Talent Management: How the Tullock Framework is Applied to Models of Team Sports Leagues - Literature review Example

 The key theorists in the field of economics have formulated various theories based on which certain models of managing sports events and tournaments have been created in the realm of sports economics. H. Dietl is a key theorist in this field, who has compared various models of team game tournaments including the contest theory model (Dietl, Franck and Lang, 2008). Such models are rife in the football industry, which are both instrumental in creating a competitive environment. However, the contest theory appears to be highly contextual, since it considers the concept of competition from both the perspectives of performance on the pitch (i.e., performance of a football team on the football ground during a match) and economic performances of the club managing the team and the tournament as a whole. In order to evaluate the significance of contest theory, Dietl et al (2009, p. 1) can be quoted from Working Paper No. 105: Contest Theory and Its Applications in Sports as follows: “This paper outlines how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function.” In furtherance to the discussion, the research team writes that “Competition in the form of contests, however, is not limited to the world of business. Contests can be observed in all fields of social life … A further, and perhaps the most obvious, application of contests is sports. Not surprisingly, the contest aspect of sport has attracted considerable attention in the recent sports economics literature” (Dietl et al, 2009, p. 23). Hence, competitive environment is essential not only for the success of a team but also for the success of a tournament. However, competition is hampered if lots of talented players folk in the same team. This team becomes too powerful in the tournament, and hence competition is destroyed. If there are no wage caps, rich teams continue to hire talented players with very high bets which have a negative impact on the professional nature of sports and establish rich sports clubs as sporting superpowers even without much significant contribution to the sport itself. (Kesenne, 2000; Harding, 1991) Consequently, home-grown talents start fleeing their original clubs to the richer clubs once they earn name and fame. Efficiency wage models suggested by Akerlof and Yellen (1986) can help to explain such behaviours. Akerlof’s (1986) theory of treating labour contracts as partial gift exchanges is practically implemental to today’s football industry, since footballers have also become subject to hire and fire policies of the clubs owing to high commercialisation of professional football. After analysing the English Premier League from the perspective of market economy in terms of revenue and wage spending issues, Carmichael, McHale and Thomas (2011, p. 464) write: “Our analysis indicates that on-field success can be directly related to players’ skills and abilities and that revenue is positively related to on-field success. Wage expenditure is also shown to systematically reflect player skills and performances. One interpretation of this evidence is that investment in players’ skills and ability buys on-field success, with richer teams becoming ever richer and able to maintain or even build upon success by spending more on players than less successful clubs.” To the degree that the richer, powerful clubs are triumphant in their aim there is a fundamental link between the revenue earned and the competition-imbalance created by means of investments in talented players. Therefore, if wage caps are implemented, migration of talented players to the richer and more powerful clubs can be prevented. Thus, less powerful and affluent regional clubs will have an opportunity to retain the talents they have found and groomed. This will make the talented players behave professionally and the excessive tendency to bargain will be curbed. Contextually, reflecting on the theories of Arkelof, Frost and Schuwalow (2010, p. 12) write: “In industries where the distribution of skill creates a heterogeneous workforce, it will be in the interests of employers to pay ‘efficiency wages’ that divide workers into ‘primary markets’ – in which workers are paid above the market-clearing wage – and ‘secondary markets’ – in which workers are paid the market-clearing wage. This will improve productivity by increasing incentives to work, reducing costly labour turnover, increasing the quality of job applicants, and creating norms of ‘gifts’ of higher quality work being exchanged for ‘gifts’ of higher wages.” Hence, advocacy of efficient fair distribution by Brams and King (2005) can be highly appreciated in understanding the importance of wage caps to retain the home-grown talents, foster professional ethics like loyalty and increase competition. Without wage caps, talented players keep migrating to the clubs that pay them more. Therefore, there is an unhealthy competition between the clubs to attract talented players with the help of very high salaries. The clubs which are not so rich often nurture talent by training the inexperienced newcomers. But when they become powerful and their talent is recognised, they migrate to higher paying clubs. Naturally, if there are wage caps, these tendencies will be controlled and home-grown talents will be largely retained. Researches of the theorists like Brams and King (2005), Akerlof (1986), etc. also suggest the same. Increasing fair play and loyalty on the part of the home-grown talents can be achieved by wage caps and such ethical practices are highly helpful towards wholesome social welfare through sports (Dietl, Lang and Rathke, 2009). Role of Talent Management in Football Human resource management is a key area of the modern industry and commerce. Managing the human capital of an organisation is what we need most to harness better performance because organisations cannot work without people and people cannot work without proper training and management. And the employees who are talented need special attention