Focus on football finance - March 2012
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Focus on football finance March 2012
Focus on football finance
This is a game of
two halves: the haves
and the have nots.
And the haves want more…
Contents
03 2020 Vision
04 Football finance fair play
08 Club versus country
09 Eastern mystery
10 Where does the money go?
14 Is the Sky falling in?
16 Investment in youth is changing
18 TV rights
21 About Grant Thornton
2
2020 Vision
Pulling together the different We look at the reasons behind could generate increased income from
themes covered in this newsletter Manchester United’s decision to seek to sponsors and advertisers. Why play 60
gives us a vision of the possible sell shares in Singapore, and conclude matches each season if you could play
future for football, in England that the Glazers may actually see Asia just 50 but still generate more revenue?
and beyond. as a major source of future revenues Why play in your home town every
for the Club. We believe Chelsea, other week when you have millions of
Picture the scene: Manchester United Liverpool, Manchester City and the overseas fans, in Asia or the rest of the
v Barcelona; the final of the World top European clubs share this vision. world, keen to pay premium prices to
Champions League, played before a And we comment on the monies that watch their favourite teams live?
full house in the Beijing National the Premiership Clubs receive from the For the bigger clubs the temptation
Stadium in China. There are 100,000 sale of media rights. Are the top clubs of the additional monies that could be
fans, 50,000 each from Manchester really happy with their share? earned on a world stage must surely,
United and Barcelona, watching the If we put all these factors together, at some point, become irresistible. But
game live, and all are Chinese residents. we can see the background to what we when? 2020? Is that a realistic timescale
The game is also being broadcast live think may be the next big contest in for the Manchester United v Barcelona
around the world, with 750 million international football. Not Manchester vision sketched out above to
viewers paying $10 each on pay-per- United v Barcelona in China, but become reality?
view. It is football’s biggest game, UEFA versus one of our top clubs. We Certainly, if it did happen, it would
producing revenues of $7.5 billion. wonder what would happen if one, or give rise to a whole series of further
Sounds unlikely? Let’s see how it more, of the top European clubs were questions. What would be the impact
could happen. to fall foul of UEFA’s Financial Fair on those clubs left behind? What TV
In this brochure we talk about Play Regulations, prompting UEFA deal would these non-Super League
UEFA’s Financial Fair Play Regulations. to exclude them from the Champions clubs be able to command? And what
These will seek to bring stability to League. Would the clubs simply accept sort of state would their finances be in?
the game by restricting the spending UEFA’s ruling and be content to And who would want to lend to them?
of clubs to match their income. We pass up the prize of Champions All points to ponder….
support this initiative strongly as it League money?
will encourage clubs to develop young We suggest that would be unlikely.
players rather than spending their way Such a move by UEFA could therefore
into financial trouble. be the catalyst for something truly
We consider FIFA’s increasing epoch-making: the break-up of the
demands on the clubs to release their game in Europe as we know it. This
highly-paid players for international might happen if a defaulting club For the bigger
duties in an already fixture-packed tempted others to break away and
season. These clubs are also required to
clubs the temptation
form a European Super League, or
take part in domestic cup competitions, a World Super League. This might
of the additional monies
such as England’s FA Cup and Carling eventually lead to a league of perhaps that could be earned on a
Cup. The weakened sides fielded by 16-20 teams from Spain, Italy, France, world stage must surely,
the Premiership Clubs in the early Germany, England, Argentina, Brazil, at some point, become
rounds of these competitions already Asia and North America. Breakaway irresistible.
send a clear message about how they clubs, with the best brands and the
view them. biggest supporter bases, could demand
a greater share of media rights, and
3
Focus on football finance
Football financial fair play
It was in September 2009 that More than one in eight club auditors sporting values we have in Europe,” said
UEFA’s Executive Committee expressed uncertainty about whether UEFA President Michel Platini.
approved unanimously a concept certain clubs could continue as going The financial fair play objectives
called financial fair play. The concerns. Those clubs with wealthy are to:
background to its decision was as backers were able to out-spend their • improve the economic and financial
competitors, forcing transfer fees and capability of clubs, increasing
follows: many clubs were reporting
wages into a spiral that risked the future transparency and credibility
financial losses in worsening
of the clubs, and the very fabric of • ensure clubs settle their liabilities on a
market conditions in the 2009
the sport. timely basis
financial year. Total revenues UEFA decided that action was needed • introduce more discipline and
for top division clubs reached a to level the playing field. The fair play rationality in club football finances
record €11.7 billion but increased concept was its answer: an attempt to • encourage long-term investment in
costs had created net losses of force clubs to live within their means the youth sector and infrastructure
€1.2 billion, almost double the by limiting spending to the income they • encourage clubs to operate on the
previous record. Many clubs were were generating. “Financial Fair Play is basis of their own revenues
paying enormous bills for crucial in order to promote the long- • protect the long-term viability of
players’ wages. term sustainability of European football European club football.
and is entirely consistent with the
At Grant Thornton we endorse and
support the objectives of financial fair
play as we have campaigned for some
time for football clubs to be operated
with the same level of financial discipline
UEFA general secretary applied by other business models,
rather than relying on the deep pockets
Gianni Infantino summed up of their chairmen and other directors.
Introducing the new regime, UEFA
the situation rather memorably. general secretary Gianni Infantino
‘What kind of healthy business summed up the situation rather
memorably. “What kind of healthy
is it that waits for a white knight business is it that waits for a white
on a horse with lots of money knight on a horse with lots of money to
throw round and then, from one day or
to throw round and then, from another, he could jump on his horse and
one day or another, he could ride away?”
