Freedom of entry, market size and competitive outcome: Evidence from English soccer

the paper tests, in the context of an open sports league, whether greater success is achieved by clubs in markets with larger populations. The relationship is strong but, to a limited extent, mitigated by more clubs establishing in large markets. JEL classification: L83 key words: soccer, market size, entry, competitive balance, success 1 corresponding author: David Forrest, Centre for the Study of Gambling, University of Salford, Salford M5 4WT, UK telephone: +44 161 295 3674 fax: +44 161 295 2130 e-mail: [email protected] 1. Market size in sports economics Market size has been accorded central importance in the analysis of professional sports leagues. The two-team-league model of El-Hodiri and Quirk (1971), popularised in Quirk and Fort (1992) and still the framework for contemporary analysis, predicted that the larger market club would achieve a higher win-ratio. It had the incentive to hire more talent than the smaller club because greater success on the field could be more effectively converted to dollars where the customer base was bigger. In equilibrium, the superiority of the big club would be more marked, the wider the discrepancy in populations. Hence the perceived problem of competitive imbalance in sports leagues came to be identified in the economics literature with the dominance of big city clubs. Fort and Quirk (1997) argued in favour of reform of US major league sport to encourage new entry into large markets. Currently, franchises confer territorial monopoly. Otherwise, multiple franchises would presumably emerge in the largest metropoles, as in open European soccer leagues. With the market divided between competing clubs there would be more chance of even competition in the pursuit of championships. Here we aim to illuminate the debate by testing how closely playing success is linked to market size in practice. Further, we are able to test whether such a relationship exists in a long established open sports league that conforms to the European rather than American model of sport. This provides relevant evidence on how radically the breaking of territorial monopoly in America would in fact ameliorate competitive imbalance.