Sports Financing in Europe - Towards a Transformation in the 21st Century

19.06.1997

By Wladimir Andreff
The first part of the paper is based on a research on the economic importance of sport in Europe. The second part dwells upon the restructuring of sport finance which can be observed in several European countries.

The first part of this paper is based on a research achieved for the Council of Europe on the economic importance of sport in Europe and its follow-up. Since 1984 a research process had started on the economic impact and importance of sport in Europe.

Sponsored by the Council of Europe, this process has already been evidenced in two scientific reports by Huw Jones (1989) and by a French team of experts (Andreff et alii 1994). The latter is primarily focusing on the issue of sports financing so that it provides the data background of the present paper. The second part of the paper is more speculative and dwells upon the restructuring of sport finance which can be observed in several European countries during the last decades, even though the food for thought is basically provided by the French evidence (Andreff 1995b).

Common methodology design for increased homogeneity and comparabilityA common methodology have been designed (for the details, see Andreff et alii 1994) after drawing on some lessons from the Jones report as regards the heterogeneity of available studies and data in each of the twelve sampled countries, all of them members of the Council of Europe: Belgium (both Flemish and French communities), Denmark, Finland, France, Germany, Hungary, Italy, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

In order to increase the homogeneity and comparability of the data between these countries, a questionnaire was produced, asking each country to provide as far as possible the same set of data. The questionnaire covered sixteen questions (some of them were splitted into subquestions), six of which regarded sports financing, five considered the allocation of finance to sport (the distribution between federations, clubs, facilities, events, etc.), three were concerned with production and markets of sport goods, one question was asked on voluntary work in sports and the last one touched upon sport practice.

Instead of working on the basis of information and studies available in each country, the experts asked their national contacts to find and collect data that were not immediately available and were often scattered, and even asked them in certain cases to produce information hitherto nonexistent: construct a new statistical data, make a reasoned estimate or, when necessary, simply make a guesstimate.

It nevertheless remains obvious that this exercise sometimes reached its limits: it is still impossible to find certain data, while other estimates are too rough to be really meaningful and some of the available data are still heterogenous and not comparable between the surveyed countries. The main lesson of both reports, by Jones and Andreff et alii, is no doubt an increasing awareness of the long way we still have to go before we have homogenous and comparable statistics in economics of sport in Europe.

Hot discussion on methodology at CDDS meeting
The methodology of the above-mentioned study was also subject to an in depth discussion surrounding the questionnaire we have adopted before the survey started. The discussion was hot at a meeting of the sports research experts of the Committee for the Development of Sport (or Comite de Developpement du Sport, CDDS) of the Council of Europe in October 1992.

This meeting made it possible to agree that the currency to be used for international comparisons should be the purchasing power parity dollar ($ PPP), that the economic indicators for sport should be compared with, or expressed as a percentage of, the general economic indicators (GDP, population, etc.), that the reference year for the survey should be 1990. The survey itself extended from October 1992 up to February 1993.

The experts visited all the sampled countries, collected data and required to make explicit all the assumptions lying behind produced data and estimates. A second round of data collection has been achieved by mail between February and April 1993. Data processing and writing the report were achieved mainly from March to July 1993. A first draft of the report was discussed at the CDDS in October 1993 before reaching the last version presented at the informal meeting of Sports Ministers in April 1994.

Why the focus of this study is on sports financing
Although the study focuses on the issue of sports financing, it does not neglect however consumption, production and sport-related employment and voluntary work, these indicators being closer to the approach adopted in the former Jones report. This focus on financing calls for some explanation. Through its operation and development, sport, its practice, its appearance in the media and so on, have an impact on the economy; they generate measurable economic activities which can be compared with overall economic activity. Such was the starting assumption of the Jones report.

This standpoint and this interpretation of economic flows connected to sport has its mirror image. What is, in fact, a budget expenditure (from the central government budget, for example) for sport? It is a State expenditure caused by sport (Jones report standpoint). It is obviously a financial income for sport as well, the financing of sport by the State. This is the approach adopted in the French experts' report.

