For Fuck\’s Sake Hutton, can\’t you even get the basic economics right?

Willy Hutton turns to the subject of football clubs. And manages to fall over his own ignorance of economics while doing so. I\’m increasingly coming to the opinion that having him as a bigwig at the London School of Economics is actually damaging to all of us who have a degree from the place. Surely some knowledge would manage to creep in, if only by osmosis, after years of hanging around the place?

Economists call this \”rent-seeking\” and those who don\’t know what the term means need only spend a few seconds surveying the history of the club since Mr Yeung, his son and third director Peter Pannu took it over in 2009. The club is owned by a holding company based in the Cayman Islands, but burdened by vast debts used by Yeung to buy it, now facing financial problems following the problems with Yeung\’s business affairs.

Their sole interest is selling off assets, chiefly good footballers in the transfer market, and now the club, to get their money back into the Cayman Islands – while paying large director fees for unnamed services. What they want is economic rent: a surplus created for doing nothing of value.

Britain is a rent-seeker\’s paradise, as many more football clubs other than Birmingham City can testify. We have created a looters\’ charter, with football as a playpen, within which the super-rich can do what they want.

Hmm. A slightly dodgy definition of rent seeking there but we\’ll let it pass. OK, so these people are indeed rent seeking.

So, what is the effect of this rent seeking?

The club is owned by a holding company based in the Cayman Islands, but burdened by vast debts used by Yeung to buy it, now facing financial problems following the problems with Yeung\’s business affairs.

It would appear that they are going bust. Why is that then?

Rather, in keeping with the wider culture, football is \”open for business\”. Market forces are deified as the only value worth celebrating and a business – even a football club – is no more than its owner\’s private plaything……Everybody now knows that market forces are both best and irresistible, a perfect justification for putting up ticket prices to whatever the market will bear. ……Flexible and free markets, we have had drummed into us for 30 years, are the reason why Britain is now the world-beating economy that it has become and Germany and the European Union are in the doldrums……What is so depressing about today\’s economy is not just that we stand on the verge of a triple dip recession, but that, like our football clubs, so much of our economic base is organised around rent-seeking……Yet the heart of the Eurosceptic, anti-EU case is that, instead, we need to leave to reinforce the market \”flexibilities\” and \”freedoms\” that have created such fantastic British success…….

So, let us just run through the facts which Willy offers us.

Rent seeking abounds. In a market, competitive, economy, those rent seeking are going bust.

Now let us see what Willy\’s solution is. In order to stop rent seeking we must abandon the market, competitive, economy which is making rent seekers go bust.

Could someone please tell me why this fuckwit gains an audience?

13 comments on “For Fuck\’s Sake Hutton, can\’t you even get the basic economics right?

  1. Can we put Will Hutton in charge of Man Utd?

    Seriously, though, the main flaw with this article is comparing Birmingham City with the Bundesliga. Birmingham City are not a premiership club and outside the Bundesliga, these structures don’t exist. It’s pretty much free market.

    But I have another question: which delivers the better football clubs. And the only real way to measure that is to look at who has won or reached the final of the EUFA Champions League. Since1990, Germany has had 6 finallists, England has had 9, and in recent years. So, in other words, the Premiership delivers better teams.

    The Premiership is a huge success, and is everything that free market capitalism should be: loaded with money, full of people wanting to invest in it and with a lot of the money flowing to the talent, and when compared with the rest of Europe, it delivers better (no other country has had as many finallists as England in the past decade).

    Unsurprisingly, a man with the business brain of Will Hutton thinks it doesn’t work though.

  2. “Could someone please tell me why this fuckwit gains an audience?”

    A question one could ask about so many – Ritchie being another case in point…

  3. It was reported in the Guardian on Thursday that Chelsea FC made their first profit in a decade- after Abramovich spent about a billion quid.

    Some rent seeking.

  4. In a sense Tim, he is right (and consistent with a view you have long expressed): professional football clubs (like any other commercial entities) only exist for the benefit of the customers – the fans. If there are no fans, there is no point wasting resources keeping the thing going.

