An Examination of the Motivations and Consequences of Foreign Direct Investment in the Premier League 1992-2012 By Andrew Martin Jones MA, BA (Hons) A thesis submitted in partial fulfilment of the requirements of the University Of Wolverhampton Degree Of Doctor Of Philosophy July 2014 This work or any part thereof has not previously been presented in any form to the University or to any other body whether for the purposes of assessment, publication or for any other purpose (unless otherwise indicated). Save for any express acknowledgments, references and/or bibliographies cited in the work, I confirm that the intellectual content of the work is the result of my own efforts and of no other person. The right of Andrew Jones to be identified as author of this work is asserted in accordance with ss.77 and 78 of the Copyright, Designs and Patents Act 1988. At this date copyright is owned by the author. Signature …………………………….. Date ……………………………….. i Acknowledgements During the process of completing this thesis, I have been fortunate to meet a number of individuals whose insight and experience has proved to be immensely valuable. I would like to thank those respondents to both the questionnaire and interview requests, and in-particular those at Stoke City and West Bromwich Albion who helped to facilitate the interviews. I would also like to thank John Bates of UWBS for communicating with Wolverhampton Wanderers to secure the first interview. At Supporters Direct, I would like to thank James Mathie, as without this interview, obtaining access to the supporter trust movement would not have been possible. I would like to add special thanks to my supervisory team (Dr Mark Cook and Professor Mike Haynes) in providing excellent support, guidance, and help during the process. Further special thanks must go to my parents and grandparents as without your support this thesis would have not been possible. List of Conference Papers and Publications Jones, A., Cook, M. (2014) The spillover effect from FDI in the English Premier League [online]. Soccer and Society. ii Abstract The English Premier League is regarded as one of the most prominent sporting competitions in the world. In the last decade the league (and by definition it’s member clubs) have become highly attractive to wealthy foreign investors, having taken ownership of a number of clubs across the league. This thesis seeks to investigate the motivations and consequences behind this foreign direct investment (FDI). The study uses a multi-method approach not commonly found within the sports economics or FDI literature combining both quantitative and qualitative methods. The thesis has generated responses from ‘elite’ level respondents at Premier League clubs together with members of the supporters’ movement. Existing data from club sources and market reports has been collected in order to assess the motivations and consequences of FDI. The thesis finds the motives behind football FDI to be somewhat different to those held by other forms of business organisation. Football is a mostly loss-making industry, but despite this weakness, some investors have purchased Premier League clubs for economic reasons. The importance of non-economic motives, such as profile enhancement, and the notion of the trophy asset were also found to be influential motives behind some football FDI. These aspects are not strongly reflected in the FDI literature, and they imply football is different to other forms of investment. FDI is shown to be mostly beneficial for the clubs receiving the investment, but for non-acquired clubs negative consequences are found in terms of wages, transfer costs, profits, and debt. For the Premier League itself, FDI has been positive in terms of enhancing the league’s stature, revenues, and the quality of matches. Some benefits were found at the regional level. This thesis covers the gap within the literature surrounding FDI and football, and also raises wider points about the generalizability of FDI theory to all industries. iii Contents Page Chapter Title Page Numbers 1 Introduction 1-14 1.1 Background 1-3 1.2 What is Sport? 