Monday, February 23, 2015

The Premier League TV Deal - Master And Servant

Premier League chief executive Richard Scudamore is a man accustomed to dealing with large numbers, but even he struggled to believe just how much his negotiating team had secured in the latest auction for the rights to broadcast his “product” in the UK. The amount was an astonishing £5.136 billion for the three-year cycle starting in the 2016/17 season, which represented a 70% increase on the current £3 billion deal.

This was a lot more than most analysts had expected, especially given that the current domestic TV deal had itself increased by 70% compared to the previous agreement. The magnitude of the increase was a testament to Scudamore’s ability to generate vast sums of money for the 20 Premier League clubs, but we could have done without his false modesty: “Am I surprised? Of course, the little old Premier League, doing quite well here.”

It should be emphasised that this deal is only for the UK live rights. We need to add the highlights package for which the BBC has paid £204 million (up from the previous £180 million) to give total UK TV rights of £5.340 billion, which represents a 67% increase.

In addition, the overseas rights for the 2016-19 cycle will only be sold towards the end of the year. These are currently worth around £2.2 billion with most observers reckoning that there will be another healthy increase. I’ve gone with a reasonably conservative 30%, which is in line with the estimate from well-known media analyst Claire Enders. This would take the overseas rights deal up to £2.9 billion, which would mean a 52% increase in the total rights from £5.4 billion to £8.2 billion.

Others have assumed a higher increase in the overseas rights, which would give a potential total of £8.5 billion (or even as much as £9 billion), but Ed Woodward, Manchester United’s executive vice-chairman, cautioned that the overseas rights were unlikely to increase at the same rate as the UK rights, which benefited from some specific reasons: “A record number of companies requested tender documents and serious interest emerged from several companies.”

The potential new entrants included Eurosport, backed by new parent company Discovery, and the Qatari broadcaster BeIn Sports, but the UK rights were once again shared between Sky, who paid £4.176 billion (up a noteworthy 83% from £2.3 billion) and BT, who paid £960 million (up a more modest 30% from £738 million).

The nature of the bidding process, namely a blind auction, clearly helped drive the increase, resulting in (likely) total annual revenue of around £2.7 billion, nearly a billion higher than the current £1.8 billion. That would be split between: the guaranteed domestic £1.780 billion (up from £1.066 billion) and the assumed overseas £968 million (up from £744 million). To place this into context, the initial Premier League TV contract back in 1992 was worth the princely sum of £51 million a season.

The new UK deal has increased the cost per game by 56% from £6.5 million to £10.2 million – or an amazing £113,000 a minute. The percentage growth is a bit lower than the absolute cost, as this deal includes more games per season (up from 154 to 168). Sky in particular have had to shell out a lot more for their share of the rights with their cost per game rising 69% from £6.6 million to £11.0 million (for 126 games). In contrast, BT’s cost per game has only increased by 18% from £6.5 million to £7.6 million (for 42 games).

All this lovely TV money has significantly improved the revenue of the Premier League clubs. In the 2013/14 season, which was the first of the current three-year deal, Liverpool received the most (£98 million), while bottom placed Cardiff still pocketed a cool £62 million. Half of the UK deal is shared equally among the 20 Premier League clubs, while 25% is linked to where a club finishes in the league and the remaining 25% is based on the number of times the club is televised live. The overseas TV deal and central commercial revenue is distributed equally.

That’s none too shabby, but the projected figures for the new deal (from the 2016/17 season) are even more impressive. Based on the 67% growth in the UK rights and the assumed 30% growth in the overseas rights, the top club would receive £152 million (up £54 million), while the 20th placed club would get £92 million (up £30 million). The size of the Premier League TV deal also explains why some clubs appear not to take the FA Cup that seriously, as the winners only receive around £3.5 million (in total).

The Premier League has one of the fairest distribution models in Europe, but it is worth noting that the gap between top and bottom would increase from £36 million in 2013/14 to £60 million in 2016/17.

