Liverpool and Spurs fans learn a hard lesson in basic economics

Despite all the talk of supporters being gouged over travel costs, this is the way markets work

For supporters of Liverpool, Spurs, Arsenal and Chelsea it has been quite a week. First they had the joy of seeing their teams get through to the finals of Europe’s two cup competitions: the only time there has been a clean sweep by English clubs. After the euphoria, though, came a hard lesson in basic economics.

As the final whistle blew at Anfield, following Liverpool’s amazing comeback against Barcelona, anyone logging on to airline websites found the price of a ticket to Madrid – where the final of the Champions League will be held – had rocketed to more than £700 on the weekend of the match. When Spurs scored a last-minute winner against Ajax to join Liverpool in the final, prices rose again and not just for direct flights to Madrid but for alternative routes as well.

The price of accommodation in the Spanish capital also rocketed. Hotels jacked up their prices, as did those who let out their properties on Airbnb. The going rate for a two-night stay in a flat in Madrid over the Champions League final weekend is more than £1,000.

Despite all the talk of supporters being gouged, this is the way markets work. There are a limited number of places to stay in Madrid and on May 31 and June 1, there will be a lot more people in need of them. If supply remains constant and demand goes up, then prices will rise.

Liverpool and Spurs supporters had a choice. They could have decided the prices of airline tickets and accommodation were too high and refused to pay them. In those circumstances, prices would have come down. Instead, they paid up, fearing delay would only mean paying more later.

If it is any comfort to football fans as they contemplate receiving whopping credit card bills, there are some less painful economic lessons from this year’s Champions League.

The first is that management matters. Studies of UK productivity have shown there are vast differences between firms. Those that export perform more strongly than those that are purely domestically focused. In addition, those that are foreign-owned and managed do better than those run by Britons. In this light, it is significant that all four of the English clubs in this year’s finals have foreign coaches: Jürgen Klopp at Liverpool: Mauricio Pochettino at Spurs; Unai Emery at Arsenal and Maurizio Sarri at Chelsea.

A second is that football is one of the very few areas of the economy where the workers hold the whip hand over management. The TV rights for broadcasting Premier League matches are a goldmine but the real beneficiaries have not been the owners but the players.

The pool of star players is limited and probably no bigger or smaller than it ever was. What’s changed is that the TV billions have come rolling in. The competition for talent coupled with the worldwide appeal of the Premier League has allowed the Paul Pogbas and the Eden Hazards to bid up the price of their labour. Too much money chasing too few goods tends to lead to inflation, and the salaries of Premier League footballers are proof of that.

The lesson provided by one Ajax, of the losing Champions League finalists is that investment in human capital matters. The Dutch club lack the financial clout of some of their European rivals but made up for it by nurturing young talent. As an example of the importance of training and skills to successful outcomes, the story of Ajax is hard to beat.

But in football as in every business there is potential free-rider problem. Companies that have deep pockets don’t bother to invest in their own human capital but simply entice talent away from those that do by offering big reward packages. Ajax thrashed two clubs with extremely deep pockets – Real Madrid and Juventus – en route to the semi-final but the team will be broken up this summer.

The final economics lesson from this year’s Champions League is one that has yet to be learned but needs to be: namely that environmental sustainability has to play a central role in decision making.

Uefa, European football’s governing body, decided before the season started that the finals of its two competitions would be held in Madrid and Baku, yet now finds that all four finalists are from England.

The result is that airlines get a windfall, as do the hotels and restaurants of Madrid and Baku, but at the cost of an enormous carbon footprint. From a climate change perspective, having Liverpool and Spurs jet off to Spain while Arsenal and Chelsea supporters make their way to Azerbaijan, is little short of disastrous. Last year, the final between Liverpool and Real Madrid was held in Kiev.

Uefa needs to be held to account for this because it is clearly unsustainable. Last year’s Champions’ League final should have been held in Paris and this year’s finals should be in London or Cardiff.

The idea that this would cause insurmountable logistical problems does not wash. In the bygone days before FA cup semi-finals were held at Wembley, neutral grounds were chosen once it was known which teams were playing each other. If Arsenal was playing Manchester United, for example, the likeliest venue was Villa Park in Birmingham.

With a bit of planning, Uefa ought to be able to adopt a similar approach. As soon as it was known that the four semi-finalists for the Champions League were Liverpool, Spurs, Ajax and Barcelona, there were two obvious choices for the final: London or Paris. Football is influential. It needs to start taking climate change seriously.