Similarly, sponsoring is one form of private financing of sport. Expenditures by local authorities on sport are another source (or origin) of financing for it. Household consumption is not always a direct financing of sport: it is so, for example, when households pay their subscription to a sport club or buy a ticket to enter a stadium, but it is only an indirect source of financing in other circumstances, such as spending money on betting or soccer pools, and an indirect and partial source (via sponsoring and advertising) in the case of purchasing sport goods.

Then, analysing sports financing addresses the question: "What are the funds which the economy devotes to sport in order to enable it to function?", rather than the question: "What are the monetary flows generated by sport?". Nevertheless, these two questions are the two sides of the same coin and converge into the idea that economic and monetary factors are becoming ever more important in the functioning of sports activities.

All that explains why a second objective of the study, though more modest and limited, was to estimate the direct macroeconomic impact of sport, in financial and commercial terms. Apart from the financial aspect, the questionnaire must contain questions related to the markets triggered by sport practice.

Information about these markets turned out to be more difficult to obtain, less reliable and less comprehensive in various countries than that related to financing. In particular, it is not yet possible1 to evaluate indirect effects, via the markets, of sport practice on economic activity.

The definition of sport practice remains a tricky methodological issue
Finally, the questionnaire contained a series of questions on sport practice. The aim was not to carry out a very detailed analysis - which would really be more sociological than economic -, but rather to show what types of sports activities, whose breakdown is specific to each country, are financed by the funds collected in favour of sport.

It is a matter of suggesting, for the future, an analysis of the efficiency of sport expenditures relating the level of financing with the participation rate (percentage of the population involved in sport pratice). The definition of sport practice remains a tricky methodological issue in all surveyedcountries.

Evaluating the number of people involved in sport practice (and hence participation rates) was not made with using a uniform definition of sport in all countries. One methodology is to count those who assess themselves as participants in surveys: this is, for example, the methodology used in a survey carried out by the INSEP - Institut National du Sport et de l'Education Physique - in France (see Irlinger, Louveau, Metoudi 1987).

The other is to count as participants those who meet certain criteria of duration, intensity or frequency of sport practice defined outside the surveys: this is, for example, the methodology used by the INSEE - Institut National de la Statistique et des Etudes Economiques - surveys2 in France.These criteria neither are the same in different countries, nor is the reference population (or sample). Only France and Germany currently publish data refering to the two different definitions of sport practice.

The degree of centralization of sport organization
Before comparing the sports finance between the twelve surveyed countries, it was necessary to have a brief look at how different are the structures of sport organization among them. Such a task was facilitated by an available study of the Clearing House3.

The underlying hypothesis is that organizational structures in sport and administration have an influence on its financing scheme in each country. Consequently, the twelve countries were classified according to the degree of centralization of sport organization into three broad categories.

A first subsample gathered federal and community States, that is to say Germany and Switzerland, Belgium (the Flemish and French communities) and the United Kingdom. Seven countries were classified as having a rather decentralized sport organization: Denmark, Finland, France, Italy, Portugal, Spain and Sweden. Only one country fell into the third group: Hungary where sport organization was still fairly centralized in 1990, despite recent decentralization efforts.

The comparison of collected and processed data on sports financing relies on a dozen of statistical tables (see Andreff et alii 1994), the most synthetic of which being given in the annex to the present paper (Table 1). The main observed facts are the following.

a) The central government budgets for sport range from 38.4 million $ PPP in Switzerland and 47.0 million in Sweden to 1066.0 million $ PPP in Italy and 1333.0 in France. It appears that federal and community States, with the exception of the United Kingdom, devote less than 200 million $ PPP to sport.

b) The local governments sports budgets range between 31.0 million $ PPP in Hungary and 224.3 million in Portugal and 5767.9 million $ PPP in Germany and 4334.5 in France.

c) Enterprise financing channelled to sport primarily through sponsoring, advertising and TV broadcasting rights ranges from 24.5 million $ PPP in Flemish Belgium and 26.8 million in Hungary to 1026.2 million in Italy.

d) The sports expenditures of households range between 89.1 million $ PPP in Hungary and 467.4 million in Denmark and 9434.9 million $ PPP in Italy, 13035.8 in the United Kingdom and 14954.3 in Germany. The distribution of countries according to household sport consumption is polarised into two subsamples: - those where households spend over 7 billion $ PPP: France, Germany, Italy, Spain, Switzerland and United Kingdom and which open a big market for sports goods and services;

- those where sports consumption is less than 2 billion $ PPP: Belgium, Denmark, Finland, Portugal and Sweden, smaller countries in economic and market terms. -. Hungary is a special case in 1990: households spend less than 100 million $ PPP on sports consumption, which is explained by the serious economic crisis connected with the transformation process of the Hungarian society.

