LIFE STYLE FOOD HUB ENTERPRISES
Abstract
The paper aims at outlining the main differences amid utility and profit maximizing league, with a key focus on Europe and the USA and the resulting implications to sports. The study is in agreement with findings from the previous research study that most clubs in America are profit oriented while their European counterparts are after utility satisfaction. Some of the significant aspects that reflect the above findings are the differences in organizational management in the two areas. In America, major decisions that pertain administration of organizations are made by the shareholders and club owners through a voting process. In Europe, the associations which are the governing bodies are left with the responsibility of managing the leagues. The study further indicates that some of the important aspects that make leagues attractive are the existence of competitive balance, a feature that leads to the development of uncertainty in the winning. Some of the main suggestions indicating a difference in the two leagues include the nature of the competition. In America, the leagues are composed of few teams and often operate in a closed economy unlike in Europe where there are many teams which are open. The primary rationale of the teams is to maximize profit while in Europe, the clubs are after success as explained by the way they share the club revenue. Therefore, governance of the clubs in the USA is managed by a few individuals who are the shareholders and owners of the club. In Europe, different states have agreed on a single governing body to manage the various leagues through an efficient system of promotion and relegation. The author further outlines the use of salary caps in the U.S leagues to manage the financial health of the clubs as well as maintaining competitive imbalance in the championships. However, the situation is different in Europe and despite the fact that it faces a lot of challenges, introduction of the policy in the region faces a lot of complications. However, if implemented, the tool will help solve a lot of problems that face the football industry in Europe, an aspect that will impact well to the industry. The author cites that lack of salary regulation approaches in the European leagues contributes to cases of competitive imbalance, an aspect that leads to further financial crises. The author mentions FC Valencia as one of the clubs that is adversely affected by the policy and was forced to go into debt due to its state of financial instability. The paper concludes that there is a difference in the organizations of the European and American leagues, an aspect that makes them have different perception towards success.
Introduction
In the recent past, studies have suggested that most sports clubs in America are after profit maximization, based on their nature of the operation. However, the situation in Europe is entirely different as sports leagues are managed in a different manner and hold a different rationale, which is utility maximization. The owners of the sports club in Europe utilize the available resources in the most efficient way possible to ensure that they achieve success in the pitch (Dietl et al., 2015). Such clubs are renowned as non-profits organizations and club officials are aware of the rationale of the club, which is to achieve success on the pitch. Football clubs take different organizational structure; the entire sports clubs in England are limited companies. The above paper seeks to explain the difference in utility and profit organization in the various sports club across the globe with a focus in USA and Europe. The paper further seeks to outline and compare the management of major sports leagues in Europe and the USA, and also understand the rationale of their formation and implication of the same to sports in general.
Main Body
A comparison of economic verse sport competition
There is a thin distinction between economic competition and competition in the field as while one focus on profit making, and the other focuses on winning. Every team in a championship desires to win by dominating its opponents, an aspect that contributes to their winning in the final competition. However, for the case of league-economic perspective, the attractiveness of a championship is made appealing with more uncertainty in competition. Leagues that experience a lot of uncertainty so that no single team dominates a race often tend to be more attractive. However, for the case of a league that focuses more on economic competition, their primary goal is to achieve more profit through maximization of revenue.
According to Pawlowski, Breuer and Hovemann, (2010 p. 186), on-pitch monopoly has an adverse impact on a championship as it significantly reduces a team's profit as the competition is regarded to be unattractive. Sports fans often tend to be attracted by any form of uncertainty whatsoever, an aspect that impacts well for the clubs. Therefore, the value of a league is based on the power of the rival teams which are engaged in the play as they intensify the extent of the competition experienced whatsoever.
European open leagues are characterized by deregulation as most teams do not aim for profit maximization, an aspect that has resulted in hefty deficits among most professional clubs. However, some of the important issues that have contributed to their survival include bailing by their respective state banks, TV channels, and social contribution. Such teams are therefore believed to enjoy a soft budget constraint and are considered always to operate in disequilibrium. Studies assert that nearly all the European teams rely on the TV rights revenue for their survival as they are not usually committed to making profits.
For the case of a closed league as for the event of the US major leagues, the number and identity of teams are fixed which is different for regard to open leagues. The open leagues support promotion and relegation as the best teams of the second division are promoted to first division while the underperforming teams are demoted. For this case, identify of teams is not fixed as for the case of closed leagues and teams that indicate exemplary performance are promoted to join the European leagues.
