The Theory of Creative Destruction

I’m sure deep down we all get a small amount of pleasure from destructing something. Whether that’s the preciseness of a display in a shop, the virgin snow-covered field or an old Shed that needs to be knocked down. The Austrian Economist Joseph Schumpeter came up with the term Creative Destruction as part of his studies into the entrepreneurial spirit of capitalist societies. His famous quote was that:

“Bankruptcy is the greatest gift of capitalism. The free market grows because of, and not in spite of, failure”

Schumpeter argued that unless businesses and business models failed, then there would be no new entrants into a market and innovation and growth would be limited. You can see his theory in action across many different markets in the last couple of decades. The failure of airlines such as Pan-Am and TWA led to the rise of new entrants such as South West Airlines in the US. The collapse of Blockbuster paved the way for Netflix and in many ways, the impacts of the COVID-19 pandemic have led to the rise in virtual meetings and home deliveries.

But whilst it is true that in almost every business sector the market leaders are now disrupters who didn’t exist 30, 20 or even 10 years ago (think Telsa, Salesforce, Apple, Google, Alibaba, Facebook, Uber), football remains almost untouched by the rules of economics.

Dixons, Woolworths, C & A, Blockbuster, Comet, Tie Rack, Athena, British Home Stores, Toys ‘r’ Us, Our Price. All well known brands that 40 years ago were solid names in the High Street but are now no longer with us, either through rebranding or in most cases, bankruptcy. Their places have been filled either in the empty properties or online, but the theory of Schumpeter has been fulfilled.

And then we look at football. Since 1980 53 English football clubs have gone into administration, of which 32 are currently in the top four divisions of English football, including four current Premier League clubs (Crystal Palace, Leeds United, Leicester City and Southampton). A third of the clubs currently playing at Step 1 of the Non-League game in the National League have also had at least one period in administration during the last 40 years.

Yet, out of all of those clubs, only one has ceases to exist today and that happens to be one of the last clubs that went into administration, Bury. Some clubs had to reform and start again, such as Newport County and Wimbledon, whilst others had to fall out of the professional game before they could return, such as Luton Town and Doncaster Rovers, but on the whole, football has proven Teflon-coated and managed to adapt.

There have been instances where clubs have simply decided to give up, something that no football fan should have to go through. It is rare but it happens. Last summer Rhyl FC, part of the Welsh Football Leagues for more than one hundred years and Droylsden FC, of the Northern Premier League both decided to withdraw from their respective leagues, whilst the liquidation of Bury FC has led to the creation of a phoenix club that will now start to climb the footballing pyramid.

But for how much longer can football sustain its Telfon coating? The impact of COVID-19 is being felt in football, especially in the lower reaches of the English game. The combination of no fans allowed in the stadiums, saturation of the Premier League on TV and lack of promised funds from the Government is driving clubs to the financial extremes. There is only so much football clubs can do to stay afloat in the current circumstances.

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