Chelsea FC

The following report highlights the primary sources of income for Chelsea FC, the factors affecting this income, and how volatile the total revenue is given certain adjustments in the market. Three possible short, medium and long-term problems are suggested, discussed, and then solutions given for them. Economic Background of Chelsea FC The primary source of revenue, and thus the biggest contributor to profit for Chelsea FC, is the sales of tickets to home games. We can consider the supply of tickets to be fixed, and therefore perfectly inelastic.

This is because the number of seats in the stadium (i. e. output) can not vary. As a result, demand will be the primary factor influencing the price of tickets. As the diagram shows, an increase in the number of tickets demanded represented by the outward shift of the demand curve (D – D1), will raise the price (p – p1). This will also be the case for a decrease in demand only in reverse, so we would see a decrease in price. An example of this would be that for big games that a large number of fans want to see, Chelsea could charge a higher price.

The elasticity of demand for tickets will be neither particularly elastic nor inelastic, as demand will be strong amongst Chelsea fans (making it inelastic), but at the same time it is a luxury good rather than a necessity (making it elastic). Total revenue for Chelsea FC will vary according to the demand and thus the price charged for tickets. With higher demand, total revenue will be greater and vice versa. The only variable cost incurred by the club will be staff and players wages.

The club will first need to recover the huge initial fixed cost of building the stadium, then assuming the revenue from tickets is greater than the variable cost of wages, any surplus revenue will be profit. There are of course other sources of revenue for the club such as merchandise e. g. Chelsea FC shirts. The demand and supply curves will look a lot different for these goods as both demand and supply would be more elastic. This is because generally for fans a football shirt is more of a luxury good than tickets, and production (or supply) of shirts can be increased or decreased relatively easily.

This is shown in the diagram below. Due to this prices for merchandise such as shirts will be much less volatile, and will vary with shifts in either the demand or supply curves. Competition will be limited for the football club as customer loyalty is very high. In other words customers are not likely to switch from watching a Chelsea game to watching an Arsenal game. This is to say that there are not many close substitutes for tickets to watch a specific football team, in this case Chelsea. Problems Match-Day Programme Availability (short-run)

Many fans going to matches complain about the availability of programmes inside the ground. The lack of availability results in fans either not getting a programme or having to search right round the ground for one. This has a negative affect on the overall customer experience provided by the football match, and will result in a decrease in demand (a shift to the left in the demand curve). There will also be a negative word of mouth effect, again resulting in a decrease in demand, and the ticket prices that Chelsea FC are able to charge will decrease, thus total revenue will decrease.

Long Queue’s (medium-run) On match day, queue’s to get into the ground via the ticket entrances, as well as queues at all the bars and cafi?? s are notorious. Such queue’s again have a negative affect on the experience of customers going to see the match. As a result, demand will again decrease, due to those customers no longer willing to wait to get into the ground not wanting to go and not demanding tickets. This means that effectively the prices Chelsea are able to charge will not be as great. As well as this, demand for drinks and food at the bars and cafi?? s will decrease due the queue’s.

This will all result in an overall decrease in total revenue for Chelsea FC. Small Stadium Capacity (long-run) The Chelsea FC stadium currently holds 42,500. Given that Chelsea are one of the most successful teams in the Premiership (in terms of league places), as well as one of the most popular for fans, this could be a big problem in the long-run. Although as shown before with a fixed number of tickets an increase in demand will lead to an increase in price and therefore revenue for Chelsea, in reality there is cap that has to placed on ticket prices to prevent a revolt by the fans.

An example of this can be seen a few years ago when Manchester United fans revolted and formed their own club in protest of the high ticket prices. So in order to keep increasing revenue, Chelsea FC will have to somehow increase the capacity of their stadium. Strategies to Overcome The Problems Match-Day Programme Availability (short-run) To overcome the problem of limited programme availability in the ground, and subsequently increase their revenue, all Chelsea FC need to do is increase the number of booths selling programme’s, or situate the existing booths in more convenient and accessible places.

This will not be a big task for the football club, as they will already have a number of booths, and they are easily moved from place to place. The cost of implementing this change will also be very limited. This restructuring in terms of both position and number of booths will increase the experience had by customers at a match, and result in increased demand and increased revenue for the club.

Long Queue’s (medium-run) Addressing the problem of long queue’s both at the entrance and at bars and cafe , is a case of either improving the productivity of existing staff, or hiring new staff to cope with the demand. By training existing staff, Chelsea can hope to improve their staff productivity and therefore they will be able to cope with greater numbers of people. Likewise by hiring more staff, they should be able to cope with greater numbers. Either of these strategies will help reduce the queue’s at entrances and bars and cafi?? s, again improving the experience of customers and resulting in increased demand and increased revenue.

One thing to note here is that although there are long queue’s at certain times at places such as the bars and cafi?? s, during the actual match there will be none. This means during the match Chelsea FC will still be paying the wages of staff at the bars and cafe s but with no gain. There is a trade-off between the revenue gained from training the staff or employing more, and the cost of training or employing more staff during the match. Small Stadium Capacity (long-run) There are two options to overcoming the obstacle of small stadium capacity.

One is to increase the capacity of the existing stadium by building extra seats on to it, another is to build a completely new stadium all together. Both of these options will effectively increase the supply of tickets to matches, and given the cap on ticket prices as already explained will increase total revenue. It is worth noting here that even if ticket prices were not capped, given the perfectly inelastic supply, it may still be more profitable to increase supply in this way.

It would all depend on the shape of the demand curve, i. . how elastic it is. But by increasing capacity in either case, Chelsea FC will reap increased revenue from sales. Conclusion The three economic problems illustrated above all hinder the demand for the “product” i. e. the match, Chelsea Football Club is supplying. If Chelsea FC were to employ the strategies as suggested above, they would improve the experience on offer to customers thus increasing the demand for tickets, as well as increase the number of tickets they are able to supply.

This will all lead to a big increase in total revenue, which in turn will reap greater profits for the club. Please Note: One critical assumption has been made throughout this report about the “product” that Chelsea FC is supplying. That is that the football team is performing at a consistent level. Increases or decreases in performance of the football team will increase or decrease the levels of demand in both ticket sales and merchandise respectively.