speri.comment: the political economy blog

The Premier League television bonanza

Opinions differ as to whether this represents the market economy at its worst or its most competitive

Wyn Grant, Emeritus Professor of Politics at the University of Warwick and a fellow of the Academy of Social Sciences.

Wyn GrantThe amount paid by broadcasters for three years of Premier League television rights from 2016-17 exceeded all expectations.   Sky and BT agreed to pay £5.16bn over the period: three years ago they paid just £3bn for the rights.   Sky is spending more on its own than the City of London estimated the whole auction would yield.

Most of the increase will be paid by Sky.   Rumoured bidders Al Jazeera and Discovery Communications failed to win any matches, but their possible presence may have forced up the price.   Sky will pay £1.4bn each year to show 126 matches, including the coveted Sunday kick-offs.   BT will pay £320m a year to broadcast 42 games.   It is paying just 16% more than last time for what it will claim is a better package of matches.

Sky expects to cover its increased costs through price increases and cost savings.  Customers might have to wire their own boxes and wait longer on help-lines.   Investment in non-sports content could be affected.    Football will now account for 27% of the UK’s television budget.

Overall, the rights are worth £10.2m a game.  One likely consequence is a widening of the gap between the Premier League and other divisions and even more frenetic attempts by Championship clubs to win promotion, given that the rewards of even just one year in the top flight will be massive.  As it is, Burnley can earn more in a season in the Premier League than Ajax.

There has been concern about the effects on grassroots football and the absence of a real ‘trickle down’ effect, but Premier League chief executive Richard Scudamore controversially stated that he was not running a charity.   He also believes that the money will allow English clubs to compete more effectively with the likes of Real Madrid and Barcelona.   He said: ‘It’s easy to look down.  We prefer to look up and out.’

Spain’s football chief certainly fears an exodus of talent from La Liga to the Premier League and is worried that his competition will be devalued.

Fans are likely to renew their pressure for a reduction in match prices, but gate revenue is an increasingly small proportion of clubs’ earnings.   For example, it looks as if more ticket price rises are on the way at Liverpool to help pay for the redevelopment of the main stand.   Providing more capacity, and in particular more hospitality suites, is seen as crucial to the club’s continued ability to compete at the top level.

Season tickets at Anfield have gone up by 10% over the last five years at Liverpool, more than at Chelsea or Manchester United.   The Liverpool support base is not always as prosperous as those clubs.   The most expensive ticket in the ground has gone up by 37% over five years to £59, although that compares well with some other clubs.

Richard Scudamore scored something of an own goal when he said he was ‘not uncomfortable’ if clubs continued to throw multi-million pound salaries at the top players, but paid no more than the minimum wage to the lowest-paid club staff.  However, the clubs are not franchises and, if they think it’s in their interests to pay more in transfers and wages, they will do so.   At the end of the day, Scudamore is their hired hand, albeit a very well-paid one.

From the league’s formation in 1992 up until the 2012-13 season, revenues have increased at a compound annual growth rate of 14%, and wages by 16%, according to figures by Deloitte.   The wages-to-turnover ratio has reached 71%, well above the 50% level recommended by Deloitte Sports Business.

Is it conceivable that we shall see the £500,000 a week footballer before long?  Are they worth it?  They may often not represent a wise investment, but the market in very scarce goods can operate in a very odd way (think about rare paintings).   They will also be paying a lot of tax, particularly given that some avoidance and/or evasion loopholes have been dealt with.   The clubs themselves are estimated to pay at least £1.3bn a year in tax.

According to Scudamore, the Premier League is comparable in the eyes of people abroad to the BBC and the Queen.   That’s rather overstating it, even though it probably has a bigger following than either.   Whether it contributes as much to English prestige is a moot point.   However, some of the attacks on the Premier League do look like ‘tall poppy syndrome’, reflecting enjoyment  in cutting down something that is successful.

One defence of the Premier League is that, if you are in it, it offers a fairer distribution.  The ratio of TV income between the top and bottom Premier League club last season was 1.57 to 1.   In La Liga, it’s more like 10 to 1.

The Premier League now has to renegotiate its overseas rights.    It is here that we see the greatest effects of globalisation, with the development of satellite broadcasting enabling the Premier League to be followed around the world, especially in Asia, but with a growing market too in Africa.  Even a modest increase should take international rights above £3bn.   That could give each club another £100-£150m a year from 2016-17, depending on how much the league distributes externally.   That could make Premier League clubs even more attractive to investors.

Once the overseas deals have been completed, total Premier League broadcasting revenue is expected to exceed £8bn.   As a result, Championship clubs not receiving parachute payments can expect to receive about £5m per season in solidarity payments, more than double the present £2.3m.

With average turnover for clubs in the Championship of about £15m, this potential new figure represents a large proportion of income.   They get about £2m from their own television deal.   Whether the clubs will regard this as enough is, however, unlikely.

Parachute payments are currently £59m over four years, but would leap to more than £80m, although they will be paid over three years in future.   This will further distort competition in the Championship which has diluted its financial fair-play rules, arguably in response to pressure from the Premier League.   One implication could be that, like the Premier League, the Championship will be effectively split into a promotion league, a mid-table league and a relegation league.

From 2016 payments to lower-league clubs are to be based on a formula that sets payments based on the central share for each Premier League club from broadcast revenues.    League One clubs would receive £750,000 (up from £360,000) and League Two sides £500,000 (up from £240,000).

Opinions differ about whether all this represents a market economy at its worst or its most competitive.  Certainly, there are powerful voices calling for more regulation of football.   However, the Premier League and its owners represent a powerful lobby in alliance with television.   There is probably not much more upside growth in domestic television revenues, but the globalisation of football cannot but deepen.

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Categories: Economics, Inequality, SPERI Comment, Sport, Tax | Tags: , , , , , | Leave a comment

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