The Drastically Different Economics of the NFL and European Soccer

In the world of sports, the biggest culture shock when you cross the Atlantic isn’t the relative popularity of “futbol” and “football,” but rather the economic structure of the sports themselves.

English Premier League fans cannot understand why the NFL and NBA consistently reward mediocre franchises with the most talented young prospects through a reverse-order draft. NFL fans cannot understand why fans of the EPL in Britain and La Liga in Spain are content with a system where the vast majority of clubs have no realistic chance of ever competing for a domestic league championship.

In a remarkable bit of irony, the stereotyped socialists of Western Europe root for soccer teams that compete in a ruthlessly free-market system while the supposedly rugged individualists of the American plains root for football teams that share wealth and resources in order to grow the sport as a whole. Neither system is perfect, because sports leagues — like the broader economies around them — have to make trade-offs between two equally noble goals: equality and fairness.

The NFL’s mythology is centered on the idea that anything can happen on “any given Sunday,” that contention is only a year away for even the most hopeless team. Since 2000, nine different franchises have won a Super Bowl. In the same amount of time, only three clubs — Valencia CF, FC Barcelona and Real Madrid — have won the domestic championship in Spain.

To ensure that a team from Green Bay can compete with one from New York City, the NFL has instituted all sorts of measures to prevent a free market for talent. The league shares all the revenue from its national TV deal, which in effect forces glamorous teams with large and wealthy fan bases to subsidize professional football in much smaller cities.

Player movement and salaries are severely restricted as well. There is a rookie draft which denies young players the opportunity to have teams bid for their services, a salary cap which prohibits teams from spending over a certain amount of money on players, and a franchise tag which forces teams to give up two first-round picks to sign each other’s most coveted free agents.

In contrast, there are no similar types of revenue-sharing mechanisms in La Liga. Barcelona and Real operate on a completely different financial plane than the rest of the league: Real spent $220 million just in transfer fees in 2009 to acquire Cristiano Ronaldo and Kaka, while the highest paid player (Lionel Messi) on Barcelona’s equally star-studded roster made 33 million euros last season.

There are no limits to how Barcelona and Real can acquire talent. As a result, a virtuous cycle (depending on how you look at it) develops: Because the two clubs have traditionally been the most successful, they have the largest fan bases, which in turn means they have the money to acquire the best players. Having the best players ensures they continue to win, which grows their fan bases at the expense of the rest of the league.

It is a dramatically uneven playing field, but it does produce one thing: incredibly compelling soccer. Real has won more Champions League (a competition between the best clubs throughout Europe) titles than any other European club, while Barcelona has won two of the last three Champions League titles in dominant fashion. Many believe the current Barcelona squad is the greatest soccer team of all-time.

By contrast, the NFL’s obsession with parity means that the best teams have a difficult time adding more talent. Indianapolis-New England is widely considered the biggest rivalry in the modern NFL; imagine if Tom Brady could hand the ball off to Adrian Peterson and throw it to Calvin Johnson while Peyton Manning could throw to Andre Johnson while handing the ball off to Chris Johnson.

You would not have a situation where Andre Johnson, an all-time great receiver, is forced to spend the prime of his career in Houston playing with average quarterbacks and never having a chance to compete in the playoffs through no fault of his own. However, most NFL fans would recoil at this distribution of talent, just as surely as most Spanish fans wouldn’t want to see Messi, Xavi, and Iniesta scattered throughout La Liga, unable to maximize their ability because of sub-par teammates.

If you want equality, you cannot treat everyone fairly. Conversely, if you treat everyone fairly, then a dramatically unequal equilibrium will develop. In sports, as in life, there is no economic system that can promote one without harming the other.

Photo Credit: Shht!