Realist, not conformist analysis of the latest financial, business and political news

Premiership Rugby Breakaway – A Cartel To Shaft The Players

The English Premiership clubs are threatening to form a breakaway from the Rugby Football Union over the issue of relegation. This is rather more than just the insistence that those in the top flight get to stay there with no threats to their position – it’s an insistence upon forming a cartel to shaft the players and their salaries. The economics of this are entirely clear. In a league with relegation and promotion then near all revenues will flow through to the talent, the players. In one with a set list of teams that doesn’t change then not all of it does – the owners are able to make a profit. And, hey, we like profit, think it’s a great thing, but it is only instrumental, a means to an end. What we’re truly after is the finest living standards for the average peeps and cartels don’t increase those:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Premiership Rugby could break away from the Rugby Football Union and form a new independent league, according to a report. The Mail on Sunday claims it has received minutes from a recent meeting between the clubs’ chairmen threatening to form an unregulated league separate from the RFU, should the national governing body ultimately turn down the league’s proposal to scrap relegation. [/perfectpullquote]

In a league with relegation financial survival depends upon remaining in that top flight. Talent is a relative thing, a team doesn’t have to be the best in the universe of time and space it just has to be good enough to beat those others in that same league this season. But again, talent is relative, so there’s an immense pressure on gaining the best talent of this season’s crop of players. This bids up the price of that talent, the only limitation on how much in aggregate will be bid being all the money available.

There will always be rich men who are willing to subsidise from capital, therefore wages end up being more than the sporting revenue. This is why the major effect of a better TV deal is that player salaries rise.

So, how to limit this? Abolish relegation. Then it’s the position of the team in the top flight which itself has some value. Skimping on competing for the talent available might lead to a disappointing season but not to financial catastrophe. There’s very much less pressure to spend on player salaries therefore they are lower.

The end result of this is that owners of teams are only likely to make a profit out of them if there is no relegation. So, why are the team owners arguing in favour of the creation of a cartel? The question rather answers itself, doesn’t it?

We’ve empirical evidence of this too. US sports teams, near all of which are in number limited leagues with no relegation or promotion, generally make profits. Association football teams, all exposed to promotion and relegation each and every year and at every level, generally are not profitable.

To abolish relegation in rugby would be to create a cartel in favour of the owners and one which will, by dint of being the same thing, screw the players.

0 0 votes
Article Rating
Notify of

Newest Most Voted
Inline Feedbacks
View all comments
Matt Ryan
Matt Ryan
5 years ago

Is there an analogy with your CEO pay article from the other day?

Does all the money go to the CEOs (players) rather than the shareholders (owners) in the FTSE 100?

Or is the promotions/relegation through the league the same as companies moving up/down the AIM / FTSE 250 / FTSE 100?

5 years ago
Reply to  Matt Ryan

Nicely observed point. And yes, in a perfectly competitive market we do indeed think that all the money goes to labour. We rather define a perfectly competitive market as one in which there are no excess profits, after all. Only the cost of capital gets covered, nothing more….management and workers are together the labour in this of course.

Would love your thoughts, please comment.x