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European model causes unique on-field and financial outcomes for sport leagues

This is an excerpt from International Sport Management by Ming Li,Eric MacIntosh & Gonzalo Bravo.

Organization of European Sport Leagues

In examining the structure of sport leagues around the world, one of the primary distinctions is whether the league is static (closed) or uses the open (promotion and relegation) system. As discussed in the previous section on the organization of North American sport leagues, static leagues are more common in the United States and Canada. In Europe, however, promotion and relegation is a much more commonly used league format, one that rewards stronger teams and punishes weaker ones. Promotion and relegation works by having a multitiered system of connected sport leagues in which teams are exchanged from one league to the next based on performance. That is, teams finishing at the bottom of a higher league will be relegated to a league one tier down, and teams finishing at the top of a lower league will be promoted to the league in the next tier up. Thus, at the end of each season teams move between leagues; typically three are promoted and three are relegated each season. In some cases four teams are promoted and four are relegated each season. Leagues in the middle of the tier system will have between six and eight new teams each season.

Although promotion and relegation is quite simple, the form that it takes differs from league to league in the number of teams that are promoted and relegated as well as the presence or absence of a promotion and relegation playoff. This playoff system is usually a series of games played between teams with a chance of being promoted to the next higher league, as well as the teams that are being relegated from the league that the promoted teams are trying to enter. In this system the playoffs are used to determine which of the promotion and relegation teams should be allowed to play in the higher league and which should be placed in the lower one (Noll, 2003).

A primary example of the use of promotion and relegation can be seen in English professional football. At the top of the tier structure is the English Premier League (EPL), which consists of 20 teams. The bottom three of these teams are demoted to the league below the Premier League, the Npower Football League Championship (formerly Division 1) after every season. Within the Npower Football League Championship, the top two teams are directly promoted to the Premier League each season, and the third- through sixth-place teams compete in a playoff, the winner of which is awarded the third promotional spot to the Premier League. Additionally, the Npower Football League Championship demotes the bottom three teams to the next lower league in the tier system, the Football League One. This process continues, with slight variations, across the six tiers of professional football in England. The promotion and relegation system has been successfully re-created across the world in a number of leagues, most commonly in football leagues such as the J League of Japan and the Brazilian Campeonato Brasileiro Serie A. In this way, promotion and relegation has become a standard in football, although Major League Soccer, the premier professional football league in North America, does not use it.

Promotion and relegation presents a different landscape for professional sport than static (closed) leagues do. Whereas static leagues see almost no change of member teams in a league, promotion and relegation forces a yearly turnover in teams. Furthermore, by including promotion and relegation, even the weaker teams in a league have an incentive to continue to compete and win games at the end of a season. At the end of the season in static leagues in North America, teams often have more incentive to lose matches and not put forth as much effort, because the bottom teams in a league are rewarded in a reverse-order draft, in which they will be given first choice of drafting the best new talent for the next season. European leagues do not use reverse-order drafts. Moreover, promotion and relegation gives the weaker teams in a league incentive to win as many matches as possible. In this sense, promotion and relegation could be said not only to generate more interest in matches among weak teams in a league but also to produce better competitive balance within a league.

Another major effect of the promotion and relegation system on professional sport leagues is that it presents a different method of entry into leagues for franchises. In North American leagues, entry to a league is often bought for a large sum after approval by other owners. In a promotion and relegation system, however, teams are not allowed simply to pay a fee to enter the top league. Instead, a new franchise must work its way through from the bottom of the tier system all the way to the top. Achieving this goal takes a serious investment, and it may require several years to a lifetime, that is, if a franchise can even accomplish such a feat.