This all assumes that the redistribution methodology remains the same, which Scudamore would not guarantee, though he was “absolutely confident that the clubs will do the right and proportionate thing.” He’s almost certainly right – so long as the right thing involves allocating the lion’s share of the money to themselves.

The much larger TV money enjoyed by Premier League clubs compared to the majority of their European peers, allied with the relative equality of its distribution, is evidenced by the Deloitte Money League. Not only did the number of Premier League clubs in the top 20 increase from six to eight in the 2013/14 edition, but even more strikingly, the number of Premier League clubs in the top 30 compared with last year has risen from eight to 14 and all 20 Premier League clubs are now within the top 40 globally.

In this way, Aston Villa earn more revenue than Roma, while Southampton generate more than Benfica, which might seem crazy to traditionalists, but is the logical result of the massive influx of TV money into the English Premier League. The absolute giants, like Real Madrid, Barcelona and Bayern Munich, are likely to remain at the top of the financial pyramid, but the rest of the Money League will come to be dominated by English clubs.

Although TV deals in the other major European leagues have also been on the rise, their growth rate has been nothing like as fast as the Premier League. The projected deal for 2016/17 of £2.7 billion a season is almost as much as the combined revenue from the deals for Serie A, the Bundesliga, Ligue 1 and La Liga, which is worth around £2.9 billion. In fact, if we were to use the current Euro exchange rate of 1.35, then it would actually be higher.

The next highest TV deal is Serie A, which will be around £1 billion in 2017/18 (€1.2 billion), while the Bundesliga and Ligue 1 are both around £0.7 billion. Even though the Bundesliga will have doubled its TV rights in the 10 years since 2001, it is still only projecting €835 million for 2016/17 (including a forecast of €162 million for international rights). The latest Ligue 1 deal also shows a healthy increase: 20% in the domestic deal (from 2016/17) and 150% in the international deal (from 2018/19), but again is way behind the Premier League. The Spanish league is estimating €800 million, which equates to around £0.6 billion.

The rise in TV money should therefore increase the competitiveness of Premier League clubs relative to their foreign competitors, but Scudamore was also at pains to note that it would also raise competitiveness within the league itself, thanks in part to the most equitable distribution of TV revenue among the top five European leagues.

The ratio of revenue from first to last in the Premier League is 1.6, which is indeed lower than the other leagues. Only the Bundesliga comes close at 2.0 (Bayern Munich £30 million, Eintracht Braunschweig £15 million) with La Liga at the opposite end of the spectrum at 7.8 (Real Madrid and Barcelona £112 million, Almeria £14 million). The distribution is also much wider than the Premier League’s in Italy, which has a 5.3 ratio (Juventus £75 million, Sassuolo £14 million), and France 3.4 (Paris Saint-Germain £36 million, Ajaccio £10 million).

Another way of looking at this is that all Premier League clubs already receive more money from their domestic league TV deal than all but 5 other European Clubs: Real Madrid, Barcelona, Juventus, Inter and Milan. When the new Premier League deals starts in 2016/17, this list will reduce to just Real Madrid and Barcelona – and even that is in doubt following La Liga’s decision to move to collective bargaining, where the top club will only be allowed to receive 4 times more than the lowest club.

Some of the comparatives are really striking, e.g. Bayern Munich (£30 million), Atletico Madrid (£34 million) and Paris Saint-Germain (£36 million) all received a lot less for winning their respective leagues than Cardiff (£62 million) did for being relegated from the Premier League. As Scudamore put it, somewhat jarringly, but completely accurately, “Burnley are now, economically, bigger than Ajax.”

Given the equitable distribution of the Premier League TV money, the importance of qualifying for the Champions League is underlined. In the 2013/14 season this was worth an average of £32 million to the English clubs, but the size of the prize will significantly increase from the 2015/16 season with the new deal. UEFA advised the European Club Association that clubs could expect a 30% increase in revenue, but the uplift should be even higher for English clubs, as BT’s exclusive acquisition of UK rights is double the current arrangement with Sky.

