Patrick Haverson's story from the FT 14 February 1998 (below) illustrates the economic concepts of
Develop diagrams to support your notes and assist with the presentation of your argument.
by Patrick Haverson, Financial Times, 14 February 1998.
Ruud Gullit, fresh from being dismissed as player-manager of Chelsea for demanding a pay increase to £2 million a year, was asked yesterday whether football's top stars deserved a bigger share of the sport's considerable riches.
He replied "Everything is going up and the clubs are being paid more money by television …" He did not finish the sentence but added something about how well Chelsea had performed in the last year.
The inference of Gullit's remarks was clear. It is the players whom the spectators and television companies pay hundreds of millions of pounds to see every Saturday and so it is the players who should be entitled to a fair share of the revenues they generate through their talent and hard work. And if those revenues are rising, then players' rewards should also rise.
Ultimately Gullit's departure from Chelsea may prove to have had less to do with pay and more to do with the internal politics of the club, but the story highlights the growing tensions within the football world over pay.
In simple terms, the players want more money as a reward for their role in the sport's current boom, but the clubs are beginning to resist their demands because rapidly rising wage costs are making it increasingly difficult for all but a few of them to make any money.
The clubs could be said to have only themselves to blame for this predicament for it is the chairmen who sign the players' cheques. Ambitious clubs want to sign the best and most expensive players to ensure that they remain competitive on the field. Yet with the demand for the best payers far exceeding the supply, the clubs have become drawn into a dangerous arms race as they try to outgun each other.
The players, or more importantly their agents, are only too aware of the clubs' vulnerability. The result has been a sharp rise in the number of players in the Premier League earning more than a £1m a year. A few players even earn £2m.
Tensions between the clubs and players over pay have begun to surface recently with several prominent club chairmen — among them Fergus McCann of Celtic and Alan Sugar of Tottenham Hotspurs — warning that clubs can no longer continue to meet players' demands. They believe spiralling wage costs threaten the stability of the game.
Club chairmen are not the only ones worried. With 20 clubs quoted on the stock market, investors and City analyists are becoming concerned that wage costs are currently rising at an annual rate of 25 per cent in the Premiership. Revenues, in spite of huge growth in television income, are not keeping pace.
In a report of the football industry four months ago, Saloman brothers, the securities firm, titled its section on pay: "Wages: a time bomb?". In their most recent study of football finances the accountants Deloitte & Touche noted that wage costs were equivalent to 50 per cent of Premier League revenues in 1995 96, up from 45 per cent the previous year. With clubs under continuous pressure to spend more on players that figure is likely to rise.
Football experts believe that the only way to restrain wage inflation is to adopt a new, more incentive-based system. Nick Batram, analyst at Greig Middleton, criticises a system where Tottenham Hotspur, currently fourth from bottom in the Premiership, has the third highest wage bill in the league. "The balance is all wrong," he says. "The way forward has got to be to introduce performance related pay: that means lower basics, higher bonuses".
Given how well Ruud Gullit did at Chelsea, he might be tempted to agree. But he need not worry. If anything is certain in football, it is that some club, somewhere will soon decide that Chelsea's ex-manager is worth £2 million a year.