Although promotion and relegation is often seen as the main factor distinguishing the North American and European models, another issue is the number of competitions that teams participate in. As mentioned before, teams in the four major professional sport leagues in North America are involved in only a single championship competition each season. Under the European model, teams play in multiple competitions at the same time, including the league championship, league cups, international competition, and so forth. The English Premier League provides a good example of multiple competitions. Every team in the league competes in league matches for the league championship, which has no playoffs. The EPL championship is determined solely by the final league standings. Additionally, all teams in the Premier League compete in the League Cup, as well as the FA Cup, both of which are domestic knockout tournaments. Additionally, higher-ranking teams within the Premier League compete in intercontinental competitions, such as the UEFA Champions League or the UEFA Europa League. The UEFA Champions League and UEFA Europa League are annual pan-European football tournaments that include the top teams in each European national professional football league. Participants in the Champions League earn huge revenues relative to teams that do not compete in this league, because of the large television rights contracts. In this manner, some teams in Europe are likely to be involved in three or more competitions at the same time, and the schedules of these competitions are intermixed with one another. Although these competitions give teams more chances to win championships and trophies, they also overload the schedules of some teams, forcing them to choose which competitions are more important to them. This pattern of multiple competitions can be found around the world, mostly in football competitions that offer a variety of prizes. For example, a team in Japan may compete for the J League title, the Emperor's Cup, the Nabisco Cup, as well as in the Asian Champions League. Although the richer and stronger football nations are more likely to have a higher number of competitions, a large number of teams in every country typically compete in a number of football competitions.

The Premier League resembles a North American league more than other football leagues in Europe do in that the EPL operates as a corporation. All 20 teams in the league have an equal vote to decide important issues. This organizational structure is also new; the Premier League was formed in 1992 to organize the top flight of football in England better and to increase television revenues earned by top-tier teams. Through this structure, the Premier League not only placed itself at the forefront of European football in terms of television revenue generation but also gradually made itself into the dominant professional sport league in Europe. With access to new revenue streams, the EPL clubs were slowly able to improve their quality by buying top-quality talent from around the world. The EPL domination has grown to the point that Sepp Blatter, the head of FIFA, the governing body for international football, has proposed what is called the 6+5 rule, under which all teams across the world would be limited in the number of international players that they could field at a single time (Ennis, 2008). Critics have claimed that this move was specifically targeted at EPL teams that have become melting pots of international talent. In this way, the EPL altered the European model of professional sport to suit its needs and gain more revenue. Through these changes, the EPL has become dominant to the point where governing bodies of football seek to reduce its dominance; meanwhile, fans around the world are becoming more interested in the league.

Finally, consider the differences in player movement between North American and European professional sport leagues. It was not until the Bosman transfer ruling in the mid-1990s that players were able to move from one European team to another freely after the expiration of their contracts (Szymanski, 1999). Additionally, whereas new players are obtained through drafts, trades, and free agency in the North American model, European teams use youth systems, transfers, and loans to obtain new players for their teams. Due in great part to the Bosman ruling, many leagues around the world have adapted a free transfer system, especially to accommodate the movement of players between football clubs in different regions of the world. The ability to transfer freely is something that most professional footballers are able to enjoy in most countries around the world.

European leagues do not use an entry draft to allocate young players to teams. Instead, teams operate youth academies that identify star players at a young age, sign them to contracts, and bring them into the club for training. Under this system, European clubs cover much of the cost of developing and training young athletes. European clubs bear all scouting, training, and development costs, which produce only a handful of very good young players from each cohort. This system is still probably best performed in Europe, although countries such as South Africa, South Korea, and Brazil use it profitably as well. The system is most often related to professional football in countries outside of Europe.

After young players have signed with a team, important differences are also seen in player movement from one team to another. In North American leagues, teams often make trades by exchanging individual players, groups of players, and in some cases draft picks. European leagues do not use trades. Instead, they use transfers, in which one club pays another club a sum of money, known as a transfer fee, to purchase rights to a player. These fees are paid mostly to the player's former club, but players get a percentage of the fees. In addition, in European leagues teams often loan players to another team. Under this arrangement, players are sent from one team to another for a set period, and the loaning team is compensated with a fee for the player's services.

Through promotion and relegation, multiple competitions, and player allocation and movement, the European model of professional sport leagues differs significantly from the North American model. These differences have consequences for on-field and financial outcomes. As we will see, these differences may lead to radically different distributions of revenues, costs, and wins in leagues.

Learn more about International Sport Management.

More Excerpts From International Sport Management