Organization structure of the US major leagues and European Leagues
In the US, most of the strategic questions that pertain the key leagues in the country often require voting and only the club owners are entitled to vote. Third parties have no jurisdiction over such decisions whatsoever irrespective of their role in the management of the teams. Every team owner has a "voice" in the management of a team and has to maintain their status as independent producers in team development. One person does not have the authority to determine the outcome of a championship, an aspect that makes the competition attractive and more profitable. An example of a league with this type of organizational structure includes the Baseball's National League, which was established in 1876 developing a structure that is employed in the US by most leagues to date.
Contrarily to the above organizational structure, in Europe, the sports leagues are organized in an entirely different way. The sports leagues in the country are led by their respective national and international associations which are the main governing bodies mandated with the responsibility of managing the clubs. Aspects of contractual governance are evidenced in the above type of leadership of the organization. However, in the recent past; most of the European soccer leagues have adopted the cooperative model of management as used in North America.
A good example to explain the above situation is the Germany organizational structure used in 2000, where 36 clubs from Division one and two of the national soccer league in the country belonged to Bundesliga. German Soccer Federation (DFB) is an association mandated with the rights to manage the championship in the country. The league associations in the country take part in the management of the various operations of the league and in making critical decisions and not the club owners (Andrew, 2003 p. 332).
The English Premier League takes a different management style as reflected in the administration of the US championships, which is characterized by interdependence from the football associations. The league is owned by 20 shareholders who have a strong influence on the performance of their respective teams. However, after every season, the clubs that get relegated are forced to transfer their shares to new members who include the clubs that get promoted in the coming season (Frick, 2007 p. 426). Every shareholder obtains a single vote and has a significant influence on the changes that are made in the championship as far as the making of rules, engaging in commercial contracts and other meetings with over two-thirds of the votes.
As mentioned earlier, the European clubs are mainly managed by associations; this, therefore, means that a national association has the mandate to maintain a system of leagues by promoting successful teams from the armature levels while at the same time relegating the underperforming teams from the top league. UEFA is an example of the top association of the various national associations in the region which is mandated with the management of leagues like the Champions League and the Europa League by stating the policy issues that have to be met.
Another important distinction between the U.S and European Leagues is the fact that in most of the European countries, the football clubs still hold their membership position, unlike their counterparts. Therefore, while the European clubs maximize their winning percentage, the other clubs in the U.S have a different rationale, which is normal to maximize profitability. An example in place includes major clubs in the Champion leagues like the FC Barcelona, Real Madrid, and FC Bayern Munchen, which have at least won the championship more than once. Such teams are an example of professional sports clubs that tend to maximize on winning percentage other than on profit maximization as the case of the U.S clubs. Another case of a championship where aspects of profit maximization are often neglected includes the case of Chelsea, which is a key club in the English Premier League. Roman Ibramovich is the primary sponsor of the club and is dedicated to spending a lot of money to ensure that the clubs succeeds on winning the championship other than on saving for profit purposes. According to Vrooman, (2009 p. 54) he explains that the distinguishing difference between the USA and Europe is the fact that most of the American clubs are regarded as business companies who are after profiting making, unlike their European counterparts.
Implication
Introduction of salary caps
In the recent past, cases of competitive imbalance have arisen, an aspect that led to the development of unattractive competition and escalating salaries for players. The situation poses a grave threat to professional sports in different parts of the world, an aspect that calls for regulation of the same. For instance, the American professional clubs have always engaged in the development of several laws to regulate the practice so as to limit future challenges that are associated with the danger. Some of the important policy tools include the reserve clauses, a requirement that allowed for free agency of the respective players to devise appropriate ways of managing sharing of revenue. Other policy issues introduced to control the situation include the introduction of the salary caps, an aspect that limited the salary margin that professional sportspeople ought to be paid in a championship (Pawlowski and Budzinski, 2013, p. 112).
The US government has therefore enacted effective policy regulations as per the labor relations to help manage the situation. This includes setting the maximum and minimum amount of salary that is paid to a player engaged in a championship. The concept of salary caps was inefficient during the period of reserve clause as players were not allowed to negotiate with other clubs without permission of the club that the individuals play for (Vrooman, 2009 p. 10). However, with the abolition of the requirement, and the introduction of free agency, clubs are bidding for best players in the league, an aspect that allows the teams to poach talent. However, the salary caps were initiated to help manage the fact that most of the talented players would end playing for the rich clubs, an aspect that will reduce the attractiveness of the championship due to dominance. For example, the NBA was the first professional league to introduce the salary cap concept in the North American region in 1984 which allowed for 53% expenditure of the acquired revenue on player salaries.