The Western European "model" should basically be considered as a decentralized one
If we look now at the structure of sport finance (Table 2), it appears that the share of the State budget in total sport finance ranges from 0.4% in Switzerland and 0.6% in Germany to 8.9% in France and 9.9% in Portugal (Hungary excluded).

The share of local governments is between 5.2% in Switzerland or 11.0% in Italy and 29.5% in France or 32.5% in Denmark.

Enterprise finance ranges from 2.8% in Switzerland and 3.8% in Germany to 17.1% in Sweden and 42.0% in Portugal.

Households expenditures for sport in total finance are between 36.5% in Portugal or 55.6% in Denmark and 79.1% in the UK or 91.6% in Switzerland.

Or, to put it otherwise, Hungary, and then Portugal and France, are the sampled countries in which the State is relatively more involved in sport financing. The three Scandinavian countries and Germany are those where the local authorities provide relatively more finance to sports. The relatively high share of enterprises in sport finance characterizes Portugal and Sweden. Households pour relatively more money into sport activity in Switzerland, the United Kingdom and Italy.

We then observe, as an average situation in Western Europe, that households' sport expenditures are higher than the financial contribution of enterprises in all countries. It is therefore interesting to stress that the sometimes called "privatization" of sports financing in Europe is far more due to household consumption than to financial commitment of enterprises.

Household expenditure is thus the biggest source of sports financing, followed by local government. Central government sports budgets and enterprise contribution are very often minor compared with the two major sources. It can be seen that the lowest level of private funding prevails in the economy emerging from the socialist system (Hungary) and the highest in market economies where there is a great deal of professional sport, Germany, the United Kingdom and Italy (Andreff, Nys 1997).

As it could be expected in 1990, Hungarian enterprises, in the turmoil of crisis and restructuring, were experiencing great financial difficulties and were scarcely in position to finance sport. All these characteristics put together might be called a Western European "model" of sports financing inasmuch as it differs from the American model in which private businesses and enterprises take a major part in sports finance (TV, sponsoring, private ownership of sport clubs, etc.) and from the former "State sport finance" in communist regimes (Andreff 1997a, b and c, Bourg 1995, Novotny 1995).

If this trend were to be confirmed after 1990, we suggest that the Western European "model" should basically be considered as a decentralized one in which sports financing and management increasingly rely on direct and ever closer relations between participants (and spectators) and local decisionmakers.

The time devoted to voluntary work makes a significant contribution to sport, even though it is not a financial one. Its evaluation depends heavily on the method used for expressing it in money terms, if we want to compare it to sources of financing.

Anyway, whatever the method used, voluntary work makes a bigger contribution than public financing in Denmark and in Sweden. It is less significant in Belgium, France, Germany and Spain, but it is much higher than the contribution of the State budget in all sampled countries except in French Belgium, Hungary and Portugal. Nevertheless, we can conclude that voluntary work is a rather basic component of resources supplied to sport in the Western European "model".

Dynamic and big sports markets are a feature of the Western European "model"
The total supply of sports goods and services, excluding sports facilities, has been calculated by summing up: the national production of sports goods, sponsoring by enterprises, broadcasting rights paid by television companies, other sports servicesoffered to households minus club subscriptions and betting and gambling.

Only a few countries in the sample were able to provide comprehensive data for this kind of items so that figures in Table 3 cannot at all compare between countries. Total supply on the sports markets ranges from 117.3 million $ PPP in Hungary and 396.3 million $ in Denmark to 11264.7 in Germany and 9507.5 in the United Kingdom.

