With the summer transfer window having ended on August 31, it is now clear that English Premier League teams have broken their previous spending record, with a total spend of almost £1.2 billion on players. Ciarán Medlar, a partner at BDO and head of the firm’s Sports Advisory Unit, provides his view on the financial developments of UK’s wealthiest and favourite sport.
A large factor in the increase is due to the significant jump in the financial power and wealth of all Premier League clubs. What has also been more notable this year is that the transfer deal sizes have risen significantly from last year and the larger deals have also been spread more equally around the clubs, rather than being limited to the traditional top clubs.
This increase is primarily a result of the new three-year TV deal concluded in early 2015 and which runs from the 2016/17 season. The Premier League clubs will have £8.3 billion of broadcasting rights available for distribution among them over the next three seasons and represents an increase of 63 per cent over the previous deal. The new TV deal is a combination of domestic TV rights sold to Sky Sports, BT and BBC and also the overseas TV rights.
To give this some context, it is reported that the Premier League broadcasting rights for this coming season are worth more than the combined broadcasting revenues of the top leagues in Germany, Spain and Italy.
Sharing the wealth
However, unlike the other countries, the Premier League has a much more equitable distribution system for its broadcasting revenues. One hundred per cent of the overseas broadcasting deal is distributed equally among all 20 teams and, for the domestic rights, 50 per cent of all TV money is shared equally between all clubs, 25 per cent is divided based on final league position and the remaining 25 per cent is based on the number of a club’s matches broadcast live.
This will equate to broadcasting revenues of £100 - £150 million per annum for each club in the Premier League. The increase in TV money, together with related commercial opportunities, means that the English Premier League clubs are now very much the dominant financial force in world football.
It is estimated that over the next year, all 20 Premier League clubs will feature in the list of the top 35 wealthiest clubs in the world. They will continue to dominate the fists of the world’s wealthiest clubs in the world over the coming years, despite the fart that Premier League clubs have not been competing at the serious end of the Champions League over the last four seasons.
With a 63 per cent increase on this broadcasting deal compared to the previous deal, is there any potential for the values of clubs to grow further? The rights of the Premier League continue to be those most highly sought by domestic and international sport broadcasters, and it is felt that competition will continue to increase rather than decrease in the coming years as more markets and new media opportunities emerge.
While the scope to increase match day attendances is limited (due to a 92 per cent attendance average and limitations on venues), further additional revenue growth will come from merchandising, commercial sponsorship, eSports and new markets, including lucrative pre-season tours. This makes the Premier League an attractive opportunity for many overseas investors.
The reported bid for Liverpool by a Chinese consortium of £800 million within the last week would also suggest that investors see the potential for future growth also, as does the reluctance of most owners to sell. In addition to being wealthier, the clubs are now operating on a more sound financial basis, with the successful implementation of Financial Fan Play and cost control
Transfer window investment
As a result of this increased wealth, the clubs are now prepared to invest heavily in the transfer market to secure top and higher-profile talent. Selling clubs, particularly those overseas, are aware of the financial might of Premier League clubs and are driving transfer fees higher. The record repurchase of Paul Pogba by Manchester United is obviously viewed by the club as good business, in addition to any football benefits, with expected increased TV revenues, merchandising and significant commercial revenues.
What is more telling is that the traditionally mid-tier clubs, as a result of the more equitable distribution of the broadcasting rights money, have now begun to compete for transfers into the £20 million - £30 million price range, with many of these clubs breaking their club transfer records this summer.
There are a number of reasons why football clubs invest so heavily in the players’ transfer market, from increasing the overall quality of their team, to the related increased commercial potential. For most elite clubs, however, it is the fear of being relegated from the top flight of English football, forcing them to abdicate their status as a Premier League team. How valuable is this status?
In pursuit of phenomenal riches
To put it into perspective, a club which finishes bottom of the Premier League can expect £100 million per annum in broadcasting rights alone; a Championship club will, on average, receive approximately £3 million per annum for their broadcasting rights. The phenomenal levels of spending on broadcasting rights for the English Premiership have exploded ever since BT entered the fray to challenge Sky’s dominance of the league. Indeed, in 2015, Sky and BT paid more than £5 billion between them for the live broadcast rights of the Premiership over three seasons.
That record payment was largely driven by the business strategies of both companies to secure exclusive content, a holy grail in the era of service providers such as Netflix and Amazon Prime. With that broadcasting battle set to continue, it looks likely that the price of broadcasting rights for the Premiership will go only one way – up.
And with that in mind, it is clear that spending more, in the pursuit of phenomenal riches, is now the aim of the game.
Ciarán Medlar works with many of UK and Ireland’s leading sports professionals and clubs on all aspects of their financial affairs.