teams' agreement for joining the league. But once they join, they can simply get the revenue without worrying being kicked out. In Europe, that's not true. One must win sufficiently to remain in the league or it may be demoted. 
2. It happens that many owners of European football clubs are also owners of US sport teams. In particular, most ESL teams are owned by businessmen who do not pay too much attention to the sport "tradition" but are primarily concerned with profits. They think the European system is uncertain (over promotion/demotion and so one has to work hard for this), not ideal for profit-making, and so prefer switching to a US system, which is exactly what ESL is about. 
3. UEFA has recently launched more football games and leagues for more profits. But then the prestigious teams, notably those who want to join ESL, have to participate in more competitions with weaker teams, and do not expect to earn much more from these extra competitions. Their footballers have too little time for a rest and are more likely to get injured. All these costs will be borne by team owners, not UEFA. In US, a rest of 4 to 5 months is normal but in Europe, only 2 months is available.
4. The success of sport games requires that teams with similar strengths compete with each other. A game played by a very strong team and a very weak team, resulting in say 10-to-0, is not attractive. This is the so-called competitive balance in sports economics. ESL collects teams with similar strengths. In this sense, this helps achieve the competitive balance. However, ESL is also anti-competitive: teams joining ESL do not need to worry about demotion. Over time, this may induce some teams not to keep themselves in the best condition, which is bad.  

With these comments from someone knowing football and sport economics, now I know more about the situation. What are the economics in the issue, then? In essence, it is monopoly and competition. UEFA is monopoly. ESL wants to become a competitor. Eventually, the existing monopolist wins. But is thing that simple? 

   High-school economics has already taught us some basic theory of monopoly. Monopoly is bad. Competition is good. If more competitors can be introduced, that's good. If the market can only accommodate one player -- notably due to the natural monopoly situation, then at least monopoly should be regulated. That's what we have learned. But a straightforward application of such a basic theory to this sport issue is not good. In fact, besides sports, sometimes economists may accept (at least do not disagree) that monopoly is not bad. 

   For example, stock exchange is often also a monopoly in the real world (Hong Kong is an example). Why not having several exchanges and let them compete with each other? In fact, before 2000, there were four stock exchanges in Hong Kong. However, one disadvantage of having several exchanges is that small stock investors will find it less convenient to trade. More important, different exchanges may adopt different standards in approving a company to list on their exchanges. You may imagine: a company that is deemed to be not qualified for listing on Exchange A may be deemed to be qualified on Exchange B. Which Exchange is right? It is not easy to assess. But one thing is true: Exchange A will lose the business of the company going to Exchange B. Then, Exchange A may have incentives to lower the standard of listing, and this is not good from small investors' viewpoint. 

    In sports, a similar situation happens. A league organizer is also a standard setter. As Point 4 above mentioned, attractive sports games require matching good teams with good teams. For this, we need someone to set and keep the standard. Is competition between league organizer conducive to holding the standard? I am not sure. But at least we need to be more suspicious, given the example of stock exchanges. A monopoly will be free from the pressure of lowering standard. That is one reason why monopoly may be supportable. But, of course, things are also not that straightforward. Point 3 above also illustrates that a monopoly may have a tendency to profit itself, introducing something not really good for sports at others' expense. In fact, a potential rival, like ESL, may serve as an alarming call -- people may not always tolerate a monopoly even if there is a good reason for its existence. A potential rival, success or failure, may prompt a monopoly to reform itself so as to serve its original purpose (the reason why people allow you to monopolize) better. Of course, as to how fast the existing monopoly will learn the lesson, we have to wait and see. 