so that they may not leave the organisation, abuse their abilities or indulge in unethical behaviour. Hence there is the necessity of managing talents. In athletics, talent management is even more important. The sports departments play a very important role in this sphere. “These departments spend inordinate amounts of money and effort to hire the best coaches, recruit outstanding athletic talent, and groom that talent into winning teams … The emphasis on human resource management is first driven by the financial imperatives of business enterprises.” (Chelladurai, 2006, p. xiii) In this way, talent management emerges as an integral part of a materialistic human resource planning scheme in any industry and any field (Schutz and Carpenter, 2008). In football, powerful teams often make the competition uneven. “Uneven competitions create dominant teams that maintain high standards of play and create incentives for fans of other teams to dream of beating them.” (Frost and Schuwalow, 2010, p. 13) Talent management can considerably change the game, because proper talent management schemes can help even the weaker clubs to beat the powerful teams by synchronising home-grown talents. Apparently, this may inspire the regional players to become hard and fast region, club and city loyalists, but in the long run, they can serve as a large talent pool in selecting the national teams for the prestigious tournaments like FIFA World Cup or Olympiad. Hence, business strategies in football must essentially involve clever talent management because ultimately the difference between the winner and the looser is determined by planning and vision (Szymanski and Kuypers, 1999) Moreover, talent management can help the footballers a lot when they face severe criticism and continuous defeats. In fact, competition is extremely high in modern football, particularly at the club levels. “The bitter rivalry between the Geelong and Barwon football clubs in the late 1870s” (Pennings and Rudell, 2008, p. 41) remain a classic example of pressure to over-perform due to fierce competition. In such scenarios, interventions like counselling, regular physical exercise, inspirational speeches, etc. can help the footballers a lot. These are instrumental in the context of the psycho-social aspects of talent management. Economic aspects of talent management involve instruments for financial control like wage cap. Otherwise, high expectations, mental pressure and greed of money can lead to destructive practices like doping, sex abuse and bribery (Eber and Thepot, 2001). Analysing the excess of talent hunt in English Premier League (EPL), McNamara, Pek and Sasson (2011) have used the term winners curse: “In essence the ‘winners curse’ refers to the likelihood that, in a competitive bidding situation, the club that ‘wins the war’ to sign a highly talented player will almost certainly have paid more than the productivity it will be able to extract from that ‘asset’, and that it is the selling club that appropriates positive financial value from the deal.” Proper talent management can impart stability to the economic and mental situation of the professionals and inspire ethical conduct (Schutz and Carpenter, 2008). In football, “Stability enables the creation of firm specific talent whereby team members come to understand the talents of each other, while their repeated interactions over time enable them to become quicker in reacting to unexpected events in a coordinated manner and more fluid in implementing group activities.” (McNamara, Pek and Sasson 2011) Impact of Wage Caps within Sport Football is perhaps the most popular game in the world and in UK it often turns into a craze. Business establishments naturally attempt to make profits from this situation. Consequently, the utilisation of intangible asset accounting and assorting discretionary accounting policies in football industry deserves special attention in a setting where flexible choices are available in recording the transfer fees involving talent hunt and related corruption. “Additionally, companies in this dynamic and socially influential industry are unique in recognising investments in human resources on the balance sheet. Proxies representing the level of tax costs, equity depletion, underwriter pressure and auditors used are found to have significant associations with policy selection.” (Rowbottom, 2002, p. 335) These problems are not only typical to UK football but also plague the various sports industries all over the world. In absence of financial regulations, profiteering becomes rife in the sports industry. This tendency leads to risky fiscal behaviours. The players are treated as almost auction items, and the brokers start bidding for the most talented players. This not only triggers off migration of the talented players from one club to another, but also gives way to monetary irregularities. For example, there may be undercover negotiations or violation of immigration rules for inducting foreigners. The process culminates at destructive competition when the clubs start “bidding till bankrupt” (Whitney, 1993, p. 100) to attract the famous players. Vrooman (2009) believes that such risky fiscal conduct is contrary to the ideals of fair play which does not allow monopoly. Hence, competition laws have been formulated so that sports clubs may neither indulge in monopolistic exploitation nor attempt to acquire skilled players by unfair means (Ross, 2003). Wage caps provide such a legal mechanism inside the framework of enforcing competition laws. Wage caps help in enforcing ethical conduct in business and in the commercial environments like English football industry, they can help to foster social welfare by protecting the clubs that are financially weak and thus create more opportunities for the novice and inexperienced players (Dietl, Lang and Rathke, 2009). If we explore the impact of wage caps further, we can examine numerous examples from the different continents. In USA, introduction of wage caps in the National Football League (NFL) brought about positive changes. Several high-salaried