UEFA’s Executive Committee
jump on his horse and approved the UEFA Club Licensing
ride away?’ and Fair Play Regulations in 2010. The
Regulations introduced the fair play
4
measures that will be implemented
over a three-year period, requiring
clubs to operate on a break-even basis.
The first season that a club could be
excluded from European competition
for non-compliance is 2014-15, but
the first break-even assessment will be
undertaken during 2013-14.
The period in which the assessment
is made is termed the ‘monitoring
period’, and the assessment is based aggregate losses in a monitoring period, Monitoring is the role of the Club
on the aggregate results of the three it can use profits from the two years Financial Control Panel, headed by the
previous reporting periods. For example, prior to T-2, (T-3 and T-4) to reduce the former Prime Minister of Belgium, Jean-
in monitoring period 2015-2016 the aggregate loss. Luc Dehaene. Its first task was to look
reporting periods will be those for the Whilst clubs are being challenged to at all transfer and employee payables in
financial years ending in 2015 (T), 2014 ensure they do not spend more the summer of 2011. Transfer spending
(T-1) and 2013 (T-2). The exception than they earn, they will be given some made over the summer of 2011 will
to this rule will be for the 2013-14 flexibility if the trend is moving in the impact on the break-even results of the
monitoring period, which will assess the right direction. Accordingly, in the financial years ending 2012 and 2013, the
reporting periods ending in 2013 and 2013-14 and 2014-15 monitoring first financial years to be assessed under
2012, (2012, of course, being the periods, if a club’s deficit arises because the break-even rule. All payments due
current season). of over-spending on players’ wages on transfers, and to employees, will be
The Regulations are applicable in the 2012 reporting period, then the assessed by the Panel. So, Mr Dehaene
only to those clubs with income and expenditure on players’ wages arising and his colleagues will have been
expenditure of over 5 million euros. The from contracts signed before 1 June watching with interest the summer 2011
maximum deficit that such clubs will be 2010 can be excluded from the break- transfer window business conducted by
allowed to incur will be 5 million euros even calculation. the Premiership Clubs, especially the
for the aggregate of the three reporting Clubs will still be able to spend on big four net spenders, Manchester City
periods (T, T-1 and T-2). This aggregate long-term ventures such as infrastructure (£52.5m), Manchester United (£42.9m),
can be exceeded in the early years – but or academy projects, and this spending Chelsea (£41.75m) and Liverpool
only if the excess is made good by equity will not count towards the break-even (£34.1m).
injections. The allowable deficits will calculation. This is to ensure that the Consideration has also been given
be 45 million euros for the combined other aims of the Regulations, such as to the possibility of clubs attempting to
seasons 2013-14 and 2014-15, falling to youth development and improving/ circumvent the regulations by artificial
an aggregate 30 million euros for seasons upgrading sports installations, are not means. Provision is made to adjust
2015-16 to 2017-18. Where a club shows affected adversely by financial fair play. income and expenses from related parties
5
Focus on football finance
The spectre of to reflect the fair value of any such
transactions. One deal, which is sure
break-even calculation for financial
fair play. Arsenal manager, Arsene
to be considered closely, is Manchester Wenger, has already suggested that if
the financial fair City’s 10-year sponsorship deal with
Etihad Airways announced in July 2011,
Manchester City’s sponsorship deal is
accepted by UEFA, then the financial
play regulations
and said to be worth up to £400 million. fair play rules will be blown apart.
City successfully increased its revenue According to Wenger, “The credibility
from sponsors and partners by 400% to of Financial Fair Play is at stake. The
raises some £32.4 million in 2009-10, thanks to the
agreement with Etihad and other Abu
sponsorship cannot be doubled, tripled
or quadrupled because that means it is
key questions.
Dhabi based companies, such as Etisalat, better if we leave everybody free. But if
Aabar Investments PJSC and the Abu they bring the rules in they have to
Dhabi Tourism Authority. This latest be respected.”
deal, the largest of its kind in sport, is The spectre of the financial fair play
certainly a huge step towards a return to regulations raises some key questions.
profitability for Manchester City, which What will be their effect if they work?
incurred a £194 million loss in 2010/11. And will UEFA really expel one or more
And given that City does not even big clubs out of European competition if
own its stadium, and that Etihad has they do not comply?
never made a profit, the deal is even With regard to the first question,
more extraordinary. France gives a possible indication of the
City, of course, is owned by Sheikh impact of financial fair play. The DNCG
Mansour bin Zayed al-Nahyan of Abu (Direction Nationale du Controle
Dhabi and Etihad Airways. The fact de Gestion) is in its third decade of
that this deal doubles the previous monitoring that nation’s strict financial
record of $300 million (£187 million) regulation regime. Clubs’ expenditure
for the world-famous Madison Square is tied to income. As a result Lyon is the
Garden, and is way ahead of Arsenal’s only club to have finished in the top four
£90 million, 15-year sponsorship deal in Le Championnat more than five times
with Emirates, has already been noted, in the past 10 years. By contrast in the
not least by some of City’s competitors free-spending English Premiership, four
in the Premiership. The club has clubs have achieved that goal. In France,
apparently already consulted UEFA if a team incurs a loss it has to make
over the arrangement, which includes cutbacks, or generate compensating
financial backing for infrastructure and income by selling a key player. This is
regeneration projects, both types of the financial model that Michel Platini
expenditure that do not count in the is so keen to impose on the rest of
6
We believe
that excluding a major
club from European
Europe. In terms of the financial fair concept hand-in-hand with the clubs, competition on grounds
play objectives it will “introduce more as our intention is not to punish them
discipline and rationality in club football but to protect them.” But if it comes
of financial fair play will
finances” and will “encourage clubs to the crunch and UEFA has to punish threaten the continuation
to operate on the basis of their own them what will happen? UEFA’s record of the game as we know it
revenues”. But how will it affect players on enforcement to date has not been
denied pay rises, and talented managers exemplary. For a man who has been
in Europe. It could
who have worked tirelessly to build a quoted as saying “our policy on racism threaten UEFA itself.
