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Management Report

Management reports, briefs and video-clips issued by Samsung Economic Research Institute

EPL's Success

EPL's Success

HAN Il-Young

Mar. 18, 2011

Transcript

Welcome to our video program. I’m Il-Young Han from the Management Strategy Research Department.

What comes to mind first when you think about the European soccer league? Many of you may think of the England Premier League or EPL. In fact, the EPL has shown the most remarkable growth compared to other major leagues like Germany’s Bundesliga, Spain’s Primera Liga, and Serie A of Italy. The EPL has 20 clubs, and each of them gets to play 38 games to decide a winner. Manchester United, which attracts as many as 75,000 spectators for a game, is valued at 1.8 billion dolllars.

But the EPL’s history has not always been an uninterrupted stretch of glory. Thirty-nine fanatic fans died during fights between Juventus and Liverpool fans in 1985. In 1989, 96 fans were trampled to death during the Liverpool-Nottingham Forest match. Hooliganism and accidents from old stadiums and facilities have led to a decline in spectator numbers.

To turn the game around, the Premier League was launched in 1992, with new and improved stadium facilities, fan services, and better player performances. As a result, the league has become the world’s most-watched league, and is viewed by 600 million households in over 200 countries.

What makes the EPL one of the world’s best soccer leagues?

First, the EPL embraces diversity based on openness. EPL is open to the world in terms of players, managers and capital.

When it was first launched in 1992, there were only 11 non-English national players, but the number surged to 260 in 2007. There are many foreign managers as well. Just as Korea reaped good results at the 2002 Soccer World Cup under the leadership of Guus Hiddink, managers with various nationalities have introduced various strategies and styles to the Premier league.

Sir Alex Ferguson of Manchester United is from Scotland, and Jose Mourinho, who led Chelsea to win two Premiere League titles before he left for Spain, is from Portugal. Accepting the best players and managers from around the world, regardless of their nationalities, is key to the excellent performance of the Premiere League.

With their performance improving, the number of spectators swelled and TV broadcast fees became very expensive. Clubs were able to make a great deal of money.

Many foreign capitals have also shown interest in ownership of the clubs, and the Premiere League is open to them. Unlike Spain’s Primera Liga or Germany’s Bundesliga, the league did not prohibit foreign ownership. Chelsea, which is sponsored by Samsung Electronics, was acquired by Russian oil mogul Roman Abramovich in 2003. Manchester City had been owned by Thai politician Thaksin Sinawatra and acquired by Sheikh Mansour, United Arab Emirati prince and oil mogul in 2008. As international capital started to flow into the Premiere League, clubs became able to attract talented players and managers, in turn luring more capital.

Second, EPL embraced diverse competition mechanisms.

There are a number of mechanisms that promote fierce competition in the Premiere League.

Every team puts their utmost efforts into every single game in order to win the final. Once the regular season is over, the bottom three clubs are relegated to the championship league, while the top three of the championship league are promoted to the Premier League. Being demoted to the Championship League means less revenues from tickets and TV broadcasts, and clubs are desperate to remain in the Premiere League. In addition to aiming at winning the league, high ranked teams give their best shot to advance to the European Champions League or UEFA Cup.

There are also derby matches where teams from the same region play against each other. Each time they meet on the ground, Manchester United and Manchester City present exciting games, gaining the full attention of their local fans and the media.

Clubs do not compete with each other just for rankings. Revenues from TV broadcasts are divided based on game results and sponsor ad rates are determined by contracts that each club makes with sponsors. Naturally clubs with a large fan base and that are broadcast a lot get to earn more from uniform endorsements and soccer equipment contracts.

In 2009, Manchester United clinched a 23.30 million euro deal with AON for a uniform ad. This has been by far the most expensive price tag compared to other Premiere League clubs.

All these mechanisms that promote competition encourage clubs to put their energy into every single game, adding excitement and fun.

Last, EPL promotes active interaction among clubs.

You may think it’s only about rivalry, but clubs do cooperate with each other on many fronts. Clubs trade players or managers among themselves. Since the Premiere League has an excellent pool of players, trades within the league have become common. “Player leasing” has also become a common practice, helping clubs to maximize their strength in a short time.

The decision to reduce 22 teams in the Premiere League to 20 was the best illustration of cooperation in the league. The decision was made in the early days of the league, in 1995. Back then, players experienced fatigue very often as they had to play many games, and were defeated many times in European club matches. By reducing the number of teams, club owners can incur losses and low-ranked teams can stand a higher chance of being demoted. However, they accepted all this for the sake of long-term prospects of the Premiere League.

The success of the Premiere league was not built on only one or two clubs’ efforts. A system that consists of fans, sponsors, TV broadcast companies and players and managers from all over the world has created success. A virtuous cycle has been established within the system where competition is fierce to keep performance at high levels, while revenues from TV broadcasts, and tickets enhance clubs’ finances and attract more players and managers.

In today’s environment, it is difficult for a company to survive based only on its competitive edge. Instead, it is crucial to build your edge using the business ecosystem surrounding your company. I hope you understand your own company’s ecosystem and use it to your own competitive advantage.

Thank you for watching. I’m Il-Young Han.

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