Tottenham Hotspur - The Bottom Line

Being a Tottenham supporter must be a pretty good test of whether you are a glass half-full or glass half-empty type of person. On the one hand, the club is consistently at the higher end of the Premier League, memorably qualifying for the Champions League in 2010 and only missing out on a technicality two years later (due to Chelsea’s European victory); but on the other hand, it’s often a case of “close, but no cigar”.

This was once neatly summarised by Chairman Daniel Levy: “We have come far in the last decade – we have raised our expectations from a club  aiming to be in the top half of the table, to competing in Europe each season – to the point at which we find ourselves disappointed if we don't make Champions League.”

Tottenham’s search for success in recent times cannot have been helped by the constant management upheaval with the club parting company with Harry Redknapp, André Villas-Boas and “tactics” Tim Sherwood in the past three seasons, before settling on the current incumbent Mauricio Pochettino. It will not have escaped the supporters’ attention that all this tinkering at the top has only resulted in worsening league positions: 4th in 2012, 5th in 2013, 6th in 2014 and (currently) 7th in 2015.

Off the pitch, it’s a different story, as Tottenham reported record revenue of £181 million in the 2013/14 season plus an astonishing pre-tax profit of £80 million, which is not only the best ever for Spurs, but also the highest ever recorded in the Premier League (I believe). This was mainly thanks to unprecedented profits on player sales of £104 million, largely due to Gareth Bale’s bumper sale to Real Madrid.

In fact, the profit before tax surged £76 million from £4m in the previous season to that £80 million. After including a £15 million tax charge, the post-tax profit was down to £65 million, still a substantial increase on the £1.5 million profit recorded in 2012/13. Obviously the vast majority of the increase was due to the £78 million increase in player sales profits from £26 million to £104 million, but revenue also rose £33 million from £147.4 million to £180.5 million, almost entirely due to the new Premier League television deal.

Against that, operating expenses were £13 million higher, including a £4 million increase in the wage bill, which broke through the £100 million barrier for the first time. Player trading costs also rose £23 million (player amortisation £13 million, impairment of player values £10 million), while the club booked £5 million of exceptional items for redundancy costs (AVB and his coaching staff) and onerous employment contracts.

In addition, there were a few technical movements, as depreciation fell £8 million, largely as the previous year included a £5 million write-off for certain professional fees associated with the Northumberland Development Project (NDP), but also a £6 million profit from property sales (the northern end of the NDP site). Net interest payable was £4 million lower, as this year included higher notional interest on deferred receipts for player sales.

The higher TV money has significantly improved profitability in the Premier League in the 2013/14 season with 15 of the 20 clubs that have published their accounts to date reporting profits, but Tottenham sit on top of the pile with their £65 million post-tax profit, ahead of Southampton £33 million, Everton £28 million, Manchester United £24 million and Newcastle United £19 million.

Of course, making money is nothing new at Spurs with Levy commenting, “Tottenham Hotspur have always been run on a rational basis. It’s one of the few clubs that has been consistently profitable.” In fact, Tottenham have reported profits in eight of the 10 years since 2005, normally just above break-even, but sizeable returns of £28 million in 2007 and £33 million in 2009.

Clearly much of that solid financial performance is down to player sales with Tottenham making an incredible £267 million from that activity over the last nine years. That’s more than a quarter of a billion as Levy’s tough negotiation skills have certainly reaped large financial rewards, albeit at the cost of weakening the team.

Tottenham’s last significant profit of £33 million in 2009 was also largely due to profits on player sales of £56 million with Dimitar Berbatov moving to Manchester United and Robbie Keane to Liverpool.

The last two seasons have included a couple of mega money sales to Real Madrid (Bale £85 million and Luka Modric £30 million), but also highlight Tottenham’s ability to get good money for most sales, e.g. in 2013/14 Steven Caulker’s was bought by Cardiff City for £8 million, Tom Hudllestone went to Hull City for £5 million, while the moves of Clint Dempsey and Jermain Defoe to MLS generated around £12 million.

