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The consequences of the new Premier League broadcast contract

11, 02, 15
by Stefan Szymanski
0 Comment

For much of my career I have said that football, unlike the major leagues in the US, is not a business that can generate a profit. There is too much competition and too many incentives to win to make profits feasible.

But maybe the Premier League has just changed all that. The new domestic broadcast contract announced yesterday is worth £5.1 billion over three years. In recent years the overseas broadcast rights have fetched just about as much as the domestic rights, so when all is said an done the total broadcast revenue should amount to £3 billion a year, that’s £150 million per club (about $225 million) from 2016/17 – which would make it bigger than the NFL, heretofore the biggest revenue generator of any league in the world. More to the point, the EPL revenues will dwarf that of the other leagues in Europe, and will continue the trend towards those leagues becoming feeders for the EPL. Real Madrid, Barcelona, Bayern Munich will still be major clubs – but everyone else will look tiny alongside even medium sized EPL teams. Players throughout history have gone where the money is – the EPL’s share of global talent will grow even larger.

Unless. Unless the EPL clubs pocket the money. Financial Fair Play encourages them to do this, but even more important may be the salary restraints agreed by the EPL clubs. These are not much commented on, but the excellent Daniel Geey has a good blog on the issue. The big clubs have agreed to limit wage spending growth during the current broadcast contract and are likely to extend this arrangement in the future. The rules are complex, and any club determined to breach them can find a way, but the evidence suggests they are restraining themselves.

There are now four big clubs in the EPL, financially speaking: Manchester United, Manchester City, Arsenal and Chelsea. In 2012/13 here is the income and wage spending (in £million) :

Turnover wages ratio
Arsenal 243 155 0.64
Man City 271 233 0.86
Chelsea 229 163 0.71
Man Utd 363 180 0.50

For the financial year 2013/14 revenues have increased significantly as a function of the existing broadcast contract, which only kicked in last year. In aggregate revenues increase by 27%, but wage spending increased only 6%.

Turnover wages ratio
Arsenal 300 166 0.55
Man City 347 205 0.59
Chelsea 320 191 0.60
Man Utd 433 215 0.50

Manchester City actually managed to reduce its wage spend (while winning the title).

If this were to continue, the EPL would become one of the most profitable sports businesses in the world. It might also please its rivals in UEFA, by not making the gap grow too large. Restraint by the big clubs would also help the smaller clubs in the EPL become more profitable, and even teams in Championship.

Now, I would rather see all this money be spent on players and making the championship as exciting as possible. Most people seem to think that football clubs ought to be profitable, while I have always liked the idea that rich owners blow a fortune on building a team, even if that sometimes led to insolvency. I’m not sure I see the point of enriching the owners, but as things stand it looks as if they might become very enriched in the next five years.

 

 

 

 

 

 

 

 

 

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