senior players were released to other teams as there performance started to decline due to age; while certain teams started to use free agents to bring in better personnel more suitable to the their specific needs (Larsen, Fenn and Spenner, 2006). Introduction of wage caps in National Hockey League (NHL) was highly instrumental in resolving several disputes including currency problems and international hiring in US and Canadian hockey industries. National Basketball Association (NBA) of USA harnessed new opportunities for the inexperienced players by restraining the hunt for famous players by the clubs by offering very high amounts of money. NBA too imposed wage caps in doing this. (Vrooman, 2000) By imposing wage caps through competition laws, Australian football was also benefited by preventing monopoly and creating opportunities for the home-grown talents. Laws like Coutler Law helped the authorities to modernise Australian football. Stewart, Nicholson and Dickson (2005, p. 95) think that such arrangements including wage caps and even-handed transfer rules immensely helped in “Australian Football League’s recent progress”. In the 1990s, NHL in USA did not have wage caps which caused considerable losses to the league due to the pressure of very high salaries for the famous players. Its Russian counterpart, the Kontinental Hockey League (KHL), did not do this mistake and enforced wage caps right from its inception in 2008. Today, even though both NHL and KHL have wage caps, KHL has rapidly progressed to a level wherefrom it is challenging NHL and attempting to mould the international transfer rules in its favour. This proves that proper competition laws can help even new sports leagues to compete with the established ones. (Appel, 2011) Enforcement of Wage Caps and UK Football Critics of wage cap hold that this is contradictory to the system of market economy. According to them, if more powerful clubs can infuse more competition among the footballers and attract their huge fan following by winning large number of matches comfortably, there is nothing wrong from the perspective of globalisation and capitalist democracy. (Kuper and Szymanski, 2009) Yet, majority of experts (e.g. Dietl, Lang and Rathke, 2009) hold that the overall effect of wage caps in sports is highly beneficial. It helps the new players to find out better opportunities since the clubs are forced to distribute talents and stop alluring the talented players with very high salaries. It prevents the players from becoming almost items for auction. Moreover, wealthy clubs are able to form the best teams when no wage caps are there. This makes the tournaments predictable and wealthier teams invariably defeat the financially inferior ones. This is dangerous since predictability destroys excitement and the spectators may be bored. However, if a wealthy club has a large fan following, its continuously winning streak may attract several spectators and increase sale of tickets among them. But even in such circumstances, social biases are made stronger due to continuous disappointment of the financially weaker clubs. If wage caps are enforced, wealthy clubs will be forced to hire at least a few newcomers and lots of financially weak clubs are able to retain their home-grown talents and put up considerable competition. Consequently, bargaining, undercover deals, unfair rivalry, excessive betting and deterioration of professional ethics are prevented. (Frost and Schuwalow, 2010; Dietl, Lang and Rathke, 2009; Whitney, 1993) In UK, the authorities are seriously reflecting on enforcing wage cap. The English Premier League is at prime focus in this context, since this national level league of the country is highly instrumental in providing direction to the football industry of not only UK and British Commonwealth but also the whole world. According to the Football Association, wage caps can be helpful in improving the standards of UK football and help both the players and the clubs. The Football Association (2012) holds that “this will help spread the talent pool and also ensure there is a core group of players at each club in the tier below that will still be able to earn a wage playing and working for that club”. The Association will review the wage cap annually, and make sure that it is set at justified levels. Earlier, the clubs in UK have opted to introduce new-fangled regulations on the football finances that will govern the limits of club spending and the players’ salaries. By 2015/16 season, British clubs are likely to face sanctions in the condition they bring upon themselves over £2 million in losses throughout the different competitions after considering their investments in certain social areas such as grooming talent and youth development. In this way, introduction of wage cap in UK football can have a very positive social impact. As far as the professional impact is concerned, wage cap will facilitate talent management and reduce pressure on the players by eliminating unfair competition from the disparately powerful clubs with high financial capabilities. (Jones, 2011; McNamara, Pek and Sasson, 2011; Dietl, Lang and Rathke, 2009) Reference List Akerlof, G. A. (1986), Labor Contracts as Partial Gift Exchange. In G. A. Akerlof & J. L. Yellen (ed.), Efficieny Wage Models and the Labor Market (pp. 66-92), Cambridge: Cambridge University Press. Akerlof, G. A. & Yellen, J. L. (1986), Introduction. In G. A. Akerlof & J. L. 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Available: http://www.thefa.com/Leagues/SuperLeague/NewsAndFeatures/2010/~/media/Files/PDF/Leagues/Womens%20Super%20League/TheFAWSLQA1210.ashx/TheFAWSLQA1210.pdf. Last accessed on 2nd May, 2012. Vrooman, J. (2000), The economics of American sports leagues. Scottish Journal of Political Economy, 47, pp. 364-98. Vrooman, J. (2009), Theory of the perfect game: competitive balance and monopoly sports leagues. Review of Industrial Organization, 34, pp. 5-44. Whitney, J. (1993) Bidding till bankrupt: destructive competition in professional team sports. Economic Inquiry, 31, pp. 100-15. Read More