winning team? Many of them may well is one of zero tolerance” we have seen
look elsewhere, beyond UEFA’s reach. no real effort from Mr Platini or UEFA
Any club gambling on winning to stamp out racism. That issue came to
a Champions League spot and its the fore again in the recent England v
resultant rewards, and failing, may Bulgaria Euro qualifier. Will Mr Platini
well find itself caught out by financial take fair play all the way, or will he back of elite European League, or even a
fair play. Will that club be content to down and allow loss making clubs to World Super League, then would others
make the cutbacks necessary to ensure remain in Europe if the trend of losses is follow? Liverpool, as we note elsewhere
its expenditure falls back to meet the heading in the right direction? in this brochure, is one club apparently
shortfall in revenue, as required by We believe that excluding a major unhappy with its current allocation
fair play? club from European competition on of European TV monies. How many
That then leads us to the question of grounds of financial fair play will others from Europe and the rest of the
whether or not UEFA will act robustly threaten the continuation of the game as world could be tempted to share in the
and seek an expulsion of that club if it we know it in Europe. It could threaten inevitable riches that could be generated
does not do so. UEFA president Michel UEFA itself. If the excluded club were from such a league? And where would
Platini is on record as saying “We able to persuade other clubs that their that leave the others, and the financial
have worked on the financial fair play future lay outside UEFA, in some form institutions lending to them?
Will Mr Platini take fair play all
the way, or will he back down and
allow loss making clubs to remain
in Europe if the trend of losses is
heading in the right direction?
7Focus on football finance
Club versus country:
a memorandum of misunderstanding
The memorandum of understanding elite European Super League, and
between FIFA and the clubs expires in approaches would surely be made
No wonder clubs, July 2014. The memorandum creates a to other clubs that demonstrate an
legal requirement for the top European ability to generate revenue from their
under pressure to clubs to play in UEFA’s Champions international fan-bases. These might
cut losses, question the League and to release players for include Arsenal, Chelsea, Manchester
commercial sense in being international friendlies, or tournaments, City, Juventus, Roma, Ajax, Porto,
forced to allow highly-paid including the World Cup. Marseille, Celtic, Rangers and others.
It seems unlikely that it will be And why stop at Europe? Clubs,
players to participate in renewed on the same terms. Umberto after all, are increasingly focusing their
international games for Gandini, of AC Milan, and the attention on Asia. Taking into account
little or no payback. European Club Association suggested the major teams in Argentina and
in July 2011 that a “refusal of co- Brazil, which enjoy substantial support,
operation” in respect of international as well as the growing commercial
football was a possibility. The interests of American owners, surely
potential riches that a Super League a World Super League is the logical
could generate are best illustrated conclusion for elite clubs seeking to
by the FIFA World Cup. A total of maximise their revenue potential?
European clubs were told by FIFA $3.7billion of income was generated
that they must release their players for from the 2010 World Cup. Yet the
13 international dates in 2011. They 400 clubs providing the players
included the 10 August clash between shared a total of only £25.3million
England and Holland that in compensation. Barcelona, which
was cancelled due to the rioting in released 13 players, received the highest
amount at £557,000. English clubs, the
The English Premier
London. That game would have been
played just three days before the start best rewarded in the scheme, shared a League was formed
combined £3.8 million. These clubs will
of the English Premier League season
– a state of affairs that was not exactly be wondering how much they could over 20 years ago
popular with Premier League managers.
In 2013, FIFA has plans for an
have earned had they been in control of
the revenues of a world
when leading clubs
unprecedented 15 international dates. club competition. broke away from
No wonder clubs, under pressure to cut The English Premier League was
losses, question the commercial sense formed over 20 years ago when leading the Football League.
of being forced to allow highly-paid
players to participate in international
clubs broke away from the Football
League. The commercial success of the The commercial
games for little or no payback. Premiership sets an example that could
be replicated by the top European
success of the
Europe’s leading clubs in England,
Germany, Italy and Spain dream of clubs. Bayern Munich, Real Madrid, Premiership sets an
Internazionale, Milan, Manchester
the profits they could make from a
European Super League. This, plus United, Liverpool and Barcelona have example that could
the increasing demands of FIFA won 36 European Cup and Champions
League titles between them. They
be replicated by the
for international games, mean the
current status quo is unsustainable. would be the natural choice for any top European clubs.
8Eastern mystery
It is seven years since the Glazers although there are suggestions that The growth in the
took Manchester United private the valuation of the club is too high. economic power of
for a purchase price of £790 Despite 2010 revenues of £286m, and the East and the resultant
million, provoking fury amongst an operating profit of £91m (the highest increase in disposable
supporters. in the Premiership), the club reported a incomes have combined
£79m loss after interest costs). The high to attract the interest
interest costs reflect the fact that the
It looks like they are now moving to of western brands.
offload 25% of their shares at more Glazers financed their 2005 purchase
than double the purchase price, leaving with £600 million of loans.
themselves with a healthy capital gain The growth in the economic power
and the fans more outraged than ever. of the East and the resultant increase in
In June 2010 the Glazer family held disposable incomes have combined to
talks with several investment banks attract the interest of western brands.
