Football as Economics

Columbian international, James Rodriguez was sold to AS Monaco in 2013 for 45 million Euros, but after his sparkling performance at the 2014 World Cup, just one year later, he is valued over 80 million Euros. Why? One of the foundational principles of economics is “demand” (“the desire for a particular good or service supported by the possession of the necessary means of exchange to effect ownership”) and “supply” (“the quantity of a good or service available for sale at any specified price”). In this case the good or service is the footballer; the demand is from the richest global football clubs including Real Madrid and Manchester United; and the supplier is AS Monaco, the player’s owner. Once the “price” (“what must be given in exchange for something expressed usually in terms of a quantity of money per unit of a commodity”) Real Madrid is willing to pay reaches a level acceptable to the supplier, a sale is feasible. Why is Real Madrid willing to pay such a high price for Rodrguez? That would have something to do with “value”-the worth of something to its owner comprised of either “value in use” (“the pleasure a commodity actually generates for its owner-excellent performances on the football pitch and commercial endorsements and other value-added transactions) or “value in exchange” (“the quantity of other commodities, usually money a commodity can be swapped for”- now said to be approximately 88million Euros, and may be expected to rise further if he continues his excellent form). In effect Rodriguez is similar to a security listed on a stock exchange (“a market in which securities are bought and sold” and even though unlike shares he can’t be physically divided into smaller units (!) (some footballers are indeed fractionally owned by multiple owners-recall the controversy over the ownership of Carlos Tevez and Javier Mascherano years back!), Rodriguez’ current sale and the previous transfer from Porto were “secondary market” transactions (“a market in which assets are resold and purchased, as distinct from a primary market in which assets are sold for the first time”). The primary market would typically be when a young player is sold for the first time, usually by his parents or a football academy! So players are “assets” (a business accounting term, representing items on the “balance sheet” of a company, owned by the company and with a monetary value”); while footballers are “current assets” which the business can readily convert to cash by selling or loaning them out, clubs also have “fixed assets”-stadia, land, buildings etc. as well as “intangible assets” including goodwill and patents. The clubs finance fixed, current and other assets through “liabilities” (“sums of money for which account has to be made such as bank loans, overdrafts and short term debts”) and “equity” (“the residual value of a company’s assets after all outside liabilities (other than to shareholders) have been allowed for”). The balance sheet is thus “a statement of the wealth of a business, other organization or individual on a given date”, containing a listing and value of its assets, liabilities and owners’ equity. Whenever teams have invested huge resources on fixed assets, their ability to buy expensive players may be constrained (example Arsenal) until liabilities are reduced, except if like Chelsea, PSG or Manchester City, owners can pump in fresh equity or related party loans to finance acquisitions. Arsene Wenger, being a good economist has simply acted rationally in his conservative procurement strategy over the last few years! And that brings us to “scarcity” and “choice”-the needs and wants of individuals, groups, firms (and football clubs!!!) exceed the resources available to satisfy them hence choices have to be made. The price mechanism (or socialism or other central distribution system, in football say in an amateur football league) helps to determine the distribution of scarce resources. It is because of scarcity, choice and the price mechanism that James Rodriguez is not going to Newcastle United or Athletic Bilbao, but to Real Madrid, the most prestigious global football club, with resources to purchase him at the post-World Cup valuation! Even if Newcastle could in theory muster resources to pay for Rodriguez, and he was willing to forgo the prestige of joining Madrid, a smaller team will have to consider the “opportunity cost” (“the value of that which must be given up to acquire or achieve something”) of expending all their resources on one “asset” with the “risk” (“a state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them” as opposed to “uncertainty” in which the probabilities are unknown) of “impairment” through injury, cultural maladjustments, poor relations with team mates or coach or death!) when a “cost-benefit analysis” may suggest better value in buying six or seven very good players with such funds. The football “market” (“a market is created whenever potential sellers of a good or service are brought into contact with