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Externalities in Soccer

Life near professional soccer stadiums should be quite active as plenty of cars are coming and going to the stadium, people are cheering loudly for their respective teams, etc. However, what does uncle John have to do with these external effects that the game is casting on him since he loves to read books all day? An externality occurs when there is a third party being affected by what is occurring in the market, in this case, the soccer market. It is important to examine the net externality that the sport casts on third parties as it would help policy makers make better decisions to help increase the benefits of this sport for everyone (like increasing taxes or providing subsidies).

Soccer can create a major negative externality as many factors can induce this effect. One of the most obvious factors is the increased traffic as thousands of cars are travelling to and from the stadium which makes it harder for people from third parties to do day to day tasks through transportation. Furthermore, noise levels from fans are quite high and can reduce the peace that other people who are not in the soccer market may be having. The noise externality is only increased by higher crime rates near soccer grounds as people from different teams can clash due to a long lasting rivalry. For instance, whenever people go watch Real Madrid vs. Barcelona, there has been a deep hate from both teams for each other which has also resulted in fans from opposing teams engaging in brawls. A few decades ago, hate by people from opposing teams was quite high and the negative externality was referred to as hooliganism. People used to affiliate different religious beliefs with different teams and formed gangs to even go kill the fans of opposing teams just for their different ideologies! Even people who did not particularly like soccer used to go to the games just to express their beliefs and engage in fights. Over time, security near soccer grounds has increased significantly to ensure that bloody battles between fans are not happening and reduce the effect of this hooliganism negative externality. However, crime rates still tend to be high near football stadiums and is something that should be looked to be solved further from policy makers in the future.

On the positive side, soccer does cause numerous benefits that can even help combat some of the negative externalities that third parties experience. In the current world we live in, the ability to empathize with other cultures has increased. Thus, meeting people from a diverse range of backgrounds creates a positive externality near soccer grounds. In addition, entertainment such as shows outside the stadium and other activities affiliated with that increase the positive benefits of soccer. Some other important positive externalities include cooperation and team unity. In most games, some fans are delighted while others are unhappy but the beauty of soccer makes it so cherishing to watch the beautiful acts that occur after the game. For instance, there was a World Cup game between Senegal and Colombia where Columbia won the game 1-0 and kicked Senegal out of the World Cup which disheartened so many Senegal fans. However, it was so satisfying to watch Colombian fans hugging the Senegalese fans as they cried in their opposition's arms. Fans coming from around the world are tied into a common culture that soccer establishes despite supporting different teams.

To assess the overall net externality that soccer imposes, we can look at a way to quantify the results discussed above. An analysis conducted by Giovanni Lombardo, Andrea Mazzocchetti, Irene Rapallo, Nader Tayser, and Silvano Cincotti finds that the net externality imposed by soccer is positive. The authors of the research found that the Social Return on Investment or the SROI was 2.98:1 when they looked closely upon a professional soccer team called Virtus Entella. This meant that “for every euro invested by the football club, about 3 Euros of social value is created”. Although we are not going to go too much into the detail about how the SROI was calculated, the basic formula was the net present value of outcomes divided by the net present value of investment. In addition, the SROI doesn’t only account for the financial return on an investment but also how the investment affected social, environmental, and economic factors (accounting for many externalities). A few examples of what the formula covers is things such as social care and environmental sustainability.

While soccer does cause some fights between fans of opposing teams, the overall effect of millions of fans coming from around the world allows people to meet new cultures, unite together, and gain so many more benefits creates an overall positive externality on third parties like John who loves to read books all day long.

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