Unsurprisingly Tottenham’s £104 million profit on player sales was the highest in the Premier League in 2013/14 with only a couple of other clubs (so far) reporting more than £10 million profit from this activity: Chelsea £65 million and Everton £28 million. When Southampton publish their detailed accounts, they will also probably include high player trading profits, but nothing like Tottenham’s level.

The other side of the player trading coin is player amortisation, namely the annual cost of expensing the transfer fee of purchased players, which is written-off evenly over the length of the player’s contract. As an example, Roberto Soldado was bought from Valencia for £26 million on a four-year contract, so the annual amortisation is £6.5 million.

This increased from around £25 million in each of the previous two seasons to £40 million in 2013/14 “due to the continued investment in the playing squad”. The total cost was actually £50 million, as there was also £10 million for impairment with the value of certain players in the club’s books being reduced. Although there are clear accounting criteria for impairment, it is a little bit of a grey area, so it makes sense for Tottenham to book such charges in a year of such high profits.

Even though player trading (and particularly profits from player sales) have such an important impact on Tottenham’s bottom line, they are still profitable from their core business. This can be seen by looking at the club’s EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which can be considered a proxy for the club’s profits excluding player trading, as this is solidly positive year after year. After two years of decline, it rose from £19 million to £39 million in 2013/14.

That is not bad at all, but still a fair way behind the top five clubs: Manchester United £130 million, Manchester City £75 million, Arsenal £62 million, Liverpool £53 million and Chelsea £51 million. This is despite the far higher wage bills at those clubs, so goes a long way to explain Tottenham’s greater reliance on a player sales business model.

Nevertheless, revenue rose £33.1 million (22%) from £147.4 million to £180.5 million in 2013/14, almost entirely due to the additional money from the Premier League TV deal, which helped increase broadcasting revenue by £32.5 million (52%) from £62.3 million to £94.8 million. Match day revenue also rose £3.7 million (9%) from £40.2 million to £43.9 million, but commercial income fell £3.1 million (7%) from £44.9 million to £41.8 million.

Note that I am using the Deloitte Money League revenue split here, which is different from the categorisation in the club accounts, in order to ensure comparability with other clubs’ figures. The main difference is corporate hospitality, which is included in commercial income in the club accounts, but match day in Deloitte’s numbers.

The importance of TV money to Tottenham’s revenue growth is clear: 83% (£55 million) of the £66 million increase since 2008 from £115 million to £181 million has come from broadcasting. In the same period, commercial income rose only £8 million from £34 million to £42 million, while match day income grew by just £4 million from £40 million to £44 million.

The major increases occurred in 2011 and 2014 in line with the new three-year cycles of the Premier League TV deals. The rise to £164 million in 2011 was also boosted by £37 million from the Champions League (prize money and gate receipts).

One problem with this is that all Premier League clubs are increasing their revenue off the back of the central TV deal, while the leading clubs are also reporting high growth in their commercial operations. In this way Tottenham’s 2013/14 revenue growth of £33 million has been eclipsed by the top five clubs: Manchester City £76 million, Manchester United £70 million, Chelsea £60 million, Arsenal £55 million and Liverpool £50 million. Mind the gap, indeed.

So Tottenham’s revenue of £181 million is the 6th highest in England, but is a long way behind the other leading clubs: Manchester United £433 million, Manchester City £347 million, Chelsea £320 million, Arsenal £299 million and Liverpool £256 million. After Tottenham’s recent loss to Aston Villa, Mauricio Pochettino commented, “It is difficult to fight for the top four. We need to be realistic.” This was probably in reference to their current league position, but could just as easily apply to the huge financial disparity.