potential buyers and a means of exchange is available”) is affected by “globalization” (“geographical shifts in domestic economic activity around the world and away from nation states” or “the geographic dispersion of industrial and service activities and the cross-border networking of companies”) so players are sold across national borders with sports thus becoming an increasingly important component of “international trade” (“the exchange of goods and services between one country and another, which arises because of differences in relative costs of production between countries, and because it increases the economic welfare of each country by widening the range of goods and services available for consumption”)-the English Premier League for instance buys highly-skilled players from West Africa, South America and Continental Europe enriching everyone in the process! Like other economic activities, football leverages the four “factors of production”-land, labour, capital and entrepreneurship and where those factors are distorted (such as through age cheating, corruption, inadequate training and facilities, ineffective regulation or undue government control), the market may not attain its full potential! The market is highly developed and competitive though some may argue that the Spanish Liga resembles de facto “duopoly” (“two sellers only of a good or service in a market”) of Real Madrid and Barcelona until Atletico Madrid broke in this year; the English Premiership is an “oligopoly” (“a market which is dominated by a few large suppliers”) of Manchester United, Chelsea, Manchester City, Arsenal and Liverpool, while the German Bundesliga looks like a Bayern Munich “monopoly” (“a market in which there is only one supplier”), but that characterization may not be wholly accurate since all clubs actively sell or buy players even though the dominant teams tend to buy the most expensive items! *Note*All definitions are from The Economist’s Dictionary of Economics.

Football and Global Geo-Politics

I have always believed that strategic minded people can learn a lot from football, and I have previously written a two-part serial “Strategy Lessons from Football” on these pages. That series was later converted into a Business Strategy Technical Note which I used to teach business school classes and executive sessions. In recent years, I have seen further applications of football and sports generally, in economics and the just concluded World Cup has provided interesting insights in global geo-politics which I propose to examine in this article. My hypothesis is that the World Cup and indeed the overall structure of global football mirrors, explains and perhaps also predicts developments in international politics, economics and geopolitical strategy. The structure of global power is well known- Africa is marginal, a provider of raw materials and consumer of global products and technology. Africa’s resources are transferred unprocessed and in crude form to the developed economies and the continent has yet to find a successful, sustainable model for managing itself and transforming the lives of its people and nations. In spite of raw talent and abundant population, Africa sub-optimises. The West, essentially Europe and North America sit at the other extreme of the global power spectrum-dominant and imperial! With arguably lower pools of resources and talents, OECD nations deploy strategy, management, knowledge and technology, as well as an unemotional (you could say Machiavellian, but effective!) deployment of geo-strategic foresight to dominate Africa and the rest of the world. The West has exploited Africa through the ages–slave trade, colonialism, neo-colonialism, the structure of global trade, information and resource flows, and power projection to ensure that it always wins. South America is better than Africa- it has similar resources and human endowments as well as incredible talent, but suffers from the same inferiority complex in relations with the West, and like Africa, it never quite optimises its potential, perpetually missing the goal of global political and economic self-sustainability and leadership. Brazil, Argentina, Mexico, Columbia, Chile, Jamaica, Uruguay are permanently “countries of the future” in global development lexicon, always threatening to catch up and overtake the West, but never quite doing so! Asia is catching up with the West, but hasn’t yet quite turned global leadership or dominance into a habit. Singapore is prosperous, but too small to affect global politics; Japan is strong, but also simultaneously somehow weak and never quite there; ditto South-Korea-successful, but not quite important?; China in spite of newfound global economic power, is still ruled by a communist system that constrains the creativity and self-expression of its over one billion people, except in commerce and manufacturing; India is a growing global economy with a huge population, but culturally inward- looking and isolated… and the Arab world is pre-occupied with religion