Competition Means Fair Competition

Protectionism distorts the risk-reward equilibrium. It stifles competition, and encourages mediocrity. So should it be permitted either in political life or in sport?

Competition Means Fair Competition

By Stuart Thomson, Managing Director, Johnsons Chartered Accountants

Protectionism distorts the risk-reward equilibrium. It stifles competition, and encourages mediocrity. So should it be permitted either in political life or in sport?

Recently, we’ve seen British values of ‘fair play’ being challenged. Now I’m a rugby fan, probably due to having two left feet at school, and my team Ealing Trailfinders stands top of the English Championship. But success in the Rugby League is defined as winning matches. Promotion to the Premiership is about having an empty stadium. The goals and rewards are not aligned, and fans (even if not in their millions) lose out.

Football is also reeling in Its own distortion of fair play. I don’t mean the usual weekend post-match arguments about refereeing decisions or use of football’s equivalent of Hawk-Eye, but the idea of a new European Super League with founder members guaranteed their place in the competition. In America, the World Series may technically include the entire world but the lack of any teams outside North America does make one question whether that sport is reaching the echelons of true potential that the threat of promotion and relegation would create if more teams competed. Promotion and relegation is a core tenet of elite sport, and the stakes are high when a dismal season has potentially disastrous ramifications. Success and promotion can have lasting benefits for years to come. The controversial idea of ‘guaranteed places’ will remove the incentive to innovate. The ‘Class of ’92’ would not have been kept intact, and Messi and Ronaldo would not have been valued as highly in a world valuing mediocrity.

One only has to look at the Scottish Leagues to see the impact of a lack of desire (not by the fans, but by the clubs). Glasgow Rangers’ demise brought them from the pinnacle of Scottish professional football to the bottom. They reinvented themselves, and are back on top. In the meantime their arch rivals, Celtic, had no true competition and won season after season. But without the competitive drive to beat Rangers, Celtic did not progress as much as others, as their performance in Europe testifies. That’s not a criticism of players, managers or fans. It’s just an observation that without the hunger, the drive and the fear of losing, performance is not at the cutting edge. Why would Celtic spend more to improve a squad unnecessarily?

So how can a sport benefit from a lack of competition? I’m not sure that the most popular sport in the world, with the billions of dollars behind it, needs to create additional financial support for the few. And that’s what the proposed European Super League was about. It’s a form of economic protectionism. If successful, it will be even harder to see success at other clubs in the top flight of local leagues. The wonderment of Leicester Football Club becoming Premier League champions would be unlikely to happen again, whereas now every fan starts the season with the hope of ‘doing a Leicester’. There are already accusations that the money earned by the big clubs make the sport an unfair competition. Saracens and Glasgow Rangers have both shown the benefit of money in sport, even though they got caught out bending the rules!

Sport unites everyone. It brings social cohesion and, whilst sometimes rivalry can go too far, on the whole it’s healthy competition that brings positives and economic activity to local communities. But a sport dominated by television and advertising rights removes the impact of fans, and stadium numbers, and it’s exactly that issue which is driving the greed and economic protectionism of the Super League.

In other industries, protectionism is acknowledged to result in reduced innovation and higher prices. Now in unviable sports, perhaps protecting value is important if it’s not necessary to secure investment. But can we really say that the three big European leagues (the English Premiership, Spanish La Liga and Italian Serie A) are in need of financial protection? I’m sure some could point to the economic woes caused by the pandemic. Barcelona has acknowledged that they cannot finance talent acquisitions in the same way as they did before. So consider how that predicament must be amplified for those clubs in the lower leagues, and the mere idea of a Super League can only be seen as a greedy move to protect the wealthy. Would Stephen Gerrard, Frank Lampard and Pep Guardiola have been given their opportunity without a track record? The first two had no experience before securing the top job, in top clubs. Pep took football to another level, but this involved playing differently. Innovation requires risk-taking, and where risk is not rewarded, playing safe looks better. As IBM famously said ‘nobody gets fired for buying IBM’, but that applied to a nascent IT industry, not a well-established, lucrative uber sport.

The fans will pay for any European Super League. This protectionist proposal is about getting more, and who’s going to pay? It may not be in ticket prices, but television rights will drive up advertising revenues, impacting ordinary people. Football is universally popular and this universal appeal attracts advertisers and sponsors. And advertisers and sponsors will pay more to the clubs, and ask their customers to fund it.

So far I’ve only talked football, and tried to apply the effects of economic protectionism to sport. But this distortion of competition is also prevalent in the political world. David Cameron, ex Prime Minister, was accused of seeking political interference in the affairs of a struggling Greensill Capital. I’m sure he didn’t break rules. But not breaking rules does not make it right. I have little doubt that his appointment was based solely on his ability to bring political insight, or weight, to decisions – after all he didn’t have[EC1]  a CV steeped in directorships of supply chain financiers. Is it so wrong to allow such influence? Could transparency not deal with the concerns of undue influence? The company is just using its business network, and don’t we all use our own networks to our own advantage? Yes, of course we do. So you cannot blame him for trying – after all, one could generously be persuaded that he was trying to save jobs! But these arguments miss the point. Transparency addresses the behaviour of individuals, but an economy thrives when competition is equal. If David Cameron would make the same representations for companies of which he was not a director then, economically speaking, this wouldn’t be an issue of an unequal playing field. As it was, I don’t believe any of my clients who suffered during the pandemic would get anything other than short shrift if they called on David Cameron for help. His unique position as a director of the company did not create a level playing field. It sought to distort the economics of the risk-reward conundrum.

The political press focussed on the appropriateness of such a call, and I’m sure that can be justified. But the bigger picture is the distortion of competition. Should I, as a business owner, appoint Rishi Sunak to my board when he leaves political office, even though he’s not qualified for the work? I hope everyone agrees that has to be wrong. If our politicians, or former politicians, need to earn more then pay them more and fund this change through the economic gains of a truly level economic landscape, and not from the coffers of a few who then seek to charge the many. Both the re-launched European Super League and David Cameron’s actions have one thing in common. The few seeking to protect their position through the distortion of competition.