Big sports markets are those where supply exceeds 5 billion $ PPP: France, Germany, Italy and the United Kingdom. The sports market supply lies between 0.26 % of GDP in Denmark and 1.61% in Portugal. Part of the reason why the supply is so high in this country may be due to the relocation of foreign production of sports clothing and goods through foreign direct investment and subcontracting.

Data is even more difficult to find, as far as foreign trade in sports goods is concerned. In the sample, Italy is the biggest net exporter: there is a big Italian surplus in the clothing and footwear foreign trade, but a deficit in the sports equipment trade.

The biggest European net importers of sports goods in the sample are Germany, the United Kingdom and France with trade deficits of respectively 1065.2 million $ PPP, 544.6 million $ PPP and 535.9 million $ PPP. In 1990, the three biggest European markets, for sports equipment only, were the UK with 6,575 million dollars PPP, Germany with 2,284 million dollars PPP, Italy with 2,012 million dollars PPP and 1,916 million dollars in France, which compares with 37,537 million current dollars in the US in 1989.

Anyway, dynamic and big sports markets are, together with the above-mentionned financing structure, a feature of the Western European economic "model" of sports. Even though we have depicted a single Western European "model", it is obvious from the European study that several national variants of the model should be distinguished. The main differences are rooted in the domestic organization of sport, in some specificities in the structure of sport finance, and in the sport practices which are financed.

Public funds vs private finance
The share of public funds (from central and local governments) in total sport finance was, in 1990, in the range of 16% to 40% (except in Switzerland). In France (38,4%) and Denmark (38,8%), this share was not so far from that of the public sector's share in financing Hungarian sport (46.8%).

The highest level of private finance was found (in the European study) for market economies where there is a great deal of professional sports, such as Germany, the United Kingdom, Italy, Sweden, Switzerland and, to a lower extent, France (Andreff, Nys 1997).

Switzerland is a very specific case with 94.4% of total finance coming from the private sector. It looks like the American model of sport finance, though it is indeed rather different insofar as money is flowing in a major proportion (91.6%) from consumers' pockets and not from TV channels, sponsors, enterprises and other businesses.

Except for Sweden and Portugal, the share of enterprises in total sport finance was in the same range in Hungary (5.7%) and in Western Europe (from 2.8% in Switzerland to 7.9% in Italy).

Another aim of the European study (Andreff 1994 et alii) was to show what types of sport practices are financed by the overall funds mobilized in each country. Due to methodological problems connected with the definition of sport, the sampled countries were classified in two broad categories: - those which adopted a restrictive conception of participation in sport, based on duration, intensity or frequency of practices: Hungary, Italy, Portugal and Spain; those which have a broad conception of participation based on self-definition by the participants: Belgium, Denmark, Finland, Sweden, Switzerland and the United Kingdom; France and Germany belong to both categories.

What is money used for?
Having measured the expenditure for sport and noticed some differences between the twelve countries, the question that immediately comes to mind is: "What is money used for?" Admittedly, not all the amounts counted as sports financing are of the same nature: some correspond to household consumption or enterprise advertising investments, others are transfers, but despite this heterogeneity, all these funds have the same destination: sport.

Unfortunately no obvious relationship emerged from the study (Table 4). Nonetheless, among countries with a restrictive definition of sport, we observe just one country with a low level of expenditure and a low participation rate: Hungary.

Other countries using a strict definition of participation show higher expenditure and rather low participation rates. Two situations can also be witnessed for countries using a broad definition of participation: countries with a high level of expenditure and a high participation rate, such as Finland, France, Germany, Switzerland and the United Kingdom; and on the other hand, countries with a low level of expenditure and a high participation rate: Denmark and Sweden.

In the first group there are countries in which leisure sport activities are widely developed. The second group contains countries where the efficiency of sport expenditures seems to be the highest. These countries, Denmark and Sweden, have developed programmes giving priority to sport for all.

All these country specificities suffice to back the following conclusion: what we have called a Western European model of sport finance and economy is something like a general trend which develops today along with some variations from one domestic economy to another. Country specific sports finance reveals even more scattered if we include Central-Eastern European economies in transition 5.

