06/05/2010 - 00:00

Sports moves offer models for competition

06/05/2010 - 00:00

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How do we best ensure a level playing field ... in business as well as sport?

THE salary cap row engulfing rugby league team Melbourne Storm continues to intrigue me as an exercise in regulation versus market forces.

For those who were too busy working in their businesses to notice, the Storm was found to have been secretly paying its players more than they are allowed to under the code’s arrangement, which limits the cumulative total of player remuneration.

Salary caps and other controls in numerous sports exist to ensure that competition remains relatively close. In theory, it ensures that any particular club will be unable to retain too much talent and therefore be less likely to dominate on the sporting field – thereby giving other clubs the opportunity to purchase talent. The Storm case provides proof that this theory works in practice. Its cheating of the salary cap system delivered an enviable track record until it was caught.

This also keeps the price of players down by limiting the demand side. For some reason the players agree to this; perhaps they believe in the benefits to the game as a whole.

Other practices that have a similar impact are allowing poorly performing teams advantages in selecting young players, and restrictions on importing players from designated areas.

Why a talented junior or their parents would want to have their skills auctioned off to anyone but the highest bidder beats me. Again, they all clearly believe in the greater good.

Imagine if these rules existed in business? There would be uproar. Of course, we do have some variations in the concept. Award wages and enterprise agreements tend to even out salaries; education or licensing requirements create restrictions in some professions; blocks to mergers and acquisitions stop fast, inorganic growth; immigration rules limit workforce supply; and governments around the world are trying to place controls on executive pay and bonuses.

In general, most of these rules reflect ideology rather than sound practices that actually help the community. And most hinder competition rather than assisting it.

Of course, sports administrators will argue their rules help them develop the sport at the grassroots, both in terms of developing players and spectators of the future.

It always amazes me how any sports managed to become popular in the first place without administrators creating rules. Or should I say, without imposing their ideology.

An interesting counter to this is rugby union. Union has grown in leaps and bounds since it unshackled itself from the rules that banned professionalism – the ultimate salary cap of zero.

Another great example is the English Premier League, considered by many as the most elite annual sporting competition in the world.

The Premier League has no salary caps or draft picks. Its players are paid handsomely, with transfer fees having reached more than £30 million on more than one occasion.

This sport proves that, without administrative controls, the dominance of the competition by the stronger clubs is long term. The titleholders since the league was created in 1992 are just a handful of clubs. There is movement in these ranks but it is slow.

However, that domination has not hurt the popularity of the contest in terms of Premier League’s success. The league’s reach has expanded around the world and, as a result, its income has skyrocketed.

While the most successful club’s have benefited from this the most, like wealth in general, the smaller clubs have also benefitted.

However, even the Premier League has debates about restricting clubs’ ability to recruit players. A couple of years ago, the soccer authorities toyed with the idea of restricting foreign players in the league – mainly due to England’s lack of success on the international stage.

Rising numbers of foreign players (about 250 compared to 11 in 1992) was seen as choking off the development of English talent.

I sourced some numbers from the Times newspaper from the 2007-08 season when this subject became seriously talked about. They show each club’s English player representation in its starting sides for the season, compared to their finishing position on the ladder. In my view, there is not a high correlation between foreign players and ladder position – with Manchester United being the obvious example. This debate still rages in England.

Funnily enough, the same debate is taking place here in the largely amateur sport of hockey.

Western Australian hockey has long been the best club competition in the nation, which led to the Australian Institute of Sport locating that sport’s program here.

That has helped strengthen the competition here because the nation’s best young players not only come to WA, many end up permanently based here.

This has made Perth an attractive place for top players from elsewhere to come and play. Some are even paid to come and there is much speculation about the scale of funds used to recruit potentially dozens of players that come from overseas or interstate.

The influx of outsiders has become a big issue. The debate is around the sustainable nature of the costs involved, and, like the English Premier League, the perceived threat to the development of local players.

A counter view is that some clubs have been forced to recruit stars from elsewhere because the bigger local clubs have continually poached their promising juniors.

As a result, there is a move to restrict not just imported players but also the ability of clubs to steal talent from their competitors. At the moment, HockeyWA is examining a points system with a view to bringing it in next year.

Of course, a free-market person like I am finds it wonderful that a local competition could be recognised as world leading and attract players of significant talent. I wouldn’t want to tinker with that too much. New talent increases the attraction and quality of the sport, which in its own right should be a catalyst to creating great local players.

And success breeds success – as we see with the Enlish Premier League.

It easy to think that, once attained, success is some kind of formula that can be retained by judicious administration of the rules. The irony is that, careful examination reveals that the initial success was won in the absence of such rules.

Smoke and mirrors

CAN the release of a policy restricting cigarette pack advertising by a government, which is under pressure over its emissions trading scheme backflip, be called a smokescreen?

 

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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