This effect explains how a country can excel in an industry even though its main players are foreign owned. So there is an obvious analogy between Wimbledon tennis (hugely successful championships won almost exclusively by foreigners) and the City of London (hugely successful financial services industry owned almost exclusively by foreigners).
In an elliptical way, the Wimbledon Effect also helps explain a particular mystery of the championships that I want to address (one that should engage investors since it is about markets and prices) - why are tickets for the championships so cheap?
That they are cheap in both theory and in practice is not in doubt. In the microeconomic theory of profit maximisation, an organisation will aim to set its prices and its output at levels that will bring maximum profit and its major issues will be to address the balance between fixed and variable costs. However, the Wimbledon championships is much like an airline offering a fixed number of seats or a hotel chain with a fixed number of rooms. For all these operators, their costs are almost entirely fixed, while the variable cost of getting in an additional spectator/passenger/guest is negligible. Thus their aim should be to set the prices at the highest level that will fill all the seats/rooms. That will leave them with no more revenue to be generated though no more cost to be incurred - and with maximum profit.
But The All England Lawn Tennis & Croquet Club (AELTC), which runs the championships, clearly does not do this. For example, a ticket to watch the men's singles final on Sunday week costs £160. Simultaneously, there is a lively and legitimate market in so-called ‘debenture’ seats where the price to watch the same event is £3,460 and rising (if Andy Murray makes the final, expect prices to double). True, debenture-seat holders are treated better than the hoi-polloi - they have their own lounge and restaurant - but hardly to the extent that a premium of more than 2,000 per cent is justified.
What's going on? Among the AELTC's self-appointed roles in running the championships is that of a regulator. Thus, in regulatory mode, it excludes the market from the pricing of most seats on Wimbledon's show courts. It sells cheap seats to the public by ballot and polices this fairly seriously with anti-tout measures that, according to its web site, aim "to prevent tickets destined for tennis fans from being directed to the highest bidder".
To most people the AELTC's stance is perfectly sensible since their perception of ticket touts is that they are on a par with investment bankers. For economists, however, the logic is shaky. After all, the AELTC must make the odd assumption that those who bid a high price care less about what they are bidding for than those who bid low. Almost certainly it has taken no steps to establish the relationship between 'willingness to pay' and 'desire to watch' and has also assumed that, at some price point, 'ability to pay' will win out, thus excluding 'true' tennis fans.
That the AELTC can afford this isn't in doubt. Its revenue from running this year's championships will top £150m, of which about £80m will come from selling television rights. Ticket sales account for just £25m, so they are not that important. Yet, despite choosing not to maximise this source of revenue, the championships will still generate profit well clear of £30m. Even so, in effect the AELTC is subsidising a section of its customers, a practice that is rarely successful in the long run. Think, for example, of the effects where a nation subsidises the price of fuel. Consumption is abused, production often falters and a black market springs up to siphon cheap fuel to markets where prices are higher.
True, the AELTC has a black market in tickets to contend with, but - thanks to its fixed number of seats - does not face corresponding consumption or production risks. Meanwhile, it's the monopoly supplier of grand-slam tennis on grass and is the most successful of a cartel of four grand-slam tournaments suppliers. As such, it has barriers to entry that most business folk dream of.
However, even the strongest barriers have to be maintained. For the AELTC that's partly done by keeping the public onside with cheap tickets; so think of the ticket subsidies as so-called 'above the line' marketing spending. More importantly, it's done by adhering rigorously to the lessons of the Wimbledon Effect. That says globalisation will bring big benefits, mostly to the first movers but more especially to those who innovate continually. The City did this by liberalising its financial markets in the 1980s. It got taken over by Americans for its trouble, but the jobs stayed by the Thames. The AELTC did it by spotting the potential of 'open' - ie, professional - tennis back in the 1960s, then relentlessly improving its product for the past 30 years. That has kept the world's most lucrative tennis tournament in SW19. So the AELTC is the biggest winner, even if the tournament prizes are spread around the globe.