Funds allocated to sport lack transparency
We must now recall various obstacles which have impeded the European study to work out an higher-standard methodology. To start with the central State budgets for sport, they usually do not include, in our sample (Andreff et alii 1994), the share of total sport facilities financed by the State because in some sampled countries the data was not available and in some others we have only obtained a figure aggregating all (financed on private and public funds) facilities.

The State share in total sport financing is probably biased downwards, though local authorities remain in all surveyed countries the major source of finance for sport facilities. The amount indicated by local authorities includes the salaries of physical education teachers only in some countries.

The figure provided for enterprises' sponsorship is frequently a rough estimate and sometimes covers other advertising expenditures based on sport activities, while the value of sport at the workplace is unknown or subject to a very partial estimate for several countries.

The data for TV broadcasting often covers only that part of total rights which is communicated by major TV channels. Although data concerning household consumption of sport goods and services is exhaustive, betting and gambling is much less known.

The major disappointment is with the missing transparency of information related to the destination of finance within sport. The distribution of funds between various sport authorities and activities could not actually be analyzed. The finance of sport federations is fairly known; the data is less extensive for the financing of clubs and associations. We got only the amount of public finance for sport facilities as well as for high level sport, which is in both cases rather misleading.

There is obviously a proportion, unknown to the experts but probably varying between countries, of private financing of commercial sport facilities. The different national definitions of high level sport make it impossible to compare the collected data. Financial data for sport events is the less comprehensive.

It is well-established by experts that data are extremely heterogenous for the destination of funds allocated to sport and often reflect a very poor knowledge of vested interests in sport and of authorities which actually obtain funds. The experts were not able to determine whether this lack of transparency was involuntary or might be explained by economic motives such as tax implications, concentration of subsidies economic cheating and so on.

Homogeneous classification throughout Europe - Wishful thinking or excessive optimism?
More general methodological tricks remain to be solved. The relative weight of the resources provided to sport by voluntary work can only be evaluated by counting the number of voluntary workers and putting a money value on their work at a more or less accurate rate. Countries have adopted different solutions in this respect (minimum or average wage, cost of private lessons) which have a strong influence on the results.

Double counting probably undermines the data provided by some countries according to some statistical tests achieved by the European experts. On the other hand, the financial aspects of sport recorded in the European study understate the total impact of sport on the economy, in particular all backward and forward linkages between the sport sector and various non-sport industry and trade.

The effects of different demographic size between countries was not systematically eliminated through calculating per capita budgets or financing. As a consequence, some results might well be considered as dubious. We should at least take them with a grain of salt.

The conclusion that a decentralized model of sport finance prevails in Western Europe must thus be accepted only with caution and, maybe, with some reservations. Therefore, the conclusion of the European study focuses on methodological recommendations for: increasing the details and the quantity of available data in each country; reducing the number of questions without any statistical answer; improving the quality of data through increased accuracy of the figures produced and detailed definitions of the economic and sports categories underlying the communicated data.

The solution to the last methodological trick would seem to be to design a single classification for sport practices and economic activities connected with sport, at the European level. A meeting convened in August 1995 in Peking by the International Statistical Institute has already discussed the issue of a world sport classification (Andreff 1996).

Wishful thinking or excessive optimism? Those who have come to grips with the daunting methodological tricks of the European study do already know how many obstacles stand on the path towards an homogeneous classification.

New tendencies in European sports financing
Since 1990, some new tendencies seem to develop in sports financing in several European countries. On average, the share of the State budget in total sport finance is, at best, growing very slightly, or more generally, it is stagnating or decreasing.

In France, for example, the budget of the Ministry for Youth and Sports had fallen from 0,22% of the overall State budget in 1992 to 0,19% in 1996, whereas private financing of sports had slightly increased (Andreff, Nys 1997).

In various countries, namely in some Scandinavian countries and in France, where the municipalities were the most significant source of public finance for sports in the last decades, the growth of municipal budgets for sports slackened, or even stopped, in the last years.

In France, for example, the 1982 law on decentralization first propelled up the public finance of sport by localities (regions, districts - French "dpartements" - and municipalities), even though the law restricts the right to finance only non-profit organisations.