Financially there is already a large gap between the Premier League and the Championship, where clubs currently receive around £4 million a season, comprising £1.9 million central distribution from the Football League deal plus a £2.3 million solidarity payment from the Premier League. Those clubs relegated from the Premier League receive a parachute payment, which was £24 million for year 1 in the 2013/14 season, in place of the solidarity payment.

This means that the majority of clubs in the Championship last season received a hefty £58 million less than the club that finished bottom in the Premier League. Those clubs receiving parachute payments had £22 million more than a “normal” Championship club, but still £36 million less than the lowest Premier League club.

From 2016/17 that gap is likely to become an abyss, despite the Football League announcing last week what they described as “a significant financial boost on two fronts” with an extension to the current broadcasting agreement with Sky Sports and a new (higher) mechanism being put in place for the solidarity agreement.

No financial details were divulged for the Football League TV deal. It was portrayed as “the most lucrative in The Football League’s history”, but it is only a one-year extension covering the 2018/19 season (with the League also having an option to further extend the arrangement into 2019/20). Given the deal before the current one was worth £2.5 million a season (i.e. higher than he current £1.9 million), let’s assume that the extension might be worth around £3 million.

The new approach to the solidarity payment is more interesting, as this has now effectively been formally linked to the size of the Premier League TV deal, being equivalent to 30% of a third-year parachute payment. Note: League 1 and League 2 clubs will respectively receive 4.5% and 3% of a third-year payment. Based on my assumptions, that would increase the annual solidarity payment to £6.5 million from the current £2.3 million.

That would imply that TV money for a Championship club would rise to £8-9 million, while a club with a year 1 parachute payment would receive a mighty £38 million. However, here’s the thing: the gap to the bottom Premier League club would still increase from £58 million to £84 million. Mind the gap, indeed.

Note that the 2016/17 parachute payment to relegated Premier League clubs of £36 million is an estimate, based on the current approach, whereby the amount distributed as parachute payments is linked to the size of the TV deal, specifically to the equal shares received by Premier League clubs for both the domestic and overseas deals: 55% in year 1, 45% in year 2 and 25% in each of years 3 and 4 (adding up to a total of 150%).

Last week’s Football League announcement noted that from 2016/17 parachute payments will be reduced from the current four seasons to three seasons. I have assumed that the total paid out will be the same in percentage terms (i.e. 150%) and I have also maintained the methodology that has higher payments in the early years. There is obviously a number of assumptions here, but the central point about the gap to the Premier League increasing is likely to remain valid.

It does feel like the Football League has to be grateful for any crumbs that they might be given from the top table. Granted, this is still a lot of money, but everything is relative. The risk is that clubs will continue to extend themselves either in pursuit of promotion to the Premier League or to stay in the top tier.

Indeed, most of the additional money from previous TV deal increases has simply been spent on higher player wages, transfer fees and agents (Alan Sugar’s famous “prune juice” effect). To illustrate that point, since 2007 the wages to turnover ratio in the Premier League has deteriorated from 63% to 71% as wages have grown at an even faster rate than revenue.

However, that may well not be the case this time round, as clubs now have to operate within Financial Fair Play (FFP) regulations. Most pertinently, the Premier League’s rules have specific clauses relating to TV money, so clubs whose player wage bill is more than £52 million will only be allowed to increase their wages by £4 million per season for the next three years. It should be noted that this restriction only applies to TV money, so any additional income from higher gate receipts, new sponsorship deals or profits from player sales can still be spent on wages, but TV is clearly the most important revenue stream for most Premier League clubs.

Interestingly, the current regulations run to the end of the 2016 season, so it is more than likely that the thresholds will be revised upwards in line with the new TV deal, though the principle of not “wasting” all of the increase on player wages will almost certainly still be followed.

"Perfect Blue"

There is still likely to be an inflationary impact on transfer fees, as even mid-tier Premier League clubs will be in a position to outbid most leading European clubs, especially as they will be effectively restrained by UEFA’s FFP rules. This effect will be exacerbated by the strengthening of Sterling against the Euro, which will also boost the purchasing power of English clubs. That said, they will be forced to pay a premium compared to continental clubs, as sellers will be acutely aware of their higher bank balances.

