A football team is not like other businesses – it can never be in a position to eliminate all competitors and become a monopoly supplier. If it did, then there would be no-one left for the team to play! It's a cross between business and warfare.

Stefan Szymanski, from Imperial College Management School: "Football lies somewhere between economics and warfare. In warfare, there can only be one winner. My success necessarily means your failure – and that's true of winning the football league. But there's also a business dimension to football – for the league to be successful, all of the teams have to be commercially viable. A successful industry is one in which all the firms can thrive and all the firms can make profits coexisting with one another. The problem in football has been reaching those agreements which might enable the teams to co-exist commercially as well as competing effectively on the pitch."

And there is a link between spending and success, according to Szymanski: "There are really three relationships. One is the relationship between success on the pitch and wage expenditure. Teams that spend more achieve higher league positions. The second relationship goes from success to revenues. Teams that are successful in the league generate considerably higher incomes than the less successful teams. The third relationship that you also might expect to find is the relationship between success on the pitch and profitability. But in fact it isn't there."

But if every team spends more, there are still bound to be winners and losers – both on the pitch and in the profit and loss accounts: "There is a fundamental problem in a sports league, which is if everybody wants to be the winner and only one team can be, there's a danger that everyone overspends in the hope of being that one successful team. That means that everyone might end up losing money, and that seems to be the situation that we find ourselves in at the moment. And lower division teams are trying to become Premier Division teams by spending everything they earn, and more, on the players. That is not a sustainable business model. What would make a viable business model would be for these teams to limit their ambitions and accept minor team status, and simply become breeding grounds for the new talent for the Premier League. Whether the fans and the owners will be satisfied with this is quite another question, but the truth is, in economic terms, that's the business model that will work."

Individual football clubs have to survive in a competitive market – competition for players, competition for TV income, competition against other leisure activities. Promotion to the Premier league is the biggest incentive of all: this can boost club income by up to £10m a year. Relegation to the First Division means an instant loss in revenue of £6m – £7m a year from TV income alone!

"Pay TV has fundamentally transformed the economics of football clubs. Before SKY in the mid-1980's the value of the television contract for football was around £10m. The last SKY contract was signed for £1.1bn, a hundred-fold increase in a period of 15 years. What that's caused is not just a huge increase in income, the ability to spend more money on players and also to fund stadium development and the like. It's also caused a huge growth in inequality, because most of that money has gone towards the top teams in the premier League. They now generate 50% or more of their income through television contracts, and perhaps only a quarter from supporters attending the games. Teams in the lower divisions are really like the old-fashioned football clubs, and still generate most of their income from the turnstiles, from people attending the match." (Szymanski)

Club owners rely a lot on the brand loyalty of the fans. "A significant proportion of those that are interested commit themselves perpetually to a single team. That's what's really important – the interest comes through following your team through thick and thin. In economic jargon, you'd say that the demand for this product is totally inelastic – people will pay whatever it costs and will continue to support their team through thick and thin. The problem with that, for the football fan, is that the owners of teams can exploit that willingness to support the team and the fans end up being taken advantage of, maybe through higher ticket prices, maybe through not spending all of the money on the team. In other markets fans can make their dissatisfaction known through what economists call 'exits'. They can go and look at an alternative product and buy that, and that threat keeps the owners of the brand committed to serving the customer. The problem in soccer is that exit is not really a credible strategy, in that once you are committed to a team it is very hard to change your mind about that." (Szymanskii)

But the money a club takes at the turnstiles just isn't enough to keep even the smallest club afloat. Sponsorships, replica kit, TV rights, events catering, on-site leisure facilities – income from much more than gate receipts is needed for individual clubs to survive. According to Firoz Kassam, Chairman of Oxford United Football Club:

"A football club in any division could not survive on its own on gate receipts, on sponsorship. It has to have other businesses around it. But you need good balance, you can’t do without the supporters and without them the game won’t exist so you need them. You need business people and you need money, a man with money to throw money into it. And a balance of those three can make a successful team. Today I'm pleased to say we are probably the only club which has got absolutely no debt whatsoever and a beautiful, brand-new stadium. That's a big achievement in three years, but if I don't get success on the pitch then these seats will be empty and I can't afford that. Being financially healthy doesn't do anything for the supporters, they need good results on the pitch, and that will come. If you look at it strictly as a business, that will not go down very well with the supporters. They don't want to know how much money you are putting in, all they want is three points on the day."

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