Micro: Football and Sackings

Sherwood and Villa in happier times (from the Telegraph)

You’re studying microeconomics at the moment, which by and large looks at individual markets. While you eagerly anticipate macro for next term, here’s some more microeconomic stuff that shows how we can apply what we’re learning to all sorts of situations.

Those who follow football, in particular in the West Midlands, will be reflecting on the end of yet another managerial tenure at a local football club. Tim Sherwood on Sunday was sacked as manager of Aston Villa. A manager is an employee at a firm, most fundamentally; a firm that competes in a marketplace with other firms.

Football is an interesting economic case study, as it’s not immediately obvious where we should focus: should we focus on football teams, or football leagues? Indeed, Walter C. Neale pondered this in the Quarterly Journal of Economics in 1964. Sports teams compete with each other, but teams will always populate leagues; whether the leagues exist is what matters, and sports leagues have come and gone over the years.

Nonetheless, football teams must operate on a day-to-day basis without going bankrupt. Teams like Aston Villa face the very real threat of being relegated from the Premier League. The Premier League is a sports league which is hugely lucrative for the teams who compete within it; relegation to the Championship, the league below, has huge financial implications – massively lower income levels, not to mention reduced prestige. However, the hugely lower income levels (mainly television money, we all like watching the Premier League) are what matter: without income, expenses become unaffordable, and losses will be made.

With a defeat on Saturday, Aston Villa dropped to the bottom of the Premier League, and the three teams finishing lowest are relegated. As such, the decision to sack the manager was taken with the purpose of avoiding relegation. The club will have weighed up the potential cost of relegation, the likelihood of suffering it with Tim Sherwood as manager, the likelihood of suffering it with another manager in charge, all against the cost of sacking the manager (some pay-off will be necessary), and have decided, in their estimation, that sacking Sherwood is their best option.

It’s all economics…