These brands now include some of the downloading of football matches.
with a view to listing Manchester
top European football clubs. The places With UK fans currently having
United on the Hong Kong stock
clubs visit on their pre-season tours give to watch their spending, it is no
exchange. This followed a number of
a clear indication of where they expect surprise that European clubs should
recent high-profile flotations in Hong
Kong. Clearly the Glazers and their growth to come from. Liverpool toured see Asia as a key growth area. So a
advisers were attracted by suggestions in China, Malaysia and Singapore, listing in Singapore for Manchester
that a listing could value the club at Chelsea in Kuala Lumpur, Bangkok and United should similarly occasion no
£1.7 billion. Hong Kong, and Arsenal in Malaysia surprise. United, after all, does have a
Hong Kong has been the world’s and China. Did they go there for number of advantages over its rivals.
biggest Initial Public Offering (IPO) the weather, or to raise their profiles On the playing field, United is the
market for the past two years, raising amongst their growing Asian supporter most successful team in the history of
$57.4bn (£35.6bn) in 2010. Recent bases? Manchester United has an English football, although, of course,
listings include luggage manufacturer estimated 333 million fans, of whom Liverpool has won a greater number of
Samsonite, Macau casino operator 190 million live in Asia. European trophies, making it the most
MGM China and, in June 2011, Prada. Demand for live Premiership action successful English team in Europe.
After four previously unsuccessful led to a fierce bidding war amongst The Manchester United brand was
flotation attempts, Prada recognised Asian broadcasters for the 2010-2013 rated second most valuable in 2010 by
the importance of Asia as a consumer broadcast rights. In Singapore, an island Forbes magazine behind the New York
of luxury goods and decided to list in with a population of only 4.8 million Yankees, and the club is one of the best
Hong Kong. people, the rights are held by SingTel, supported in the world.
However, it is Singapore, and not which paid £200 million - more than We believe that if its IPO does
Hong Kong, that is expected to see the three times the amount paid by the succeed, Manchester United will
launch of Manchester United shares, previous holder. In Hong Kong, i-Cable progress to another level that very
slightly later than planned due to paid £150 million, again a significant few others will be able to replicate.
volatility in the world financial markets. increase on the previous arrangement. Yes, others may be tempted to follow
No explanation has been provided The football-hungry younger fans United’s example. But, while Asia has a
for the change of venue to Singapore, in Asia are very IT literate, and eager real and increasing hunger for football,
but indications are that 25% of the for the latest computer and telephone appetite can be quickly sated. The most
shares will be offered for sale and the gadgets. This growing market offers successful clubs are likely to be those
listing is expected to raise £600 million, new opportunities for streaming and first to market with attractive offerings.
9Focus on football finance
Where does the money go?
Premier
League
million
subscribers paying
players,
managerial, coaching
million clubs and support staff
The economics of the mad house costs. Each club has a squad of 25 first
team players, earning an average basic
support staff. Rather than using the
increasing TV monies to repay debt, it
The gulf between the Premier League
and the rest of football has also widened
salary of £1.2 million. With bonuses seems that the clubs have preferred to significantly. The average Premiership
and appearance money this could rise to pay higher wages to their players and wage is now 5 times more than the
According to the Premiership Football Clubs ought to be
among the most profitable businesses
content and some Sky subscribers are
also amongst the estimated 1.2 million
between £1.8 million and £2.4 million. staff. In 1992-93, the first year of the average in the Championship, and 30
In addition, the clubs have Under 21 Premiership, the average Premiership times more than the average League
Office of National in Britain. They have a quality product ESPN subscribers, paying another
players and the associated managerial, basic annual pay was £77,000, over four Two wage. Back in 1992-93 those
for which there is a seemingly insatiable £108 each year (or £144 for non-
Statistics, the demand. Ticket prices increase year Sky subscribers).
coaching and support staff. Manchester times the average UK wage. Ten years figures were 1.9 and 4.6 respectively.
City’s wage bill in 2010-11 was £174 later in 2002-03 the average player’s Why has the gap widened so much?
average UK worker on year, and the Premier League has
delivered significant and incremental
Sky and ESPN are paying circa £1.7
billion over 3 years to the Premiership
million, £21 million more than its total pay had increased by nearly 800% to Look no further than the level of TV
income of £153 million! £611,000, but the average UK wage was monies in the lower leagues.
earns £24,076 per increases in TV monies with every for TV rights, equating to £567million
In effect then, the hard-earned only 53% higher. By 2009-10, players’ What is more, this cash does not stay
new deal. Our football clubs should each year.
year, and 10.26 be awash with cash. But in 2009/10 The Premier League distributed
money of the estimated 5 million Sky
sports fans ends up helping to line
pay had virtually doubled again, to an
average £1.2 million, against a 20%
in the Premiership footballers’ pockets
for long. Despite the massive increase
million of them only three Premiership clubs reported
profits, and one of those (Arsenal)
at least £19.6 million from domestic
broadcast rights (£13.8 million equal
the pockets of circa 800 players and increase for the average worker. in players’ wages, in some cases it is
subscribe to Sky, would have incurred a significant loss share plus a minimum of £5.8 million
had it not been the for one-off sales of facility fees) to each of the 20 Premier
paying an average £156 million worth of apartments in League Clubs in 2010-2011. Additional
its Highbury residential development. appearance monies were paid to the
of £535 each year. Premiership winners, Manchester clubs, depending on the number of
What is surprising is that despite the
massive increase in players’ wages,
1992-93
Approximately half United posted losses before taxation times they featured on TV. And, of it still isn’t enough for some players
of £79 million. The combined net debt course, the Premier League does make to avoid financial problems. In 1992-
of these subscribers of the 20 Premier League clubs in 2010 parachute payments to relegated clubs 93, the first year of the Premiership, 2002-03
was £2.5 billion. So the questions are: and solidarity payments to the Football the average Premiership basic annual
take some How can this be? Where does the League for distribution to its clubs, as pay was £77,000, over four times
the average UK wage. Ten years later
sport content. money go? Let’s focus on the
TV monies.
well as financing youth development
programmes and making various in 2002-03 the average player’s pay
had increased by nearly 800% to
2009-10
According to the Office of National charitable donations.
