My Say: The European Super League and a systemic problem in innovation

This article first appeared in Forum, The Edge Malaysia Weekly, on May 10, 2021 - May 16, 2021.
My Say: The European Super League and a systemic problem in innovation
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Grand Opening, Grand Closing” is probably the best way to describe the events of the proposed European Super League (ESL) in mid-April. Twelve of the most commercially significant football teams in Europe sought to create their own league, in place of the existing Uefa Champions League, which is, at present, the most elite inter-Europe club football tournament.

The blowback was fierce. It was not just from Uefa, decrying the greed and selfishness of these 12 clubs, but also from fans and the media pundits alike. That Fifa and Uefa have proven to be historically shady, to put it mildly, is no surprise and that they would be motivated by a potential massive loss of revenue is also of no surprise. But I think what warrants a little bit of self-awareness is also from pundits and fans alike.

The current global football organisation — from national teams to club teams to intercontinental or intracontinental competition — is sports commerce of the highest order. To believe that the current setup is a level playing field, especially in the top leagues — see the domination of just a few teams at the top of the major European leagues — is laughable. The claims of pulling another “Leicester” just highlights an exception. The odds of an improbable Leicester City title win (a club not among the English League Big Six) were 6,000 to 1 back in 2015.

But beyond that, while we as fans and the pundits can decry the money motivations of the ESL and Fifa/Uefa, we have to acknowledge that we, too, are part of the system, particularly those of us who do not have local ties to the teams we support.

When was the last time we said, “Oh, my club must sign Kylian Mbappe whatever the cost.” Take Rio Ferdinand, a former England and Manchester United defender who, as recently as March, said, “You know what, they’ve just got to go and give everything to get [Erling] Haaland. I don’t care.”

Ferdinand is not an exception. Other pundits like ex-footballers Gary Neville and Jamie Carragher also make the same point about transfers. But here’s the thing — if you don’t care, this is how you end up with an ESL. To remain competitive, you need to have the best players. But the best players cost huge amounts of money in transfer fees and wages. How is that going to be financed? You cannot demand teams to incur more costs without having to get them to think about how to finance those costs.

In Soccernomics, authors Simon Kuper and Stefan Szymanski document that in England’s top two divisions from 2007 to 2016, there was almost a 100% correlation between a club’s salary bill and its league position. But therein lies the problem. For teams to be competitive, they must spend big, especially on wages. But if they do that, they need to find alternative sources of revenue. This is precisely what the ESL sought to do. Yes, it ignored the cultural emotions of fans, but, as a business decision, it was a natural solution.

Avoiding those types of solutions requires wholesale reforms that are never going to come from Fifa or Uefa — or even the various national football associations — because they are too embedded within football’s current system.

To truly reform, football clubs need to manage costs and a different system is needed, where, among the policies that may need to be implemented are a transfer fee cap, a salary cap for teams, or a minimum requirement of games played in a season for players from the clubs’ youth teams. If clubs continue to compete primarily on money, then money-based solutions like the ESL will always be on the cards for teams as well.

Outside football

As we reflect on public policy solutions in Malaysia, I do worry that we are, ourselves, too embedded within the existing system to really come up with out-of-the-box reforms.

A recent example is the affordable housing proposal by the Better Malaysia Foundation. The proposal received a lot of feedback and I will not get into that but what I think is its ultimate limitation is a lack of imagination. The proposal, in and of itself, is workable within the existing system of developers and banks, but it is not innovative enough.

A better idea, for instance, could be trying to rethink the social purpose of banking. If banking is meant as an intermediary for savings and investments or, put another way, as a channel for savings towards more productive uses in the economy, perhaps we need to add a social dimension to it.

For instance, for a given economy, the optimal non-performing loans ratio (loans that went bust, essentially) is not 0%. If the NPL ratio is too low, it might mean that not enough risk is being taken in the economy. But we also know that a market system tends to underfund socially beneficial initiatives that do not lend themselves to being captured commercially.

What if beyond the economic NPL ratio, we also had a social NPL ratio where banks provided funding for high-risk, low-return social initiatives — adequately covered by appropriate risk measures — that could fund social-based initiatives.

To be clear, it is not as if solutions like these do not already exist in different forms in the capital markets, such as social impact bonds. My issue is that if we continue to use existing systems and constraints to search for solutions, we might miss out on actual groundbreaking ideas that might be possible.

That is not to say that within-the-system solutions should be scrapped, far from it. I think they are important and I am fairly excited about the recently announced Ministry of International Trade and Industry (Miti) National Investment Aspirations that is on the right track in terms of thinking about economic development. But it needs to be paired with out-of-the-system innovations, or we could end up with another “best practice from elsewhere” solution.

I should add that it is not as if Malaysia does not attempt some of these things. I think Undi18 and getting 18 year olds to vote in Malaysia is one reform that can shock the system. The question is whether we are brave enough to allow the system to be shocked.

But, ultimately, like the European and global club football scene, if we stick to the conservative tried-and-tested ways of doing things, we cannot ever achieve true needle-moving reform. And, as a consequence, without attempting something bold, our every social, political or economic possibility will always be “20 years away” or some faraway vision for us to achieve.

Nicholas Khaw is an economist at the Khazanah Research Institute

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