3-5 1.3 Sport as a Business 6-7 1.4 The Nature of Football 8-10 1.5 The Unit of Analysis 10-11 1.6 Foreign Direct Investment 11-13 1.6.1 Foreign Direct Investment, Sport and Football 12-13 1.7 Aims and Objectives 13 1.8 Thesis Structure 13-14 2 The Structures and Context of English Football 15-38 2.1 Path Dependency and Institutional Structures 15-24 2.2 The Change in Institutional Structures and the formation of the Premier 24-29 League 2.3 The Changing Ownership of English Premier League Clubs 30-33 2.4 Foreign Ownership 33-37 2.5 Continuing Tensions and Theoretical Problems 37-38 3 Literature Review: Foreign Direct Investment 39-77 3.1 Economic Theories and Motives of FDI 40-59 3.1.1 Economic Theories of FDI 41-54 3.1.2 Economic Motives of FDI 54-59 3.2 Non-Economic Motives of FDI 59-67 3.2.1 Institutions Reconsidered 60-62 3.2.2 Conspicuous Consumption 62-64 3.2.3 Positional Good 64-65 3.2.4 Political Motives 65-67 3.3 Entry Modes 67-68 3.4 Consequences of FDI 68-76 3.4.1 Productivity Effects 68-70 3.4.2 Competitiveness Effects 71-72 3.4.3 Technology 72-73 3.4.4 Wages 73-74 3.4.5 Regional Effects 75 3.4.6 Reverse Spillovers 76 3.5 Summary 76-77 4 The Economics of Sport 78-98 4.1 Ownership Objectives and Profit 78-81 4.2 The Weakness of Profit in Football 81-84 4.3 Ownership Objectives: Non Economic 84-87 4.4 The Motivation for FDI in Football 87-91 4.5 Consequences of FDI 91-98 4.6 Summary 98 iv 5 Methodology 99-140 5.1 Research Methods in the Topic Area 99-101 5.2 The Search for Data: Strengths and Weaknesses of Secondary Data 102-104 5.3 The Methodological Approach to Primary Data 104-105 5.4 Interest Groups and Access Challenges 105-110 5.4.1 Access Difficulties 108-109 5.4.2 Access in Football 109-110 5.5 Research Process for Primary Data 110-116 5.5.1 Overview of Sample 112-116 5.6 Questionnaire Design 116-123 5.6.1 Question Design 117-118 5.6.2 Foreign- Owned Questionnaire 118-120 5.6.3 Domestically-Owned Questionnaire 120-123 5.7 Interview Respondents 123-127 5.7.1 Interview Process 125-127 5.8 Case Studies 128-135 5.8.1 Single and Multiple Case Studies 128-129 5.8.2 Case Study Selection 130-135 5.8.3 Case Study Approach 135 5.9 Data Analysis 136-140 5.10 Summary 140 6 Motives of Football FDI 141-183 6.1 Business Acumen 141-144 6.2 Financial Motives 144-152 6.3 Club Availability 152-154 6.4 Attractiveness 154-159 6.5 Promotion of Individuals and Organisations 160-164 6.6 Status 165-168 6.7 Political Motives 168-170 6.8 Sporting Motives 171-175 6.9 Regulatory Factors 176-182 6.10 Summary 182-183 7 The Consequences of Football FDI 184-252 7.1 Sporting Consequences of FDI 185-210 7.1.1 Competitiveness of the Premier League 185-193 7.1.2 League Sporting Stature 193-194 7.1.3 League Standard of Play 195-197 7.1.4 ‘Football Productivity’ 198-206 7.1.5 Performance of Foreign Owned clubs on-field 207-210 7.2 Football Business Consequences 210-242 7.2.1 Revenue 210-215 7.2.2 Wages and Transfer Costs 215-228 7.2.3 Profit 228-235 7.2.4 Debt 235-242 7.3 Management Effects 242-246 7.4 Infrastructure 247-249 7.5 Regional Effects 250-252 7.6 Summary 252 v 8 Conclusion and Contribution to Knowledge 253-284 8.1 Motives 253-263 8.2 Consequences 263-275 8.2.1 Direct Consequences 264-266 8.2.2 Indirect Consequences 266-275 8.3 Findings 275-277 8.4 Contribution 278-280 8.5 Limitations 281-283 8.6 Areas for Future Research 283-284 9 References 285-313 vi Table and Figure List Tables 2.1: Changing Business Approaches to English Football 2.2: Classification of football companies by ownership type 2.3: Foreign Investment into Premier League clubs 2.4: Club with foreign ownership when promoted to Premier League 3.1: Top Ten Host Economies for FDI from 2009-2012 3.2: Resources, Capabilities and Markets 3.3: Institutions 3.3: Entry Modes 3.4: Number of Projects by FDI Type 5.1: Groups of interest 5.2: Groups of no-interest 5.3: Overview of Premier League clubs in 2011/2012 5.4: Research Timeline 5.5: Questionnaire Responses 5.6: Detail of Responses Received 5.7: Club Management Respondents 5.8: Supporters Direct and Supporter Respondents 5.9: Breakdown of clubs who have competed in the Premier League 1992-2011 5.10: Foreign Owned EPL clubs in 2011/2012 6.1: Annual value of Premier League broadcasting deals 1992/1993 to 2012/13 6.2: Takeovers Motivated by Financial Problems or owners inability to invest 6.3: Sales of clubs motivated by existing owners being unwilling to invest 6.4: Takeovers influenced by history or image of a club vii 6.5: Takeovers influenced by club support 7.1: Points Per Cost in the Premier League 2002/2003 7.2: Points Per Cost in Premier League 2006/2007 7.3: Points Per Cost in Premier League 2009/2010 7.4: Case Clubs League Finishes 2001/2002 to 2010/2011 7.5: Revenues for the three case clubs from 2001/2002 to 2010/2011 7.6: Total Wage Spending in the Premier League from 2001 to 2011 7.7: Case study clubs wage spending from 2001 to 2011 7.8: Wage Changes at Premier League Clubs 2001/2002 to 2010/2011 7.9: Total Transfer Spending 2001/2002 to 2010/2011 7.10: Total Net Spending in the Premier League 2001/2002 to 2010/2011 7.11 Fulham Investment in Player Transfers from 1997 to 2001 7.12: Net Transfer spending at three case clubs 2001/2002 to 2010/2011 7.13 Total Net Spending at Premier League Clubs 2001/2002 to 2010/2011 7.14 Total operating profit/loss made by foreign owned Premier League clubs 2001-2011 7.15: Operating Profit/Loss (before player