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.
