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    Sports economics circleThis is the economic circle: on improving upon your sporting strength, more fans will come to the stadium and will follow you on-line and on TV, which makes you more attractive for sponsoring, and additional revenues will enable you to invest in the sporting strength. Or the other way around, a decline in sporting strength will make you perform worse on the other dimensions too. Now this may seem like a virtuous or vicious circle, either taking you through the roof or down the drain. But there are limits. This chart below shows you the basics of a football club. It plots costs and revenues of a football club in relation to its sporting performance.

    Costs

    sporteconomie3 Playing at a higher level requires investments in the squad. As always, quality is expensive. And outstanding qualities are even more expensive. A club that is already very strong, can improve only by hiring exceptionally talented players, and has to pay them accordingly.

    Revenues

    On the bright side, by playing at a higher level the club will also attract larger attendances and more sponsors. Quality enhances renvenues. But the economic resources of the club's catchment area, from which the club draws its fans and sponsors, aren't inexhaustible. At some  point, even though on the sporting dimension the club is still making progress and costs are rising, revenues won't increase accordingly. At first enlargement of the catchment area might make up for this, but in the end football is quite a local business: Real Madrid will never have many fans in Barcelona. This means that there is an upper limit to the club's economics.

    Bottom line

    There are limits to a club's ambitions, not just an upper limit, but also a lower limit, below which the club is performing so poorly that it loses too many fans and sponsors even though costs are low. Critical success factors that determine these boundaries are:
    • the club's catchment area: a London based club can draw from better resources than a club based in Swansea
    • the club's competitors: given that there are more than five major clubs based in London, they have to share these great resources.
    You can't really influence these circumstances. But you can influence this:
    • the club's stadium: an appropriate capacity, a roaring atmosphere and excellent facilities will enhance the club's ability to draw fans and sponsors
    • marketing and sales: a good team targets its potential fans and sponsors and gets more revenues in
    • competition format: collectively, clubs can decide to change the competition format such that tension and excitement are optimal.