That said, Tottenham are in turn a fair way above the next clubs (Newcastle United £130 million and Everton £121 million), so they could be considered to some extent to be “The Inbetweeners” of the Premier League, struggling to reach the highest echelon, but comfortably beyond the chasing pack.

Tottenham actually rose one place in the Deloitte Money League to 13th, ahead of Schalke 04, Atletico Madrid, Napoli and Inter, but their problem is that there are five English clubs ahead of them. In many ways, it would be better to have less income, but be higher placed in the domestic league, as the competition in England is much tougher from a financial perspective. From this season 14 of the Premier League clubs are in the top 30 worldwide by revenue, while all 20 clubs are in the top 40.

Broadcasting now contributes more than half of Tottenham’s total revenue, rising from 43% to 53% in 2013/14. Match day income is down to 24%, while commercial income falls to 23%.

Despite finishing a place lower in 6th, Tottenham’s share of the Premier League TV money increased by £34 million from £56 million to £90 million in 2013/14 as a result of the new three-year deal. In fact, they received more than 5th place Everton, as they were shown live more often, which resulted in higher facility fees (25% of the domestic deal).

The only other variable element in the Premier League distribution is the merit payment (also 25% of the domestic deal), which depends on where you finish in the league. All other elements are equally distributed among the 20 Premier League clubs: the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue.

Of course, this is just the first year of the current Premier League TV deal and there will be even more money available when the next three-year cycle starts in 2016/17 with the recently signed extraordinary UK deals with Sky and BT producing a further 70% uplift. My estimates are that a club finishing 6th will receive around £138 million a season, which would represent an additional £48 million for Spurs.

Given the equitable nature of the Premier League TV deal, the real differentiator for the leading English clubs is in fact the Champions League. In 2013/14 Tottenham were more or less the same as the top five domestically, but their total broadcasting income of £95 million was easily surpassed by Chelsea £140 million, Manchester United £136 million, Manchester City £133 million and Arsenal £123 million, thanks to their Champions League receipts.

Although Tottenham earned €5.9 million prize money (£9.2 million including gate receipts) for reaching the last 16 of the Europa League, this was much lower than the Champions League, where the four English clubs earned an average of €38 million, ranging from Manchester United’s €45 million to Arsenal’s €27 million.

In 2010/11 Tottenham’s run to the Champions League quarter-finals before being eliminated by Real Madrid generated €31 million of prize money (£37.1 million including gate receipts). It must have therefore been really galling when they finished fourth in the Premier League in 2012, which would normally have guaranteed a place in the Champions League qualifying round, only to be deprived following Chelsea’s unlikely victory against Bayern Munich.

The importance of qualifying for the Champions League has been further emphasised with the new deal from the 2015/16 season that will increase the prize money by around 50% with further significant growth in the TV (market) pool. Europe League payments will also rise, but it will still be very much the poor relation.

Tottenham’s match day revenue rose £3.7 million (9%) from £40.2 million to £43.9 million, but they were still overtaken by Manchester City £47 million. This is not going to change any time soon, following the decision to freeze ticket prices for 2014/15 season. Importantly, Tottenham generate less than half of the revenue of their rivals Manchester United and Arsenal, who both earn more than £100 million a season in their far larger stadiums.

In fact, Tottenham have only the 11th highest attendance in the Premier League with around 36,000, behind Sunderland, Everton and Aston Villa, but this is effectively full capacity with the club selling out all Premier League home games. This underlines the need for a new, larger stadium, which would satisfy a waiting list that has risen to over 45,000.

Levy is fully aware of this issue: “We cannot stress strongly enough how critical the new stadium is over the long term. We have the smallest capacity stadium of any club in the top 20 clubs in Europe, let alone the current top-four Premier League clubs, and given we now operate within UEFA Financial Fair Play rules, an increased capacity stadium and associated revenues is fundamental to supporting the future ambitions and consistent achievement at the top of the game.”