and conflict, and most of its human potential is repressed and denied opportunity by dictators, tyrants and mullahs! Didn’t the recent 2014 World Cup in Brazil display all of these global geopolitical stereo types? Africa sent five hugely talented teams to the contest- Nigeria, Ghana, Cote d’Ivoire, Cameroun and Algeria. The West Africans dominated the African contingent as Arab North Africa was engulfed in crisis and turmoil… in Egypt, Libya, Sudan while Algeria and Tunisia are just stabilising. The Middle East nations, minus the emerging Persian power, Iran whose pursuit of nuclear power in military geo-strategy mirrors the good account it gave of itself at the tournament, were absent! The South Koreans were enthusiastic and fast, but ultimately fizzled out, as did Japan. As for the African teams, not one fulfilled their early potential – Cote d’Ivoire’s largely talented team collapsed due to a lack of character and unity; Cameroun displayed gross indiscipline and lack of commitment; Ghana in spite of large talents and elaborate showmanship did not go beyond the first round; and both Nigeria and Algeria who did, duly slipped out without much ado in the second. The African teams, just like their countries self-destructed due to corruption, greed, lack of vision, commitment and ambition, weak technological capacity, and poor leadership! And most of the African teams, just like the raw materials and primary products we send into global markets, were made up of players playing mostly in Europe! Then let’s contrast South/Central America with Europe. South /Central America provided 7 out the 16 nations that qualified for the second round – Brazil, Mexico, Argentina, Chile, Costa Rica, Uruguay and Columbia, while Europe contributed six – Netherlands, Germany, Belgium, Greece, France and Switzerland. However, by the quarter finals, the arguably less-talented, but more technically-disciplined Europeans matched the more skilfully-endowed Latin Americans with four teams each. Further consider the four nations that got through to the semi-finals–powerful Germany, the de facto leader of Europe; Brazil the “B” in BRICS and an emerging economic super-power; Brazil’s neighbour and competitor, Argentina whose team included no black man, reflecting its historical effort to wipe out negroes from its history and consciousness; and Netherlands, a peaceful and prosperous European nation with very high standards of living. The display of German efficiency, precision and ruthlessness as they demolished Brazil 7-1 was typical of the “German Machine” and European superiority based on research and strategy, detailed planning and technical depth and industry; Brazil’s collapse was symptomatic of South American uncontrolled passion as emotional desire to win was not combined with tactical discipline and organisation resulting in erratic individualism and ultimately an unmitigated disaster. It is of course consistent with the geo-political dimensions of global football that it was Angela Merkel’s Germany, rather than Cristina de Kirchner’s Argentina that prevailed in the final, exploiting a 113rd minute lapse in Argentine concentration in a game the South Americans should have won in the first half. The Germans were true to geo-strategic form-compact, efficient, focused determined… and victorious. And now that America has realised the importance of football in projecting global power, we can expect intensified Yankee efforts to dominate the sport! And then you can expect the Chinese to follow suit!!!

Understanding Ekiti

I like Governor Kayode Fayemi. I think he’s a good man who is in politics with the right preparation and for the right reasons, and I respect his intellect and role in NADECO. I consider him a candidate for socio-political leadership in Western Nigeria and I do not think that his public life is over, especially if he sticks to his inclination to be graceful in defeat and to rise above hurt and disappointment arising from his loss to Ayo Fayose in the Ekiti elections. Unlike many in his party however, I am not very surprised at the outcome. As the elections approached, my informal survey of sources in Ekiti (and I do have several!) yielded surprising outcomes-a large number of politicians in Ekiti are NOT in the ACN/APC, the result of several migrations over time particularly under former Governor Niyi Adebayo, the primaries that selected Fayemi and the exit of Opeyemi Bamidele; APC’s edge didn’t derive from the political class, but ordinary people due to the hang-over of its perceived affiliation with Awolowo’s legacy; given its support base, the party was particularly vulnerable if it alienated itself from the “masses”; many politicians who had left AD/ACN/APC were bitter, with several accusing the group of institutionalizing nepotism and occultism in the state’s politics; many Ekitis had concluded, rightly or otherwise that they were marginalized due to governance by “imported” politicians-Niyi Adebayo (from Lagos!) and Fayemi (from Ghana!!!). Many suggested it would be