Recommended reading (4): Thinking strategically (or its sequel)

   I belong to the generation of (past) economics students who did not have a game theory course offered in the undergraduate curriculum. Hence, for all the game theory I know, I learned it either from graduate school or through self-learning. As I have explained in a past post, what we have learned earlier may have an unexpectedly high influence on our knowledge. I also suffer from this starting-point difficulty: I never think my understanding in game theory is good enough, at least not as good as my understanding of economics in other fields. Of course, it is not an excuse to blame your schools for what you are not taught. Otherwise, my students can also blame me without resorting to self-learning. Unfortunately, in graduate school, game theory is again not my major area of research. The result is that I always think that game theory is one of my weakest link.
   For this reason, I hesitate to recommend any game theory books to you. This is of course not ideal as the theory has now occupied a very important role in economics. Furthermore, due to its values in business and many other areas involving competition (including military), the theory is currently one of the most well known part of economics among common people. Nonetheless, I cannot recommend books to you if I don't really like it. Actually, I didn't read many game theory books for the reasons mentioned above.
   Fortunately, I did read a game theory book that fascinated me very much, and I think this is really a very good book for learning some game theory informally. It tells stories but is also of high quality from an academic viewpoint. I am very much willing to recommend you the book written by Avanish Dixit's and Barry Nalebuff's Thinking Strategically. In fact, I guess my recommending words can be applied in another book of the same authors, The Art of Strategy. Dixit and Nalebuff originally wanted to write a revised and expanded edition of Thinking Strategically. However, eventually they come up with a new book as so many new stuffs have been written. But you can see: the second book is basically written with the same intention as the first: introducing game theory with useful and interesting real cases documented. Thus, I guess the second book is also recommendable. However, I haven't read the second book yet. As such, in this blog, I formally only recommend the first one. But you can try the second.
   The academic status of Dixit and Nalebuff is very high. Dixit knows (and is good at) almost every field in economics, including of course game theory. He was also a visiting professor at Lingnan University. Nalebuff is an authoritative game theorist. Hence, there is no doubt about the academic quality of their works. What is surprising is, however, that they know so much about applications and real world examples. Reading this book is surely enjoyable though some parts of it would need you to pay attention and think.
   This book shows you that game theory can be applied in so many different areas, not only for economic or business area, but also, sports, politics, and military areas, etc. Hence, it will certainly widen your perspective. I was particularly impressed by two parts of it.
   In game theory, there is a term called mixed strategy. Strategy is normally about an action plan: when something happens, you do this; but when something else happens, you do that. Mixed strategy is more complicated. It involves choosing a probability such that you do something at a chance and do some other things at other values of chances. Students who are enrolled in a game theory course will all be taught this concept. We can understand it but we may simply consider it as a formal concept and not to treat it very seriously. Dixit and Nalebuff told us that mixed strategy can be very practical. For example, in basket ball games, players may take action not at a fixed direction but do something at a chance to confuse their rivals. You can imagine this strategy is of course very useful in sports games: your fixed action may be easily detected by rivals and this lead to loss. So, you have to randomize.
   Another impressive stuff is about brinkmanship: it is about deliberate creation of risk. Yes, it is to deliberately create risk although normally most of us don't like risk. The creator of risk also does not like risk but sometimes creating it can gain certain strategic advantages. Well, it sounds not so intuitive but reading the book will let you know why this is so. Brinkmanship is a very realistic thing especially in these years: the North Korea crisis is actually an example of brinkmanship perhaps created by both sides, North Korea and US. Crisis happens on and off in the real world. If you understand brinkmanship as a strategy, you might be able to help yourself figure out what really happens and stay calm. Whatever you want to do, managing investments or simply seeking a peaceful mind, the knowledge about this is important.