Scudamore noted that the additional money would help clubs attract the best available talent to the Premier League, “People want to see the top stars here”, but he slightly weakened his argument when he added, “Look at the excitement of transfer deadline day”, which could surely only be enjoyed by anyone with a somewhat bizarre appreciation of yellow clothing.

The hope is that clubs will use some of the TV windfall to reduce ticket prices, especially as the vast majority of Premier League clubs’ revenue now comes from TV. Even in 2012/13, which was before the 2013/14 increase in TV money, let alone the new 2016/17 deal, half of the clubs sourced more than 65% of their revenue from television – and it’s only getting more important.

If we take Stoke City as an illustration, 70% of their 2012/13 revenue came from television, rising to 77% in 2013/14 and an estimated 84% in 2016/17. Just let that statistic sink in for a moment: when the new TV deal starts, less than one-fifth of Stoke’s revenue will come from gate receipts and commercial income.

So what? Well, at the risk of sounding like John Lennon (“you can say I’m a dreamer”), as gate receipts become less important as a revenue stream, that might just increase the chance of lower ticket prices. As an example, the Football Supporters’ Federation calculated that just 3% of the increase from the latest deal would pay for their “Twenty’s Plenty” campaign, which is an attempt to cap away ticket prices at £20. At the very least, clubs should freeze the current price levels.

Regardless of the moral imperative, there are sound commercial reasons why lowering ticket prices might be good for business. It would make football more affordable for youngsters (or a future generation of customers) and it would protect the brand by not only filling stadiums, but also improving the atmosphere with less of the “prawn sandwich” brigade. This was acknowledged by Scudamore: “Clubs understand that the number one strategic priority is to keep the stadiums full. They also need to understand that young fans must be encouraged to attend games. The clubs will do the right thing.”

Let’s hope so, but I’ll not hold my breath. Immediately after the deal, we were treated to the standard, mealy-mouthed response from a football club executive, this time Manchester United’s Ed Woodward, “Our prices are fairly priced compared to the market.” From a supply and demand perspective, he’s obviously right, given that last season saw record average attendances of 36,696 and stadium occupancy of 95.9% in the Premier League, but this stance excludes great swathes of society that simply cannot afford to go to a match these days.

"Richard Scudamore - shake your money maker"

One risk is that all this additional wealth will simply provide a return on the investment made by owners, especially as so many of the clubs have been bought by overseas investors. For some, it is clearly a vanity project rather than a commercial enterprise, but others have arrived with a hard-headed business strategy.

Scudamore admitted that “reducing losses and making clubs more sustainable…. does make clubs more attractive to investors”, though he cautioned that “it’s a pretty risky investment unless you are purchasing a club that can pretty much guarantee its Premier League status.” What might be better for investors on a risk-reward basis is to acquire a Championship club for a relatively small investment, then push for promotion to the Premier League and its associated riches.

There will also inevitably be an impact on the prices paid by subscribers to Sky Sports and BT Sports, though it is unlikely to reflect the entire increase. As Scudamore said, “If you look at what happened last time, we delivered a 70% increase and in no way has that been passed along in anything like the direct proportions to the consumer.” Indeed, Sky promised that “the majority of the funding would come through substantial additional savings to be delivered by efficiency plans.”

This raises the question of why Sky paid so much for these rights. Even though the old saying would have it that “he who pays the piper calls the tune” (certainly accurate when it comes to the scheduling of many matches), it is equally true that Sky’s business model is very dependent on Premier League football, which has been the driver for their revenue growth. This is especially the case now that Sky have lost the Champions League rights to BT from the 2015/16 season, which incidentally also increased their war chest available for the Premier League rights.

"In the City"

They literally could not afford to also lose the Premier League rights, so put in blockbuster bids to ensure that this nightmare scenario did not happen, also winning the most popular packages in the process (Super Sunday, Monday Night Football, Saturday lunchtime and the new Friday Night “Lights”).