difficult for Fayemi to win re-election even though initially (before the PDP primaries) names like Dayo Adeyeye and Senator Ayo Arise appeared favourites. This was in spite of Governor Fayemi having governed fairly creditably-I carried out an empirical evaluation based on research and objective cross-cutting criteria on behalf of a socio-political group in the region that confirmed an above-average performance. However voters are not analysts and take “cultural” and emotive factors into account-the power mongering of some of Fayemi’s appointees; open exercise of political power by his wife; popular disaffection with his mentor, Niyi Adebayo; execution of most contracts by contractors from Lagos; the governor’s aloof and “elitist” disposition; alienation of students, workers and teachers; and overall a perception that the government is not aligned with their needs and priorities. They may also have recoiled from a perception, probably wrongly of excessive control from the APC leader, Bola Tinubu who compounded matters by insulting Yoruba Obas. I think the governor also made a severe misjudgment in deploying violence against opponents as the elections drew nearer and the scale of the challenge clearer. Ekiti people are stubborn (I know (!); they are my in-laws!) and would never be intimidated into submission. And then there were macro factors, principally around the APC, its national leadership and political direction. I mentioned earlier that the APC franchise in Ekiti does not derive from the political elite, who are almost equally divided between APC and PDP (and to some extent, Labour), but from its positioning as party of “mekunu” and perceived progeny of Awolowo progressive politics. I suspect Ekiti voters needed to be re-convinced that beyond rhetoric, that progressive disposition remains! I also doubt that Ekiti voters and the wider Yoruba electorate are persuaded of the merits of the de facto alliance with the Fulani aristocracy, which appears to have a dual purpose-restoring Fulani political hegemony and making the APC leaders minority shareholders in national power and resources. It is not evident to Western Nigerian voters that the alliance was concocted on the basis of their interests! These reservations may have been further accentuated by the menace of “Boko Haram” and perceptions that it represents a Northern Muslim strategy to intimidate the country into handing power back! I am a student of strategy whose process can be broken into three simple parts-ascertaining your current state; determining your desired future position; and creating (and executing) a pathway from current state to desired future. Communication is very important in convincing stakeholders on the need for change and the vision, strategy and strategic intent. However all strategy fails if assessment of current status is faulty, and if propaganda, complacency, prejudice, self-interest, over-confidence, arrogance, hubris or sycophancy distorts the strategists’ view of reality! Propaganda is better deployed to aid strategy realization based on an accurate depiction of reality. In my view it is simplistic and counter-productive to insult Ekiti people as having voted on the basis of bags of rice. Yoruba are proud and independent-minded people! If they were inclined to voting on the basis of cheap inducements, they wouldn’t have resisted the NPC/”Demo” alliance in the first republic; or the NPN’s vastly larger war chest in the second! Did the ACN win back the region through bribery in 2011? Didn’t Obasanjo’s PDP have the larger financial resources to outbid the opposition? The Yoruba eat the food of those they love, and when they don’t like you they may take your money, eat your food and snigger behind your back! No politician spent more money than MKO Abiola in the 1979 effort to make his wife, Simbiat an NPN Senator in Abeokuta; she lost her deposit! When he came back in 1993 as a presidential candidate having realigned with the people, they voted overwhelmingly for him! The APC was vulnerable in Ekiti; a popular, populist, rabble rouser was available to exploit those vulnerabilities! The APC is actually lucky that it has advance notice that it may be out of sync with voters in an area it presumes to be in its pocket. If the party does not use the notice period wisely, it may have to invent more creative explanations than “stomach infrastructure” in 2015! Opeyemi Agbaje

Letter from Cambridge