    Where he is wrong is that he thinks the main priority for fans of major clubs is cheap seats. No, the main thing they want is a winning team. And that costs. And even with TV money, gate revenue is still significant.

    And from the perspective of a fan, the fact some rich dude with too much money wants to throw his own money at the club must seem like manna from heaven.

    If he (correctly) thinks professional football clubs are run for the benefit of the customers, would he apply this concept to the various organisations he has run over the years? Hertford College? LSE?

  5. Football can’t ever really be considered a proper market can it ? I mean are the Birmingham City fans ever going to think “Sod this pile of crap, I’ll go down the road and watch the Villa instead” ? Just doesn’t happen…the choice is binary – to watch (and spend cash) or not watch.

    The fact that Villa are slowly being mismanaged into the same situation as their neighbours, albeit in a slightly different fashion, doesn’t alter the point.

  6. >Could someone please tell me why this fuckwit gains an audience?

    Because there are a lot of fuckwits paying for seats in the stalls.

  7. He doesn’t even know that owning a football club has always been a rich person’s hobby…rather like building castles and follies etc. Very few people own football clubs to collect the ecnomic rent, simply because there is none to be had.

  8. 1) Reading the travails of Birmingham City it sounded more like asset stripping than rent-seeking.

    2) Elsewhere Will Hutton praises Germany for having 60% local players as opposed to the Premier League’s 40%. Always odd to hear the Observer suggesting that reducing immigration and providing fewer opportunities for players from the developing world is a good thing.

  9. As I posted over at Unenlightened Commentary:

    “Owning a football club is not an opportunity to seek rent but rather a rich man’s hobby which he may enjoy but won’t profit from.”

    Yes, but that’s not where the rents come in. The “club” as an entity separate from the players cannot make money.

    It is the football players themselves who collect the surplus profits.

    I explained this here:

    http://markwadsworth.blogspot.co.uk/2011/06/rules-of-football-2.html

  10. Presumably, in Ritchie’s view, a sector of the economy that has doubled its revenues in the last five years (despite the country’s economic woes) is not to be tolerated.

  11. The opinions of football-mad members of my family tend to the Hutton-view.The key to the entire scam is that the Premiership divvies out the television money £100 m per club per season. So the usual capitalist suspects buy into a Championship club, spend about £30 million on players to get promoted ,collect the TV divvy,then watch as the club goes down the Swanee,selling up before or after they get relegated, stripping out the best players for sale in the process.The name Blackpool always comes up in this argument though I have n’t the backgound to comment on this particular club .
    This would appear to be rent seeking to me but taking rent money off the Premiership.But not as bad in the rent-seeking stakes as the ownership of land by homeowners, developers and less directly banks, whose interest is served by restricting the supply of new housing.As this scam leaves manufacturers ,already at the price-setting mercy of supermarkets,short of investment funding and effective demand from customers bled dry by rents and mortgages,this blows out of the water the old romantic argument,that capitalism invariably ,magically, produces abundant cheap prices.NB Rent seeking adds nothing to demand only extracting from what demand the businesses who pay a lot of wages provide,(not enough to buy all they produce as Marx said re surplus value).
    BTW Radical liberals like Joseph Chamberlain saw all through this competitive private sector Whiggery in 1870.

  12. “the old romantic argument,that capitalism invariably ,magically, produces abundant cheap prices” -

    who exactly made this argument? Are you getting confused again between markets and capitalism?

  13. Hutton’s is right about leveraged buy-outs of football clubs – they are bad for football. If the football authorities were competent they would ban them, as they easily could. However, they are not common: Manchester United and Liverpool are the prominent victims, and in Liverpool’s case the buy-out went wrong because the new owners (Hicks and Gillett) couldn’t borrow as much as they hoped in the club’s name, and had to sell on.

    But I don’t see how Yeung’s ownership of Birmingham FC can be the result of a leveraged buyout, because reportedly its debts are almost entirely to him – where’s the leverage?

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