After numerous delays and rejected options, including a possible move to the Olympic Stadium in Stratford, now that the courts have rejected the legal challenge from Archway Sheet Metal Works, the club can finally press ahead with its plans for a new 56,000 capacity stadium next to White Hart Lane. This will be a massive project, costing hundreds of millions (estimates range from £250 to £400 million) that requires Tottenham to ground share in the 2017/18 season (Wembley and Stadium MK being the most likely candidates), with the objective of moving in August 2018.

The cumulative spend on the Northumberland Development Project is up to £41 million in the 2014 accounts. If the project were not to go ahead for any reason, then many of these professional fees would have to be written-off. Assuming that the stadium is completed, then Tottenham’s depreciation will increase, as the asset will be capitalised once it results in a probable economic benefit.

Tottenham will hope to emulate Arsenal’s model when constructing the Emirates Stadium in two ways: (a) fund some of the cost by selling naming rights – there has been talk of a £150 million 10-year deal, but these are notoriously difficult to secure; (b) profit from residential development because of property the club has purchased in the area.

The other area that Tottenham need to do something about is commercial income, which fell £3.1 million (7%) from £44.9 million to £41.8 million, despite merchandising sales rising 13% to £11 million. This is one of the lowest in the Deloitte Money League, just below Inter and Galatasaray. Obviously Paris-Saint Germain’s £274 million is artificially boosted by their €200 million deal with the Qatar Tourist Authority, but Bayern Munich (£244 million) and Real Madrid (£244 million) demonstrate the size of the problem.

The club might argue with some justification that this is an unfair comparison, given those clubs’ pre-eminence in their countries, but it is worth also considering the growth from this revenue segment of the top six English clubs. Since 2009 Tottenham have the lowest growth, both in absolute and percentage terms, with an increase of only £19 million to £42 million. As a painful comparative, in the same period Arsenal have grown by £29 million to £77 million (excluding the new Puma deal which started in July 2014) – and that’s nothing compared to Manchester City £148 million, Manchester United £119 million, Chelsea £56 million and Liverpool £44 million.

The 2013/14 season is the last of Tottenham’s innovative dual shirt sponsorship arrangement with Hewlett-Packard on the shirt front for Premier League matches and AIA for cup matches (both domestic and European), which they had first pioneered with Autonomy (subsequently acquired by HP) and Investec. From 2014/15 AIA, an insurance services provider, will be the sole sponsor in a five-year deal worth around £16 million a season. That’s not bad at all, but still much lower than Manchester United’s £47 million Chevrolet deal or (for that matter) Arsenal’s £30 million Emirates deal, while Chelsea have recently signed a £38-40 million agreement with Yokohama Rubber.

It’s a similar story with Tottenham’s kit supplier, Under Armour, who have a five-year deal worth a reported £10 million a year, running until the end of the 2016/17 season. Again, that’s pretty good, but it pales into significance next to match Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth an average of £75 million a year from the 2015/16 season or even Arsenal’s Puma deal worth £30 million a year.

Tottenham’s wage bill rose £4.3 million (4%) from £96.1 million to £100.4 million, reducing the wages to turnover ratio from 65% to 56%. The wages have only risen by a cumulative £9.3 million in the last four years, though there was a substantial increase from £67 million to £91 million in 2011. This was partly due to the club “augmenting its squad of players to be able to compete both at home and in Europe”, but also an attempt to retain core players on long-term deals with higher, competitive salaries.

Despite the growth, which took Tottenham’s wage bill above £100 million for the first time, this is still much lower than the top five clubs: Manchester United £215 million, Manchester City £205 million, Chelsea £193 million, Arsenal £166 million and Liverpool £144 million. Since 2005 the gap to Arsenal has literally doubled from £33 million to £66 million.

It’s worth noting the 46% increase in directors’ remuneration from £2.5 million to £3.6 million with Daniel Levy receiving £2.2 million (up from £1.7 million), around the same as Arsenal’s chief executive Ivan Gazidis.