Implication in the European Leagues
When compared to the US major leagues, the European clubs are considered to have more financial and economic potential than their counterparts for at least the last ten years. The European league has not introduced the aspect of salary cap as for the case of US leagues despite the dangers of competitive imbalance created by the situation (Andreff, 2011 p 61). Scholars have however pointed out that the aspect has contributed to a decrease in competitive balance, an issue that will result in massive financial crises.
In the recent past, cases of financial crises in the European football leagues have been more and in Spain's Primera Division, which had a debt totaling to about £3.2 billion as per the 2008 financial reporting. Most of the teams in the top 40 in the country were aided by creditors in the last two successive seasons with FC Valencia as the most affected with over £502 million debts (Plumley and Flint, 2015, p. 246). Some of the reasons that have contributed to the failure of major clubs in the European leagues include the nature of their management structure as earlier explained in the study. In Europe, the clubs are controlled and managed by the associations, hence, cannot be compared as for the case of the American leagues' which are administered by the owners. The associations in the Europe employ a democratic governing with an aim to include all the stakeholder interests while making decisions. Moreover, the fact that different states fall under the umbrella of international association contributes to more diversity in the stakeholder management in the country. Therefore, even with the introduction of the salary cap intervention, the situation will face a lot of challenges in the region due to various complications in the management of the leagues (Sloane, 2015 p. 7). The situation can be explained as the European associations seek to meet the diverse needs of the various stakeholders, which are difficult to balance.
A challenge that might be experienced in introducing the concept of salary cap is that the system must incorporate all the interests of the various stakeholders engaged in the management of the European football which is hard to achieve. Due to the different challenges experienced in Europe, the approach will be prohibitive, hence will experience more challenges.
However, the European leagues have settled on a decision that employing a salary cost control system will the best approach to solve the financial crisis experienced in the region. The tool will not only contribute to a situation of competitive balance but will also impact well on the financial stability of the championship (Dietl, Lang and Rathke, 2011, p. 447). The system will stipulate an exact figure that will cater for managing the club revenues in the region. In America, the operations of the clubs are independent of the associations and the salary cap strategy was reached after a discussion between the player's union and owners. However, in Europe, the situation is different as it does not support such models that fail to incorporate association as decisions are made based on single labor market (Peeters, 2015 p. 1291).
Besides, the associations are sport-governing bodies that ought to take all interests of the concerned stakeholders and the regulatory policies should be reserved for the states. The governing bodies in Europe have the mandate to manage such situation and should prove that their action is for moral purposes (Cairns, Jennett, and Sloane, 1986 p 1). This means that the decisions made to employ the salary cap should have a beneficial implication towards improving the financial situation of the clubs. The approach should promote efficient completion of the season and maintain a high degree of integrity among the concerned stakeholders. Some of the challenges of bankruptcy among clubs in the championship are that the teams will tend to engage in illegal practices such as money laundering, tax fraud or even match-fixing, a feature that will significantly destroy the image of the industry (Ferguson et al., 1991). Therefore, the EU has the mandate to implement an efficient control system of the salary that caters for the social welfare of the people. The move will not only secure fair treatment of players in the leagues but also will impact well to the clubs as they will achieve financial stability.
Conclusion
The sports industries have experienced tremendous changes in the recent past, and according to recent study, it is evident that maximizing success in the sector does not imply economic success. The study further concludes citing the case of the European league that attractive championship is realized when enough contenders are involved. The US model used in the management of professional sports often lead to decisions that if used will significantly impair the integrity of sports. However, from the study it is evident that most of the USA leagues are concerned with revenue maximization other than on winning which is wrong. However, as an effective solution to solve the challenge, it is imperative to form an association of team owners. The European region utilizes a different approach which is based on cooperative league governance, and although there are efforts to emulate some aspects of North America, the difference comes with the use of association structures. In the region, the national football association is given the mandate to govern leagues which are open and are subject to promotion and relegation. The various clubs in Europe are organized to employ the membership behavior, a culture that contributes to the need for winning prospects other than profit maximization.
Closed and open championships are dictated by the nature of their organizations, their extent of competitive balance which is often experienced as a result of league regulation. Open leagues as for the case of European teams experience soft financial variables while closed leagues experience hard financial constraints. However, it is worth noting that professional leagues have the mandate of bargaining the TV rights through inflating their payroll to experience more pay. Sports, therefore, play an essential role in the development of global economy and an important area of study.
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