The need for high-quality content is imperative for their so-called “quad play”, i.e. TV, broadband, mobile and phone customers. As MLS commissioner, Don Garber, explained, “Content is king and sports content is the king of kings.”

What is surely undeniable is that more of the Premier League TV money should benefit the grassroots. As Clive Efford, the shadow sports minister, put it: “These are incredible sums of money and it would be nothing short of criminal if none of this extra money goes to expand participation at the grassroots of football.”

Scudamore has defended the Premier League against the accusation that they should do more: “We have a very good track record of investing some of this money in the wider interests in football and the community. Overall we give away on an annual basis about £270 million. It will be £800 million over the course of this deal.”

However, these figures have to be reviewed very closely. In previous years, the Premier League have made great play of the fact that they distribute 15% of their revenue externally, but the reality is that this includes parachute payments to the relegated clubs, which is hardly what most people mean by “grassroots”.

According to the Premier League’s Season Review for 2013/14, the external payments amounted to £285 million, split between £169 million parachute payments and £116 million external distributions, i.e. just 6% of revenue. Unfortunately, the season review no longer fully details the external payments, but the previous years highlight the minimal growth in most areas, e.g. the money given to the Football Foundation actually fell.

Since 2010 the Premier League’s revenue has grown by £878 million from £1.037 billion to £1.915 billion. The vast majority of this growth £732 million has gone to Premier League clubs with a further £106 million boosting parachute payments, leaving just £41 million for additional external payments.

Put another way, just 5% of the Premier League's revenue growth  has gone to external distributions. There should surely be a moral responsibility to give the grassroots a larger slice of the cake. Yes, the Premier League might pay out substantial sums in absolute terms (and more than other leagues), but it could and should do more, e.g. it could link all external payments to the size of the TV deal in the same way they have just done with solidarity payments.

"Thank you for sending me an Angel"

If the clubs do not agree on such action themselves (and it has to be said that their altruistic record to date is not overly encouraging, e.g. not even paying a living wage to all their employees), then it might be down to the government to get more involved and legislate a broader distribution of the money to benefit grassroots football, especially as the sheer size of the new deal will mean that the Premier League’s actions will be under more scrutiny than ever.

In fact, the Premier League’s domestic TV deal is the second largest in world sports with the £1.8 billion only bettered by the NFL (American Football) whose deal until 2022 is worth an annual £3.2 billion. However, the Premier League’s new deal has overtaken the NBA (basketball), whose nine-year deal from 2016/17 is worth £1.7 billion, and is nearly twice as much as the £1.0 billion earned by the MLB (baseball). That said, even Scudamore admitted that “it might be a very, very long time” before the Premier League surpasses the NFL.

All of this assumes that the Ofcom investigation into the Premier League’s collective selling of TV rights concludes that that it is not anti-competitive. This review follows a complaint by Virgin Media that the Premier League makes a lower proportion of live matches available to be broadcast in the UK than other rival European leagues. Theoretically, if Ofcom rule in favour of Virgin Media, then the TV rights auction may have to be re-run under different rules.

There is no doubt that this is a spectacular TV deal, which will provide immense benefit to the 20 Premier League clubs. However, it is difficult to fully accept Scudamore’s overly simplistic view of his organisation: “Things like the Premier League, the BBC and the Queen are things that people feel are good about the UK. Ultimately, we’re a success story.”

To a large extent, yes, but the overwhelming feeling is that the TV money largely allows the Premier League to lord it over everybody else, so that they can indulge in their own version of Depeche Mode’s “Master and Servant”, both in terms of overseas leagues and all other parts of domestic football – from the Championship down to the grassroots. Simply put, the colossal amount of money now pouring into England’s top flight from the TV companies should be more fairly distributed. Then, all football fans could be genuinely proud of the Premier League.


  1. Excellent article as usual.

    With the amounts involved here, the Prem clubs could really make a positive move to improve the cost of access to games.

    ...but they probably won't.

  2. Utterly sickening. As a fan of Celtic I can assure Mr Scudemore that the whole of the UK does not feel good about the EPL. I can and have opted out of Sky but am compelled to fund Match of the day through my TV licence. Better together eh?