£611,000, but the average UK wage
Statistics figures, the average UK So the clubs collect the TV monies,
was only 53% higher. By 2009-10,
worker earns £24,076 per year, and along with their other incomes from
players’ pay had virtually doubled
10.26 million people in the UK ticket sales, merchandising, sponsorship again, to an average £1.2 million,
subscribe to Sky, paying an average of and overseas broadcasting rights and against a 20% increase for the
£535 each year. Approximately half use them to defray their expenses, the average worker.
of these subscribers take some sport biggest of which is the players’ wage
11
10Focus on football finance
reduction in disposable income as wages
fail to keep pace with inflationary price
rises. Can the football industry expect
the public to continue paying more and
more each year to finance the increased
wage demands of such a limited number
of individuals? Clubs cannot afford
still not enough and the number of to continue to operate the same way,
ex-Premiership players experiencing relying on the ongoing support of their
insolvency continues to rise. fans digging ever deeper into
The pressure of paying such their pockets.
unsustainably high wages has resulted We call upon the clubs to
in many clubs likewise succumbing to demonstrate a greater sense of morality
insolvency. The ranks of the Football and show some empathy with their
League include a long list of clubs that supporters, who are under increasing
have entered Administration - some financial pressures. We call upon all the
of them shortly after having been directors of our football clubs to live
relegated from the Premiership. (These up to the fair play ethos that Monsieur
include Leeds, Ipswich, Leicester and Platini and his colleagues at UEFA are
Wimbledon.) Portsmouth became the eager to impose, and to ensure that their
first club to enter Administration whilst clubs live within their means. We call
actually in the Premier League. upon the football authorities to show
HM Revenue and Customs the leadership required to ensure that
(HMRC) is often blamed for forcing clubs do attain the breakeven financial
clubs into insolvency. But clubs fair play standards demanded by
deducting income tax and national UEFA. That will require the clubs to
We call upon the
insurance contributions from the be brave enough to deny the increased
clubs to demonstrate a wage demands from players, to resist
unsustainable wages paid to their
greater sense of morality players can hardly expect HMRC (and the inevitable pressure of the fans –
and show some understanding the taxpayer) to foot the bill. Any club however hard-up they themselves might
to their supporters, who are that has spent the tax it has deducted be - to spend those extra millions in the
under increasing from its employees on higher wages transfer windows, and use their income
to reduce debts. We say: so what if the
financial pressures. and transfer fees deserves no sympathy
from the hard-pressed taxpayer. clubs don’t sign the expensive players
There will always be football. that their fans want? Many of the clubs
The present model, however, is that did gamble on spending their way
not sustainable. The paying public to footballing success have entered
who subscribe to satellite TV are insolvency and fallen out of sight of
encountering real financial pressures, the upper leagues. Spending does not
and those in work find themselves guarantee footballing success. We
obliged to make sacrifices, faced with a urge the clubs to look realistically, and
12modestly, at their ambitions, and follow
the fair play protocols. Operating Key financials for Premier League clubs at June 2010
within their means will allow clubs to
find their true economic level in the Wages as Profit/
league. That may well be less glamorous % of (loss)
than living the dream, but club directors Turnover Wages turnover before tax Net debt
and supporters must decide what they
£ million £ million £ million £ million
want from their teams: one gigantic
gamble that is more than likely to fail Arsenal 382 110 29 56 136
and risk the very existence of the club Aston Villa 91 80 88 (38) 110
they love so dearly, or a long-term
sustainable future. Birmingham 56 38 68 0 16
Blackburn 58 47 81 (2) 21
So we say the Blackpool 9 13 144 (7) 4.3
economic model Bolton 62 46 74 (35) 93
has to change. Chelsea 213 174 82 (78) 734
Everton 79 54 69 (3) 45
It represents the
Fulham 77 49 63 (19) 190
economics of the
Liverpool 185 121 65 (20) 123
madhouse, and Man City 125 133 106 (121) 41
cannot continue. Man Utd 286 131 46 (79) 590
Surely everyone can Newcastle 52 47 90 (17) 150
see why UEFA is so Stoke 59 45 76 (5) 8
keen on financial Sunderland 65 54 83 (28) 66
Tottenham 119 67 56 (7) 65
fair play.
West Brom 28 23 82 1 10
West Ham 72 54 75 (21) 34
Wigan 43 39 91 (4) 73
Wolves 61 30 49 9 0
Total Net Debt at June 2010 = £2.5 billion
13Focus on football finance
Is the Sky falling in?
It could be argued that Premier in the Karen Murphy case. Ms Murphy month, were too high and opted for
League footballers and BSkyB are is the Portsmouth pub landlady who a much cheaper Greek service until
the only players in the football appealed against her conviction for stopped by the English courts. Having
market who have fared well in the broadcasting illegally live Premiership paid nearly £8,000 in fines and costs Ms
recession up to this point. matches by using a Greek TV signal Murphy took the issue all the way to
decoder. The Football Association the ECJ.