I left Lagos on a Virgin Atlantic flight on Friday June 27th. My wife had left the previous morning. I was seated in “premium economy”-the section on Virgin flights where those who would like to fly upper class but can’t afford it are! I have long stopped regarding flying in business class as luxury-it is virtually a necessity especially on trans-Atlantic flights given my work schedule, stress levels and the acute inconvenience sitting in economy has become. I fly business whenever I can afford it, when the trip is business-related (and invariably paid for) or when I’m just too tired to absorb the squeeze of economy. This time I don’t feel rich enough so I go premium economy. An airline official politely informs me she will like to change my seat in order to seat a family together. I consent and move my belongings to the re-assigned seat where I happen to be next to Senior Toye! At Igbobi College once a senior, always a senior(!) even though he was just one year ahead of me more than thirty years ago! When I look back at the seat I left however I find two white men! Were they a family (these days, two 45 year old British men can be a couple!!!) or did the airline play a fast one on me? The young, male, black, air “hostess” is obviously gay and since my friend is wearing a pink shirt, he gets a lot of attention from the steward! I put reflections on the “progress” of western civilization out of my mind and concentrate on the book I’m reading-“Slavery, Terrorism and Islam” by Peter Hammond, and occasional conversation with my neighbor. We duly arrive Heathrow and I refocus on my mission to England. It was a nice and comfortable flight and I make a mental note to fly Virgin Atlantic more often. I had decided to go to Cambridge by coach. My daughter has been at the University of Cambridge for the last three years and is graduating the day after my arrival. She has been a remarkable student-Nigeria’s best student in WAEC School Certificate Examinations in 2009 with straight As in all eight subjects offered; prize winner during her a-levels at probably Britain’s best girls school, Wycombe Abbey; and admission to read law at the venerable Cambridge University. Her graduation is an epoch for our family and we are proud, but most importantly grateful to the one who made it all possible, the Almighty Father. I’m additionally happy because those fees are over for now, at least in respect of Simisola! The coach ride to Cambridge is three hours long, but pleasant. I take note of the towns and villages we pass along the way. I wanted this “last” journey to Cambridge by coach precisely for that purpose. My most memorable trip to America has been the 14 hour drive from New York to Chicago with my elder brother years ago. I arrive Cambridge at night and I join my wife at the local Holiday Inn. Soon my two UK-based daughters join us and we have a family dinner before the graduand leaves for her Cambridge Hall for the last night of her undergraduate years. That night I reflect on the pleasurable coach ride from Heathrow to Cambridge and the 14 hour drive through five US states and wonder why we can’t do the same on Nigerian roads? Why were the roads good throughout the trip? How come we didn’t come across any police checkpoints? Or local government revenue collectors, armed robbers or vast traffic hold-ups? Why can’t we organize our country and our lives in Nigeria and Africa? And why do we have to spend so much money sending our children to school in other countries? I fell asleep very happy at the grace of God upon my family, but wondering why our country has so spectacularly frittered away God’s abundant grace upon our land? And reflecting on God’s scattering of those building the Tower of Babel-Does God by any chance regard Nigeria as a similar tower of man’s vanity? The next morning we join the procession into the Senate Hall at Cambridge, everyone displaying their invitation cards before admittance. Four colleges are graduating students that morning and we are lucky my daughter’s college, Fitzwilliam is going first. I am shocked to find out that we are the only black family in the hall and we are conspicuous in our difference! Simisola is the only black or African of the 150 or so students graduating from Fitzwilliam College and she estimates that perhaps one percent of Cambridge students are black! There are numerous Chinese, Indians, Asians, Jews, Americans and Europeans, but only one African! I have a similar experience when I attend the annual Strategic Management Society meetings in Europe or America-only 3% of attendees are from Africa! I am reminded that Africa is not sufficiently generating the quality of knowledge required to transform the continent, and may be peripheral in global thinking for another fifty years! The ceremony itself is short, but full of history and tradition-students come out in groups of four so that each can hold a finger of the College Praelector, Professor Sir Anthony Bottoms; each student steps forward, bows and kneels before the College Master, Nicola Padfield; who recites a short sentence in Latin admitting the graduate to degrees; and receives the certificate from a nearby official. Each graduate performs this ritual and the ceremony is over-no speeches! We take photographs outside on the lawn and then proceed to Fitzwilliam College grounds for lunch. My younger daughter is passing out from her a-levels studies about twelve days later, so it makes sense to take a family holiday in Paris before returning to Winchester for Fiayo’s school leaving! Unfortunately my son, Tofi misses out-he’s in university in the US taking summer courses.