Recommended reading (3): Peddling Prosperity

   So far, I have recommended two books for learning microeconomics. Now, let us turn to macroeconomics. However, this is much more difficult. On the one hand, macroeconomics theory is less unified as microeconomics. Even for textbooks, different authors may present you rather different frameworks. On the other hand, a popular book that is a good complement to formal teaching can rarely be found. Normally popular book writers simply focus on the macroeconomic issues that they think are important. They may not bother introducing much about the theories or concepts behind.
    For this reason, I cannot recommend a book as a good textbook complement as what I can do for microeconomics. What I can find is a book that is conducive to learning some important macroeconomics concepts. Though not all of these concepts are taught in a basic course, I think it is worth your while to learn these concepts.
   OK, what is this book? First, the author. He is globally famous for his popular economics writing − Paul Krugman, the Nobel Prize winner in economics in 2008. But he is also a controversial guy. Professor Krugman has recently been recognized by some people, including economists, as a radical. He is accused to be too biased toward the leftist viewpoint (which tends to be more suspicious of the function of free market). Even if he may be biased today, his writings in the past are not, at least not very, biased. In fact, I intend only to recommend one of his earlier books here.
   Krugman has a special talent in explaining difficult economics concepts in an understandable manner. His book The Return of Depression Economics is a good demonstration of applied economics in financial crisis. This book is also recommendable but I personally like his Peddling Prosperity, an older book of his, more.
   This book has indeed introduced some basic macroeconomics that students may have learned in high school or the first year in university. In particular, Chapter 1 is an introduction to those traditional debates among Keynesians, Monetarism and others. Krugman is perhaps biased towards Keynesians but he still did a good job in telling you what rival theories say. If you cautiously ignore the harsh words he uses to attack rivals to Keynesians, you can enjoy the core part - Krugman's excellent skill in explaining difficult theories with simple illustrations or stories. For example, the reason why there are recessions is not explained by dry theory but a major metaphor - it is like what happens in a baby-sitting club. If you already have some basic ideas about macro, reading this chapter can make you feel that you now really understand what these theories say. If you have not learned anything about macro, this chapter may also enlighten your macro sense. If you won't be bothered by Krugman's critical and cynical attitudes, this part can still be considered as a good complement of traditional macro textbook. Of course, you have to be cautious, as I mentioned earlier. 
   However, what fascinates me most by this book is not its introduction of traditional macro (though this part is also good). It is the new ideas about macro, the part that borrows from micro.
   In microeconomics, we will learn a concept called “increasing returns to scale”. This is only one of the many important concepts in microeconomics. But the recent development in macroeconomics is mainly triggered by an intensive application of the concept of increasing returns. Many traditional beliefs on trade, geography and growth are rewritten.
   In Part III, the last part of this book, it introduces the application of this concept in the macroeconomics interestingly. In fact, before I read this book (at that time I was not an economist yet), the macroeconomics that I knew was still some theories either labelled Keynesian or Monetarist and they were mainly about economic fluctuations or short term policies (exactly the topic discussed in Chapter 1 of this book). The world of macroeconomics was already much broader than that but I was so ignorant. Reading Krugman woke me up. This book enables me to understand that macroeconomics is also concerned with something fundamental in the long term. Furthermore, it is amazing that "increasing returns" are so important at macro level. I have really learned a lot from this book. Actually, Krugman himself is exactly the one who triggered the whole wave of new macro theories: his 1970s paper in trade theory with increasing returns kick-started the whole field of new trade theory. In 1990s, his another paper initiated another whole new field - integrating geography and increasing returns into macro. That's the reason why he got the 2008 Nobel prize. Reading this book, you can learn directly these ideas from one of the most authoritative experts in this field.
   Therefore, though reading this book may not help you cope with your exams in macro, this book is recommendable if you intend to learn some important macro things, or learn how to explain difficult things in simple terms.

Recommended reading (2): Undercover Economists

   In this post, I would like to recommend Tim Hartford’s Undercover Economists to students.
   Mr Hartford is not an academic economist. He is a financial journalist, writing columns in newspapers. Normally I don’t want to read economics books which are not written by scholars in universities. This is because I often doubt if these “laymen” economists are professional enough. They may misinterpret the economic theories and concepts. Their writing skill is often good but their economics understanding is not guaranteed.
   Nonetheless, I heard something about this book from my students in a general-education class (see my past post on this). I think the book tells something interesting. Hence, I gave it a try. Then, I find this book is by and large reliable as an economics book. It does not misinterpret these economics concepts. It basically explains systematically the microeconomics concepts chapter by chapter with many real-world examples. This structure is ideal for students who really want to learn formal economics but find the theories hard to apply. In this book, you can find a lot of applications.
   Besides, this book possesses the advantage of this type of books not written by professional economists − the writing skill is excellent and the stories told are interesting. Being interesting is an important point indeed for students and beginners. Therefore, I am willing to recommend this book although it is not a product of professional economists.