Premier League Limited (the private In essence, the legal case was about
Even though the credit crisis has forced
company which represents the whether or not a rights holder such
UK consumers to make cutbacks in
broadcasting interests of the 20 English as the Premier League can license its
their spending, it seems that many are
Premier League clubs), brought the content on a country-by-country basis.
reluctant to cancel or downgrade their
prosecution arguing that only Sky TV Licensing in this way has allowed the
Sky TV subscription. Sky customers
had exclusive rights to show its games League to maximise fully the value of
now spend an average of £535 each year,
in the UK. its rights.
quite an increase from the average of
Ms Murphy considered that BskyB’s The Premier League and Sky were
£452 they were paying three years ago.
charges for commercial premises in given a strong indication as to what
Increased take-up of high definition
the UK, which can be over £1,000 per the decision of the ECJ would be in
services and broadband and fixed line
telephones have been the main reasons
for the uplift. Despite an increase of
10% in revenue over last year, the
recession does finally seem to be
catching up with Sky. Estimates indicate
that the number of new subscribers in
the September quarter is down over Despi
te
10% i an increase
80% on the same period last year.
n
Meanwhile, footballers’ wage
o
demands seem to go forever onwards
year, revenue ov f
the re e
cessio r last
and upwards. One wonders how much
more Sky customers, some of whom finally nd
s
catch eem to be oes
are unemployed, will be asked to pay to
keep Premiership footballers living
ing up
in the manner to which they have
with S
become accustomed. ky.
There may be trouble ahead for the
pay-TV broadcaster, however. And
trouble for Sky could mean difficulties
for football clubs that depend so heavily
on their share of the seemingly ever-
increasing bonanza that TV rights have
turned out to be.
BSkyB is considering carefully the
decision of the European Court of
Justice (ECJ), Europe’s highest court,
14This decision could
potentially revolutionise the way
media rights are sold across
Europe, and not only in the sports
sector: the film industry has also • Sky may lose customers and revenue
to foreign broadcasters of Premier
sold rights to its products on a League football if UK fans are
country-by-country basis. prepared to accept foreign language
commentaries. Fewer subscribers
would probably mean Sky offering
less when the Premier League
auctions its TV rights this year.
February 2011 when the court was Union. The situation for viewers in Loss of exclusivity would almost
advised by one of its Advocate pubs and clubs is less clear. The ECJ certainly mean that bidders would
Generals, Professor Dr Juliane Kokott, found that the Premier League could not be prepared to offer as much for
to rule that EU law does not prohibit not claim copyright over live football UK rights as they have in the past.
pubs showing live Premier League matches as they are not an author’s Less money for the Premier League
matches from foreign broadcasters. own ‘intellectual creation’, and hence would mean a smaller payout for the
Advocate General Kokott’ s opinion ‘works’ as defined in EU copyright football clubs.
was that the idea of selling on a law. ‘Works’ do, however, include • Foreign broadcasters do not face
territorial exclusivity basis was logos, the Premier League anthem and the same restrictions on showing
‘tantamount to profiting from the recorded highlights, transmission of live football that have been imposed
elimination of the internal market’ which would need the permission of the on BskyB by the Premier League.
and that ‘there is ... no specific right to Premier League, as they are protected Matches kicking off on Saturday
charge different prices for a work in by copyright. So, whilst pubs and clubs at 3pm would be widely available
each member state.’ seem to be free to purchase a decoder to watch on TV. How many empty
When the judgement was delivered from anywhere, transmission to the seats will we see in the stands as fans
on 4 October the ECJ, as expected, public appears to be prevented unless are tempted to watch their team on
followed the guidance of its Advocate the transmission can exclude ‘works’. high-definition TV from the comfort
General, deciding that the TV rights Consequently, the High Court will of their armchairs? More armchair
deal breached EU competition law. Any need to interpret the ECJ decision and fans would mean less money through
ban on the use of overseas decoders, rule on its implications. the turnstiles for the clubs. Would
said the ECJ, could not “be justified This decision could potentially clubs seek to raise the cost of tickets
either in light of the objective of revolutionise the way media rights are in these economically difficult times?
protecting intellectual property rights sold across Europe, and not only in the Or would they reduce their budgets
or by the objective of encouraging the sports sector : the film industry has also for salaries to players?
public to attend football stadiums”. sold rights to its products on a country-
The decision of the ECJ must now by-country basis. Is the sky about to fall in
be considered by the High Court in Sky has around 44,000 pub, club on football’s spiralling TV
London, which had sought guidance and office subscribers in the UK and
from the ECJ. It is rare for a national revenues from such subscriptions are
rights valuations? Watch
court to take a different view from thought to be about £200m a year. this space…
the ECJ. Exactly how much of this will be at risk
It appears from the ECJ decision is unclear.
that individuals will be able to watch So what are the potential
live TV matches using a decoder implications if the High Court follows
card from anywhere in the European the ECJ decision?
15Focus on football finance
Investment in youth is changing
On 20 October 2011 the 72 be good for the game? This is likely In the summer 2011 transfer window
Football League clubs voted to depend upon the structure within this increasing investment in young
in favour of plans for radical individual clubs. At present there are players would appear to be influenced,
reform of the structure of youth significant variations between clubs in as suggested in our Football Transfer
development in England. terms of the time and money they invest Tracker, by the Premier League’s squad
One aspect of the Elite Player in their youth development initiatives. composition rules, which provide an
Performance Plan (EPPP) will be a Consequently, the importance of incentive for investment in youth. With
significant change in the mechanism by developing players for promotion into players such as Jordan Henderson, Phil
which clubs are compensated for the the first team or resale to other teams Jones, Romelu Lukaku and David de
transfer of their talented youngsters to tends to differ from club to club. Gea costing upwards of £15 million
other clubs. each, the prospect of being able to sign
Under EPPP, clubs’ academies Investment in young talent the best prospects from around the
will be graded. The better their youth What one can say – based on the country for, say, £150,000 under EPPP
development set-up is deemed to be, the monitoring of transfer activity in might be very attractive for the financial
more money they can expect to receive English football’s top three divisions powerhouses of the Premier League.
