Why English football is top of the league

Aside from staggering pay packets, what do the City and the Premiership have in common? Brian Durrant looks at how both have benefited from opening themselves up to foreign cash - and talent.

In a recent edition of the Fleet Street Letter I alluded to the "Wimbledon effect", the process whereby London has become the pre-eminent international financial centre despite the fact that none of the big players are British firms. A similar success story seems to be unfolding in the world of professional football. Just as after "Big Bang" foreign institutions bought up British owned stockbrokers and merchant banks, English football clubs are attracting overseas interest. In 2003 Russian oligarch Roman Abramovich bought Chelsea for £140m, while in 2005 US tycoon Malcolm Glazer bought Manchester United for £790m. Then last week two more American sports tycoons beat off the competition from Dubai International capital to land Liverpool football club. Their offer is worth £5,000 per share, valuing the club at £174.1m, and along with the club's £44.8m debt it values the club at £218.9m.

The English premiership is the most popular league in the world. Last weekend people in bars in Hong Kong and Miami watched Manchester United play Charlton Athletic instead of Bayer Leverkusen versus Eintracht Frankfurt. Last month the Premiership sold its overseas TV rights for an unprecedented £625m for the next three seasons.

Why is the Premiership so successful?

Why the English game is so popular is a bit of a mystery. England's domestic market at 50 million is smaller than Germany's 82 million. England produces few great footballers. It is over 40 years since England won a major title. Since 1966, Germany has won the World Cup twice and European Championship three times. Nor are English clubs particularly successful. Since the foundation of the FA Premiership in 1992, only three English clubs have made it to the UEFA Champions League final, whereas Italian and Spanish clubs have appeared nine and seven times respectively. Yet the world's best known footballer is an Englishman, David Beckham, even though nobody thinks he is, or ever was, the world's best footballer.

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The reasons for the success of the English football brand are similar to the factors behind the pre- eminence of the City, namely free markets, openness to foreign talent and the accident of history. In 1992 the Football Association sold the television rights to screen Premiership fixtures to satellite broadcaster BSkyB, which meant that only BSkyB subscribers could watch games live. The FA's decision to sell to the highest bidder was extremely unpopular at the time, as it opted for the unsentimental market based view. In contrast countries like Germany and Holland resisted the sale of TV rights to subscription broadcasters.

They viewed football as a public good which had to be shown free. Similarly English clubs do not keep some ticket prices artificially low to attract the poorer fans. The cheapest season ticket at Chelsea costs almost four times as much as at Barcelona. Consequently English clubs got richer and can afford to attract foreign stars that make the game even more attractive to watch.

What the City and the Premiership have in common

Just as the City of London is a truly international financial centre, the Premiership is a truly international league. At the moment Arsenal's full strength eleven does not include one British let alone English player, yet the fans don't mind. Furthermore this means that the Premiership belongs to not just English fans but also to Norwegian, Saudi or Chinese fans.

Heritage and history is also important. The game was invented in England, the rules of the game were drawn up in 1862. And as the game flourished, the huge crowds that wanted to the see the games had to be accommodated, on the cheap. In Europe many stadiums incorporated an athletics track, because they were owned by the municipal authorities. In England there were no athletics tracks because athletics did not pay.

Instead, in order to save space, English stands towered steeply from the edge of the pitch, while the low cheap roofs amplified the crowd noise.

This atmosphere contributed to the faster, more frenzied brand of football which is more popular with international audiences than the measured approach seen on the continent. But watching football was often an uncomfortable experience; crammed in overcrowded terraces, exposed to the elements and to the menace of football hooliganism. Often the whole experience was unsafe for women and children. The conditions were an accident waiting to happen. Three disasters in the 1980's the Bradford fire, Heysel and Hillsborough concentrated the mind. After the Hillsborough disaster, the Taylor report recommended that stadiums should become all-seated. The safety and comfort aspects improved and this attracted football to a wider audience notably women, middle-class families and visitors from overseas.

What Italy has to learn from English football

You only have to observe what is happening in Italy right now, to appreciate the progress English football has made as an enterprise in the last fifteen years. Hooliganism, an unpleasant export from England, is blighting the Italian game, where "ultras" control sections of the terraces like armed gangs. In 2001 hooligans threw a moped off the top level of the San Siro Stadium in Milan, narrowly missing supporters underneath. In 2004 riots raged on the terraces of the Stadio Olimpico in Rome. And now recently an Italian policeman was murdered after the Sicilian derby between Palermo and Catania. In response the Italian authorities have imposed new safety and security regulations in the football grounds and four matches in Serie A were closed to supporters. Italian football needs something along the lines of the "bourgeoisification" of English football that has taken place in the last 15 years.

The Premiership like the City of London may not be everyone's cup of tea with its greed, vulgarity and exorbitant salaries. But it is an example where Britain's history, openness and commitment to free entertainment business.

By Brian Durrant for The Daily Reckoning. You can read more from Brian and many others at www.dailyreckoning.co.uk

Editor's note: Brian Durrant is editor of the Fleet Street Letter

Brian has contributed to MoneyWeek with his expertise in investment strategy, for example how to quadruple your dividend income and how to navigate through the stock market in the 2008 financial crisis. He’s also touched on personal finance such as the housing market and the UK economy.