An increasing number of sport organisations do make money and sometimes profits - namely those involved in high-level and professional sport. So that a new law was passed on August 8, 1994 and a decree on January 24, 1996 restrict further the right of local authorities to subsidize profit-seeking sport clubs with commercial and profitable activities.

They open a transitory period: until December 31, 1999, local authorities are still allowed to provide subsidies to these sport organisations on the basis of annual contracts, but the maximum amount is limited by fiat. Beyond the deadline, subsidization of professional sport by local governments will stop unless it is demonstrated that it will contribute to local economic developments.

A sharp fall in the finance flowing into high-level sport from municipalities is to be expected after 1999. In adition, the articles 92 and 93 of the Treaty of Rome prohibit any subsidy which is likely to distort economic competition: these articles might well be enforced for profitable high-level sport activities in the future.

All in all, the share of public financing of sports cannot be expected to grow in the next decade with the same momentum as it has grown in the last decades. As a consequence, sports financing will be at a crossroads in the near future. It will either develop in relying on an increased share of private funds or find a way of transforming its modes and sources of finance.

The problem is that each source of finance does behave according to a specific rationale or logic (Andreff 1995b). The rationale of State expenditures basically - in general and, namely, for sports - is one of aiming at public interest and public welfare for the whole nation (population, country).

We may admit that the same logic is backing the local authorities when they provide some funds to sports, on a local basis. However, two new rationales seem to have emerged at the level of local governments in the last ten to fifteen years. Local citizens increasingly consider that, paying local taxes, they have good grounds for having a look to the local budget spending and they are increasingly demanding in terms of costs and benefits.

Therefore, economic and social benefits on the one hand, and financial costs on the other hand are now a bigger concern to local authorities when they subsidize sport activities and organisations. In some localities, the local government has even adopted an even more economic logic: for instance, the municipality utilizes sport activity to improve, advertise and sell the image of the city and, by the same token, to attract touristic, commercial and industrial business on its territory.

These local authorities are thus joining the same economic rationale which characterizes private enterprises, sponsors, and TV channels involved in sports business: for them, that is the return on investment which matters. Finally, the logic of sport participants and households appeared to change in recent years: they behave less like voluntary workers and more like commercial clients, compared with their behaviour two or three decades ago.

Being a sport participant nowadays, you are more than ever a consumer of sports goods and services, and such a tendency will deepen insofar as public subsidization will decrease and sport practice will develop outside sport federations, sport clubs and other sport organisations. Hence new modes of sports financing will emerge and a new distribution of sources for funds will appear. It would probably include more private finance than in the past.

How sport organisations could react to these new tendencies remains to be seen. We have suggested elsewhere (Andreff 1995b) that sport organisations could only maintain their own social influence and countervailing power, facing private business, if they transform their own rationale and behaviour.

More self-finance, more self-management, more self-employment, more self-education and an increasing capacity of preparing sport participants to their future jobs (more vocational training in sports clubs and federations) might well represent the way out through which sport organisations could avoid to be definitely swallowed by profit-seeking organisations.

From the book "Society's Watchdog - or Showbiz' Pet?" Inspiration to Better Sports Journalism, Danish Gymnastics and Sports Associations 1998, more information at
jsa@dgi.dk

___________

Author's CV
Wladimir Andreff

B. 1946. Professor, Dr.

Since 1990: Professor of Economics at the University Paris 1 Panthon Sorbonne, Since
1995: Director of the research team ROSES (Reforming and Opening post-Socialist
Economic Systems, URA 1417 CNRS).

President of the European Association for Comparative Economic Studies.

Graduation:
Master in econometrics (1969) and sociology (1970) University ParisSorbonne.
French ''Doctorat d'Etat' (Ph. D) in Economics (1975), University of Paris 9 Dauphine.

WA is an outstanding adiviser and evaluator of international projects on sport and
economy. He has published or edited a wide range of books and articles on the subject,
and he is a member of the editorial board of several international scientific magazines.

It is therefore legitimate to examine the relationship between money expenditure for sport and participation rates.

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