    1. The irony is that, when football started, you had the option to be better together, but you chose not to. You could have joined the English league (which would then have become the British league) as Swansea and Cardiff did. But you thought it was better to assert you national independence and have a Scottish league. You lot wanted to be an independent Braveheart league as opposed to better together so it now means not only are your beloved Celtic much poorer than Swansea, but that you only get a tiny amount for playing in the CL compared to the English teams. It was your choice, so stop moaning. You can't have it both ways. Though you probably feel that you should be allowed an independent league but that you should also get a share of English tv money. Like independence but keeping the pound. We could have been better together with a British league, but you chose to be your own footballing nation and as a result, Celtic are now poorer than Burnley. What I find especially pathetic is that not only do you begrudge the EPL teams the money simply out of jealousy, but that you think it wrong for the 90% of the population outside Scotland to be able to enjoy MotD for free. We don't complain about the Beeb paying for SPL highlights. But as usual, money into Scotland is your right, money to England is poor Scotland being robbed again. Pathetic. "Better together, eh?" You could have been but chose not to, so stop moaning and look forward to your match with Ross County while we ponder which new galaticos will be gracing the EPL next year. If you had joined England like the two big Welsh teams did, you'd be one of the biggest clubs in the world. Don't blame us because you wanted to be Scottish not British in football terms. But why is it fine for the 90% non-Scots to pay for the BBC's SPL rights, but wrong for Scots to pay 10% towards the EPL MotD? Typical Scottish hypocrisy.

    2. Fuck me, well said!

    3. I think he/she was saying that in some shape or form everyone has to pay something towards the EPL. There are many reasons why the EPL is great. There are a few why it is morally broken. It's ashame like the original commentator mentioned that we all fund its greed through tv licensing. But then we also pay for Will I Am on the voice.

    4. And now you are to pay extra on your telephone line rental due to BT purchasing CL rights.

  3. Have Celtic officially applied to join

    1. They wouldn't be allowed because they are not wanted. Why would a smaller EPL club want to risk its place? Or a championship club. Or a bigger club risk its European place? Or make the fans have to travel that far for away games? Or have a club which will have 5m fans because every Scotsman will cheer for Celtic against every English team, meaning they would take a precious CL spot? Not one single English club in any tier wants that. Cardiff and Swansea chose to be better together and now Swansea can buy players Celtic can only dream of. Yes, it would have been much better if we'd have had a European super league instead of the EPL and ECL, so teams like Ajax and Celtic were top clubs. It's wrong that they get a tiny fraction of what an EPL team gets for the CL group stages. But they chose to have a SFA instead of staying within the FA. They didn't want to be better together. This is the result.

  4. Stoke is the 30th highest revenue team in the world? Wow! I think this type of revenue deal will compel the "big boys" around Europe to eventually create a permanent Super League. The revenue from this type of league would rival the NFL and create a level playing field. Not sure how this works out but maybe it is just a permanent Champions League scenario. Anyway money is going to change things. The other European Powers will not allow the English to seperate from them financially.

    1. English clubs get their money in a legal way. Even UEFA cannot deny it.

  5. Regarding the north of the border, and the language and phrases used above too, Better together? You lot? I must say that after such a well thought out and incredibly detailed and researched article, I didn't think it would attract such ugly, nasty, vindictive comments, or that they would be published.

  6. Great informative analysis again Swiss thanks very much.

  7. Thanks for this informative piece, as always. A question:
    In France, FFF receives 2,5%; in Germany DFB receives 3%; in Turkey TFF receives 12% of broadcasting revenue(in Turkey that's the total amount of external payments). Is it 0 in England?

  8. Great analysis and graphs presentation.

  9. This is a superb article. Objective analysis, graphs, figures, tables, tweaking Scudamore's nose gently, AND a Depeche Mode reference.


  10. Absolutely amazing piece of an article. Touching on practically every aspect of the impact of the new tv deal, as well as having great comparisons and graphic data.


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