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Too big to go down? A study comparing the price inflation of Premier League football players with the characteristics of economic bubbles

Tierney, Martin (2020) Too big to go down? A study comparing the price inflation of Premier League football players with the characteristics of economic bubbles. Masters thesis, Dublin, National College of Ireland.

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Abstract

The prices paid for footballers has increased significantly since the English Premier League began in 1992. This paper aims to test whether the money involved in transferring a player into a Premier League club is not justified by normal economic forces and instead has some of the same characteristics often seen in economic bubbles. While this idea has been put forward in journalism, it has yet to be proven in academic writing. A thorough literature review provides an explanation of the characteristics derived from several different sources. These are;

• A hyperbolic rise in the price of the commodity.
Accompanied by one or more of the following
• A higher volume of trading.
• Irrational traders.
• A positive feedback mechanism helping to drive up the price.
Based on the above, four well defined tests are identified to see if each characteristic is present in the market;

• For the price increase, Premier League club’s spending is compared over time against other comparative leagues.
• To check if there is a higher volume of trading, the quantity of players transferred in and out of Premier League clubs is presented.
• Testing to see if clubs are irrational traders relied on the vast experience of the qualitative sources.
• For the final test, TV broadcasting revenue is proposed as the positive feedback mechanism driving up the price of transfers. This is tested using correlation and supported by the views of the qualitative sources.

The findings are firstly that a price increase is clear, most strikingly from 2012 on. Secondly, there was no evidence of a higher volume of trading among Premier League clubs. Thirdly, it was established that while clubs may want to be rational traders, a combination of outside influences; namely supporters, agents and managers lead them to act irrationally. Finally, it is found that money received for TV broadcasting rights has a positive correlation with the increase in transfer fees and therefore could be seen to be the feedback mechanism that is helping to drive up the price. The discussion centres on how the rise in broadcasting rights and transfer fees has increased the economic disparity between the big clubs and the rest of the league. Finally, the conclusion of this research declares that with three out of the four characteristics present, it can be said that the transfer market for Premier League footballers has some of the characteristics seen in economic bubbles.

Item Type: Thesis (Masters)
Subjects: G Geography. Anthropology. Recreation > GV Recreation Leisure > Sports > Soccer
H Social Sciences > HB Economic Theory > Business Cycles. Economic Fluctuations
H Social Sciences > Economics
Divisions: School of Business > Master of Science in International Business
Depositing User: Dan English
Date Deposited: 15 Feb 2021 13:02
Last Modified: 15 Feb 2021 13:02
URI: http://norma.ncirl.ie/id/eprint/4752

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