Broadcasting deals lifting transfer spending of Premier League clubs

09 September 2016 Consultancy.uk

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.

Increased wealth
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.

The Premier League on TV

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. 

The Premier League

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.

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Champions League glory hard to buy for football’s economic elite

15 March 2019 Consultancy.uk

The thrills and spills of knock-out football can still be one of the sport’s great levelling forces, with the Champions League’s second round having shown that the biggest spenders aren’t always able to buy their way to glory. While a league format broadly favours the squad depth of the beautiful game’s richest teams, half of the tournament’s wealthier teams exited in the first one-on-one elimination round.

As the Champions League burst back into life in February, following an agonising winter break, only two of the 16 teams re-launching their Champions League last-16 bid were from outside the so-called Big Five football leagues. With the exceptions of Portuguese champions FC Porto and Dutch footballing powerhouse AFC Ajax, teams from the world’s biggest spending leagues monopolised the second round. As outlined by analysis from KPMG’s Football Benchmark, the Premier League was represented by four teams, with three clubs come from La Liga and the Bundesliga respectively, while Serie A and Ligue 1 both retained two clubs.

This followed a grimly predictable group phase, which had seen the two most expensive squads progress in all but one of the eight collections of four teams. The one team to buck that trend, Ajax, had last won Europe’s premier club competition in 1995, but those halcyon days have long since faded into memory, and Ajax had failed to progress beyond the group stage in 13 years. With the second youngest squad in the tournament, what now seems to be an awakening football giant had some shocks in store for the second round too.

Group Stage values

Despite an impressive Europa League run which saw the team reach the final two years ago, Ajax had not progressed in a Champions League knockout stage tie since the 1996-97 campaign. That all changed this time, as Erik ten Hag’s men overturned a first leg deficit to trounce Real Madrid 5-3 on aggregate. Having felt hard done by in a 2-1 defeat at the Johan Cruijff ArenA, the Amsterdam club cruised to a 4-1 victory at the Santiago Bernabéu, a result which saw the tournament’s fourth most expensive squad crash out to the third cheapest remaining team.

The supremely expensive team, which had won three Champions Leagues on the trot, had crashed out in spectacular style. For many footballing purists, the end of the seemingly invincible Galacticos would have been enough to restore some of their faith in the sport – but there would soon be more schadenfreude to revel in, as a succession of Europe’s most bank-breakingly costly teams would soon join Los Blancos in their exit.

The pick of the bunch was unquestionably Paris Saint-Germain, who forfeited a 2-0 first leg advantage to somehow crash out of the Champions League. The team, who are fast becoming known as the foremost bottlers in Europe, faced a grim dissection in the French press following a 3-1 defeat by Manchester United at Le Parc de Princes. While it would be over-egging it to paint United as ‘giant killers’, the Red Devils squad is worth markedly less than the club bankrolled by Qatari oil money. PSG hold two of the most expensive players of all time in French World Cup winner Kylian Mbappe and Brazilian playboy Neymar.

Second Round values

Elsewhere, the round’s cheapest squad proved further that money is not everything, as Porto overcame Roma (the Italian club has since parted ways with manager Eusebio Di Francesco in the wake of this humbling) – while Juventus battled back to beat Atlético Madrid. The most ‘balanced’ tie of the round, there was a squad value difference of only €22 million between the two squads, in favour of the Spanish giant. With that being said, €113 million of Juve’s price-tag came from the summer acquisition of Cristiano Ronaldo. Ronaldo’s tie-settling hat-trick went to show that money spent in the right place ultimately makes the difference.

Spending wisely

At the same time, there were also four teams which lived up to their large price-tags. Manchester City pummelled Schalke over the course of two legs, hammering the German team 7-0 in the second game. With the largest squad market value in the tournament, the Citizens showed that their spending had not merely been a frenzy provoked by having large amounts of money to throw about – a la PSG – and that every penny had in fact been used to craft one of the continent’s most well-balanced and dangerous teams, to ultimately contend for the title.

Tottenham Hotspur similarly brushed off Borussia Dortmund, while Liverpool eventually overcame Bayern Munich, to leave no German teams in the tournament. Meanwhile, Barcelona similarly did for the French contingent of the Champions League, bundling out Olympique Lyonnais 5-1.

Operating Revenues

Going forward, the humbled economic superpowers of European football will take solace from the fact that their huge operating revenues will allow them to buy up talent which has emerged in this year’s Champions League. With Real Madrid having re-installed Zinidine Zidane as Head Coach, the club has already committed itself to spending big in the summer, cashing in some €50 million of its €743 billion revenue stream from last year to sign Éder Militão from Porto – who has impressed in this year's Champions League – in the summer.

Whether the PSG project is financially sustainable in the long-term remains to be seen, meanwhile, but with a huge portion of commercial revenues including shirt-sales from the club’s array of superstars, it will likely also seek to bring in more big names in the summer. The club was reportedly in the running to sign Ajax star Frenkie de Jong, before Barcelona finally secured his services from the end of the season.

The likes of Ajax will meanwhile face an uncomfortable wait, as a range of its new crop of outstanding players inevitably attract the attentions of Europe’s top spenders. With the lowest operating revenues of any team left in Europe, the club will face an uphill struggle to hang on to the likes of teenage captain Matthijs de Ligt. However, it would not be the first time that the club has been plundered for its top talent, and what Ajax and clubs of its size can take forward is that with the right eye for lower-key recruitment, they can rebuild, and still challenge Europe’s elite.