There has been a fairly dramatic turnaround in Tottenham’s transfer activity in the last four seasons with net sales of £39 million, compared to net spend of £131 million in the previous eight seasons. In fairness, there has been over £200 million of gross spend in this period, but on the whole Spurs have been a selling club in recent times, only splashing the cash after a player has been sold. As Levy explained, “Tottenham is not a club that can consistently pay £50 million for a player. We have to make our players.”

In fact, every other club in the Premier League has spent more than Tottenham in the last four seasons. It is particularly telling how much more Spurs’ rivals for a Champions League place have spent in this period: Manchester United £260 million, Manchester City £212 million, Chelsea £196 million, Liverpool £135 million and even the traditionally frugal Arsenal £88 million.

It’s difficult for Tottenham to keep up with that sort of financial firepower and the concern must be that there will be even less cash available to spend in the transfer market while the new stadium is being built. Although Levy has promised to ring-fence a percentage of cash for buying new players, Tottenham fans need only look at their North London neighbours to see the impact while a new stadium is being financed.

The club has moved from net debt of £54.8 million the previous year to net funds of £3.2 million, as gross debt was reduced from £58.0 to £35.4 million, while cash increased from £3.2 million to £38.5 million. The debt comprises a £14 million Investec bank facility repayable over five years tracking LIBOR, a £1.2 million bank loan tracking the Bank of England base rate and £20.2 million of 7.29% secured loan notes repayable in equal instalments over 16 years from September 2007.

The accounts also reveal how much of the transfer fees are paid in stages with Tottenham still owing other clubs £51 million, while being owed £73 million – though Spurs have received £33 million of the Bale fee from Real Madrid since the balance sheet date. Similarly, Tottenham have contingent liabilities of £15 million, which are potentially payable based on the success of the team and individual players, but also a contingent asset of £18 million.

Tottenham have generated a lot of cash in recent years, though this would have been even higher if clubs had paid for transfers upfront, as we can see from the cash flow difference in player purchases compared to the actual fees. A lot of the surplus cash is being invested in fixed assets, essentially the plans for the new stadium and the new training centre in Enfield.

As the club put it, “this huge investment has been funded through equity contributions and long-term debt financing”, including a £40 million interest-free, unsecured loan from ENIC that was converted into non-voting, preference share capital in 2013/14. However, it should be noted that around £50 million of borrowings have been repaid in the last two seasons, including £22.6 million on the Bank of Scotland loan facility in 2014.

There have been some rumours of an approach from US private investment company Cain Hoy to buy the club on behalf of a group of American businessmen, but this seems to have fizzled out. There might be more interest in the future, as overseas investors will be attracted by the booming TV rights, but they might be scared off by the price asked by owner Joe Lewis and the investment required to finance the new stadium.

"Christian Eriksen - Danish dynamite"

With apologies to Spurs’ supporters, the current situation still brings to mind the quote from the wonderful film “In Bruges”, where the character played by Colin Farrell muses, “Purgatory's kind of like the in-betweeny one. You weren't really shit, but you weren't all that great either. Like Tottenham.”

Given the club's position it is perhaps understandable that Daniel Levy operates in such a prudent manner and his understated reaction to the latest results was typical: “It has been rewarding to see the progress and growth now being made on and off the pitch and we look ahead with realistic optimism.”

In the long-term Tottenham’s financial future will be dictated to a very large extent by what happens with the stadium development, though they would obviously be greatly helped if they could again qualify for the Champions League. The new stadium is indeed an exciting opportunity, but as the old English proverb says, “there’s many a slip ‘twixt the cup and the lip.”

It might seem strange to sound a note of caution after such superb financial results, but the challenge for Levy is how to drive the club forward to the next level without continually selling the club’s talent and fans will already be concerned that the irrepressible Harry Kane might be the next star to exit stage left in order to boost the bottom line.

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.