in the form of grants in the coming by Grant Thornton’s Sports Advisory Indeed, at such levels, big clubs may be
years. This theoretically incentivises Group over recent transfer windows happy to speculate on a few promising
clubs to develop their youth operations. – is that the reform comes at a time teenagers, in expectation that one or
However, the EPPP will also bring an when Premier League clubs have been two of them will appreciate in value
end to the tribunal system for valuing raising the proportion of their transfer very considerably.
the transfer of young players. Some fear expenditure spent on young players
that this could reduce substantially a very substantially.
potentially lucrative income stream for
many clubs: the sale of young players to This trend is detailed in the
bigger clubs. table below
EPPP sets out a formulaic approach
to value young players based upon the Summer transfer window
time the selling club has invested in
2009 2010 2011
their development. It does not factor
in their potential. This could put an Age at transfer £m £m £m
end to any prospect of major windfalls
from the sale of the next potential star
Under 21 years 21.2 59.7 130.0
player. It is important to note, however,
that, should the player go on to play Proportion of total spend 5% 17% 27%
for the acquiring club’s first team,
the EPPP rules would trigger further 21 years and above 428.2 296.5 344.8
compensation payments. These could Proportion of total spend 95% 83% 73%
possibly be in excess of £1 million.
Not surprisingly, given that a
recent ballot produced only a 46-22
vote in favour of reform, the financial
implications of EPPP have already
triggered much debate. Will the changes
16Premier League to lower leagues
2010 2011
£m £m
Championship 24.6 72.0
League 1 2.8 3.1
League 2 and below 0.3 0.0
27.7 75.1
Championship to lower leagues
2010 2011
£m £m
League 1 4.4 6.3
League 2 and below 2.1 0.9
6.5 7.2
What may be the financial impact on Charlie Adam, Championship clubs would be no bad thing if clubs were
the lower league clubs? reinvested only one-tenth of these deterred from engaging in this risky
What has happened in practice in monies with lower league clubs. Unless practice.
recent transfer windows? Our Football this situation changes, the impact of Under EPPP it will be easier for
Transfer Tracker also looks at the EPPP on League 1 and League 2 clubs clubs to work out how much income
cascading funds from the Premier may be relatively slight, simply because might be generated from the sale of
League to the lower divisions. (It must little money has been flowing down youth team players. Initially, the level
be noted that the data is an estimate to them under the old system. For of such income is not great. But the
based upon available information. Championship clubs, the impact of the formulaic methodology will allow
Transfer fees are less widely reported new rules will bear careful scrutiny. more accurate prediction of the cash
the further down the football pyramid No doubt there will be examples of set to be generated each year. And if a
one examines.) players whose transfer fees under EPPP club’s former player becomes a Premier
As shown by the table, summer 2011 will be lower than they might have League regular, it will receive a bonus of
saw some exceptional expenditure by been under the tribunal system. In these additional monies in years to come.
Premier League clubs acquiring players instances the selling club could miss
from clubs in the Championship. out on a lucrative windfall. This will
However, despite receiving large sums cause problems for clubs which rely on
for players such as Alex Oxlade- transfer income to balance the books.
Chamberlain, Connor Wickham and Then again, it could be argued that it
17Focus on football finance
TV rights
With the next round of Premiership rights income reported by Premiership game. Will the increase continue?
TV rights to be presented to the market clubs in 2009-10 was £952 million in The trend in the Football League,
in 2012, (for the years 2013-2015), and total. Six clubs earned more than £50 embracing the three divisions of English
clubs looking to break even to meet million each, with the highest being £60 football below the Premier League,
financial fair play rules, what levels million and the lowest £39 million. Each gives a possible indication of the future
of broadcasting income can the clubs round of bidding for TV rights has direction of Premiership TV monies.
expect to factor into their forecasts seen an increase in the money received The bad news is that its new three-
and budgets? by the Premiership. In 1992-1997 the year deal with Sky Sports is worth £69
The current SKY/ESPN three-year average TV income per Premiership million less than the current contract.
deal netted £1.782 billion and overseas game was £633,000. It leapt to £2.79 This appears to be because the BBC
deals produced a further £1.4 billion for million in 1997-2001 and after steady will not be providing any live coverage.
the Premier League. The resultant TV increases is currently £4.3 million per Instead, Sky Sports has agreed to pay
£195 million for the rights to screen
75 matches from the Npower Football
League, the play-offs, the Carling Cup
and the Johnstone’s Paint Trophy. The
2009– 2011 joint deal with Sky and the
BBC yielded £264 million for the TV
rights. This time around, however, the
BBC decided it was unable to make a
competitive bid following its strategic
review of budgets. Whilst the new deal
does show a significant reduction for
the Football League, Sky’s bid is still
well ahead of the £109.5m it paid for the
2006-2009 rights.
In the most recent bids for the
English Premiership TV rights, EU
competition law prevented Sky from
securing all six of the packages, and
Setanta beat rival ESPN to win the
sixth package. Setanta of course,
subsequently failed and ESPN was
invited to take its place. Owned by
Disney, ESPN is a much larger operator
than Setanta ever was. Indeed Disney
- which owns ABC, one of America’s
biggest networks and operates in
dozens of countries - out-sizes News
Corporation, which effectively
controls BSkyB.
18If ESPN decides to expand further with more Premiership
games, the competition may force Sky to increase its offer
to maintain its market position. On the other hand, if ESPN is
content with its current presence, it may simply submit a low
offer for one of the six packages, and rely on Sky again being
prevented by the EU from winning all six packages.