Recommended reading (1): Economic Naturalists

   In my last post, I said I would like to recommend some books that are good complements of teaching or learning economics. However, finding appropriate books for this is not easy. There are many good books applying economics with interesting examples. However, these works often have not made explicit what economic concepts are adopted. Students may not be able to tell which economics concepts have been used and so cannot learn how to apply these concepts. Hence, if we could start from some readings that are more explicit in using economics for analysis, it is better.
   Robert H. Frank’s Economic Naturalists is an obviously good economics book from this perspective. This book is easy to read. It is not wordy in introducing the abstract economic principles. It is basically a collection of many cases of applied economics, some written by the author while some others by the author’s students. In each case, a daily-life event is explained by some economic concepts. For example, why the best-selling CDs, with huge market demand, are cheap but the unpopular CDs, with small demand, are expensive? You can find a convincing answer from this book. You can also find a lot more interesting cases in this book. 

   I know that many students like this type of economic analysis, using daily-life events as objects of study. Honestly, I personally do not prefer doing this type of analysis. But I think this book does a good job by and large (although I do not agree with all of the analysis in these cases) and this is a good learning reference.  The economic concepts that he use in this book are also elementary. In fact, this book is a result of Professor Frank's teaching an economics course for junior students. He has to teach these concepts but he also ask students to use these concepts to do some analysis for daily-life issues. Eventually, he got a book.

   Professor Frank is an economics at Cornell University, US. He did many interesting works both in academic research and in popular readings. In fact, I read most of his recent books. He seems to have a special talent in identifying some interesting, but neglected, aspects in the real world, bringing them into rigorous analysis and delivering convincing answers to puzzling questions. My academic researches are also highly influenced by his works. Hence, even though my preference for daily-life economics is low, I am still happy to read his book because I know his work will be of quality.

Recommended reading (0): why some books are (not) recommended?

  I would like to write some articles to recommend some books to economics students. Each time I would like to recommend one book only and I may post several these articles later. Before introducing the books, however, I want to explain why I may recommend some books but not others. In fact, some other books (e.g. Steven Levitt's Freakonomics) are perhaps much more well known but I do not recommend them in this blog. This is NOT because I think these books are not good. It is simply because I do not think they satisfy my goal.
   What's my goal, then? My goal is to teach economics. I do classroom teaching. But I also understand that classroom teaching has its constraints. Reading books can sometimes do what can't be done by classroom teaching, but is conducive to economics learning.
   Classroom teaching provides more rigorous introduction to economics concepts but formal teaching is often boring. Though some interesting examples can be given in class, time is not sufficient for too many these examples without cutting down many important formal concepts. At this point, reading can help. It can focus on introducing interesting examples with fewer constraints on formality. However, it lacks the incentives that can only be provided by classroom teaching. The latter gives scores and grades to students who want them. To induce reading without the rewards from grades, book authors have to write them in an attractive style, making reading in itself be enjoyable. That's exactly what classroom teaching lacks. As you can see, classroom teaching and reading are complementary to learning economics.
   I recommend books mainly for its complementary aspect to teaching or self-learning. If the books are good complements in this aspect, I am happy to recommend. If not, though the books may be good in other aspects, I won't recommend them in this blog. That's the principle I use here for my recommendations.
   Now, it should be clear why I do not recommend Freakonomics here. Obviously this is a good book, and I know many students are aware of this book. However, this book is devoted to showcasing how ingenious use of statistics can demonstrate some unexpected economics principles behind. These economics principles behind are often not the ones to be learned in a first course. The statistical skills demonstrated are also a far cry from junior economics students' knowledge. Hence, interesting as this book would be, I do not think it is a good complement of teaching at basic level. This does not mean that the book is difficult for first-time economics learners. In fact, the book should be easy enough. But my point is simply that it is not a good complement.
   Some students ask me if they should read Dan Ariely's Predictably Irrational. This is another popular economics book and bestseller. I do not recommend this book in this blog for a similar reason. This book is about a new branch in economics - behavioural economics. Students normally will not encounter it initially. If they take some advanced courses, perhaps they will be taught something about behavioural economics. But certainly it is a far cry from what junior students will learn. Even though you are simply interested in economics and not concerned with formal teaching, I still think a reasonable way to learn economics is to start from the basic part first. Behavioural economics is the advanced part and a relatively critical part. I do not recommend the readers of this blog to jump to this part of economics before you become familiar with the basics.
   Bearing this in mind, I will start recommending some books from the next post.