ESPN depended heavily on Sky bid significantly more than it did last current level. The Premier League will
when it launched its UK business, as time, Sky would be able to retain its be anxious to make sure it continues
it had neither the infrastructure nor TV offering by submitting a similar, or to maximise its potential income.
the expertise to create its own UK possibly a lower bid. That could mean The High Court has still to give its
subscription business. It has now no increase, or even a decrease, in TV judgement on the Karen Murphy
established itself, and has a UK football income for football clubs. case. It remains to be seen, therefore,
offering that includes: There is certainly profit to be earned whether the Premier League will seek to
• Premier League - 23 live games from broadcasting TV matches. BskyB sell UK rights across Europe next time
• Scottish Premier League - 30 live has founded its business on football. around, and whether this will tempt
games, covering all 12 teams ESPN and other broadcasters can see overseas broadcasters into the UK
• FA Cup - 25 live matches including the potential, but are they prepared market.
one exclusively live FA Cup Semi- to challenge Sky’s dominant market Al Jazeera, owned by the Qatari
Final and live coverage of the FA position, and at what cost? royal family, is one overseas broadcaster
Cup Final from Wembley Potential bidders must also take which could pose a challenge to
into account the impact of the Karen Sky. Qatar’s interest in football has
The question now, is whether this taste Murphy case, considered elsewhere in increased since it won the right to
of UK football has given ESPN the this brochure, in which the European stage the 2022 World Cup finals. Qatar
appetite to mount a challenge to Sky Court of Justice (ECJ) ruled that the is the Barcelona shirt sponsor, and a
in the next round of Premier League Premier League’s approach to selling Qatari investment firm acquired Paris
bidding. Having just acquired rights exclusive TV rights breaches EC St Germain, a leading French club.
for Europa League games from 2012-13 competition law. That decision will Al Jazeera has already demonstrated
to 2014-15 in conjunction with ITV, certainly change the way the rights its interest in televised sports by
ESPN has increased its football line-up. are sold next time around, as it is purchasing some of the domestic rights
If ESPN decides to expand further exclusivity within national boundaries to screen matches from France’s top
with more Premiership games, the that has driven the price up to the division, Ligue 1, as well as regional TV
competition may force Sky to increase
its offer to maintain its market position.
On the other hand, if ESPN is
content with its current presence, it
may simply submit a low offer for one
of the six packages, and rely on Sky
The trend in the
again being prevented by the EU from Football League, embracing the
winning all six packages. Last time, three divisions of English football
Setanta secured Package D, (comprising
mainly Saturday games at 5.15pm),
below the Premier League, gives
for just £159 million, beating ESPN a possible indication of the future
in the process. This equated to £2.3 direction of Premiership
million per game, which was less than TV monies.
half of the Sky bid. Obviously, ESPN
as the under-bidder offered less than
Setanta. If ESPN is not prepared to
19Focus on football finance rights for the next three World Cups which would benefit from individual to start the contest, will we see the and the Champions League, with Gary negotiation of TV monies will be able same players participating, following Lineker fronting such coverage. to persuade enough of the others to the same game-plan? Or are the Because of all this, it is difficult to abandon the collective principle. Those broadcasters’ tactics about to change? assess whether the price for Premier opposing any change have highlighted And for the clubs, concerned about League rights will be driven down the expanding revenue gap between the financial fair play regulations, by the lack of exclusivity, or up by the top clubs and the others in the will they receive more or less from increased competition. Premiership. Allowing the bigger clubs broadcasting rights for their games? It is also possible there may be a to take a larger share of TV monies will Time will tell. It’s football, it could go change in the allocation of TV monies only widen that gap, and jeopardise the either way! between the clubs. Last year, the unpredictability and competitiveness of Premiership’s top club earned 1.54 the Premiership, that is at the root of times as much in TV monies as the its popularity. bottom club. In Spain, where clubs One final point to consider negotiate deals separately, Real Madrid is whether UEFA’s financial fair and Barcelona, Spain’s Big Two, earned play regulations will force clubs to 12.5 times more than the smallest La consider for the first time allowing live Liga clubs. The discrepancy is explained broadcasts of matches kicking off at 3 by the fact that, while TV monies in o’clock on Saturday afternoons – the the Premiership are distributed partly traditional start-time of all UK football on League performance, the bulk is matches before the age of pay-TV. distributed equally amongst the clubs. The Premier League has fought shy of Liverpool managing director, Ian allowing 3pm live broadcasts for fear Ayre, has recently been voicing his of the damage that might be caused to dissatisfaction that, in his view, clubs attendances in the lower leagues. Given such as Real Madrid and Barcelona have the option, many fans might indeed an advantage over Liverpool because prefer to sit at home in front of their they are able to negotiate their own TV HD TV watching a top-flight match, rights deals separately from their rivals rather than travel to sit in a draughty in the Spanish league. The Premiership stand with a distant view of the game. clubs share international TV monies For clubs desperate to increase revenue, equally, as the Premiership negotiates the chance to earn additional income a collective deal on behalf of all the from broadcasting 3pm kick-offs on clubs. Liverpool is clearly unhappy Sky, their own TV channels or the about this position. However, others internet, may just be too tempting. such as Arsenal and Manchester City So the stage is set for the next round have indicated that they are happy with of bidding for Premiership TV rights. the status quo. Any move to change Karen Murphy and the ECJ have the arrangement would require the moved the goalposts. The impact of approval of 14 of the 20 Premiership the recession is further distorting the clubs. It seems unlikely that those clubs picture. When the whistle is blown 20
About Grant Thornton
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and financial adviser to football clubs Reorganisation is one of the UK’s top
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21Focus on football finance
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