The financial development and impact of the Barclays Premier League

The financial development in football has grown in recent years, specifically in the Barclays Premier League. Since the league began in 1991/1992 the revenue of the 20 Premier League clubs has risen by almost 14 times greater. At £2.3 billion revenue the Barclays Premier League retains its status as the football world’s leading revenue generating club competition as it currently has a £654 million gap over 2nd placed the Bundesliga.

Revenue Streams

With 50% of the revenue made up of money from broadcasting rights, 27% from commercial revenue streams (such as sponsorship) and the remaining 23% coming from matchday revenue. To develop this kind of revenue the leagues and clubs establish different revenue streams, and these streams relate to broadcasting revenue which includes revenue from participation in domestic leagues and cup competitions, matchday revenue which is largely derived from gate receipts, and commercial revenue which includes sponsorship, merchandise and other commercial operations. The Deloitte Money League 2015 has established that the broadcasting and commercial activities of clubs has reached an all-time high, with the matchday revenue of the top 20 teams in the Money League growing by 4% in 2013/14, compared with an overall revenue growth of 14%.

The Premier League’s fan base is continuously developing, the 2012/13 season Premier League Review recorded that the fan base currently stands at 645 million home fans and 1.163 billion worldwide, which is 70% of the world’s estimated 2.08 billion football fans.  Gate receipts in English football are high in stature due to inflamed ticket prices per club, as the table below displays, England charge the 2nd highest average ticket price in Europe.

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The Premier League is now the most viewed league in the world, this is largely down to current deals with BskyB and BT that will generate £3.4 billion over the next 3 seasons with overseas broadcasting rights producing a further £2.2 billion. Thus giving overall worldwide exposure per club of over 565 hours, and the television coverage of the league matches reached 643 million homes in the world. These figures show the development of such finances in football, in 1992 Sky first purchased the rights to present the Premier League for £304 million.

Commercialism revenue is mainly generated through kit suppliers and sponsors of the clubs within the leagues. The table below demonstrates the current kit suppliers for the top 50 biggest brand finance clubs, Adidas and Nike seemingly control the market of the biggest markets. Adidas as such have recently agreed a £750 million deal to sponsor Manchester United for the next 10 years, this however has impacted on the currently kit deal with the English Cricket Team because of the expense of the deal.

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These 3 different types of revenue streams for the Premier League have had a direct impact on the clubs within the league with every club reporting record revenues in 2013/14 season, all 20 clubs are now within the top 40 of the Deloitte Money League after only 8 teams where in the league only a year ago. In the past 5 years from 2006 to 2010 there has been an income escalation of football clubs by 42% at a time when Europe’s economies expanded by just 1%.

An increasing issue with the financial development within football in the UK is the financial gap between top clubs within the Premier League and the smaller clubs.  A report conducted by BDO on football finance and the impact of Financial Fair Play found 94% of respondents believe the gap between larger and smaller clubs is widening; with 79% of English Premier League (EPL) respondents and 76% of Football League Championship (FLC) respondents see the gap within their own league widening. The loss of income through relegation is the main concern for English Premier League clubs whereas lower leagues are more concerned with inflexible player salaries, attendances and their ability to attract sponsorship revenues.

Transfers

The amount of money clubs are now spending on transfers in each transfer window is progressively becoming an issue for some fans. UEFA have reported that in 2010 the net loss of football clubs from transfer activity was €933 million at the end of the financial year. Data shows that, on average performance is directly linked to the wage bill, with the view to spend more and get better players, which will result in winning more games. The table below shows the Premier Leagues gross transfer spending since 2003, the chart clearly shows an increase in transfer spending over the past few years for the clubs within the league, particularly in the summer window.

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To aid prevention of the losses clubs make through transfer spend and to reduce the gaps between football clubs, UEFA have introduced the Financial Fair Play rule which caps the amount clubs can spend and gives them a maximum loss they can make each year to make them more sustainable. This ruling is designed to also increase the power UEFA have over the FA and the Premier League, as the organisation is controlling spending per club, this is known as politicization.  If clubs fall foul of this they receive a fine and a cap on squad players for some club competitions, as Manchester City found in 2013.

The Future

Looking to the future, there are many implications that could take place because of the increasing finance in professional football. Commercialised deals such as sponsorship have increased by a colossal amount in recent years and this could impact on future deals. For example, a club like Real Madrid may view the deal with Manchester United and Adidas as a stepping stone to earning more income and therefore may demand more which could then impact on the Adidas group financially.

The increasing earnings of top Premier League clubs are meaning more expenditure on players. Because the top clubs can then afford the top players it is creating a gap between the lower teams in the division and forcing them to spend more in order to keep pace. This is then creating a further gap between Premier League clubs and clubs in The Football League. The real question that will be answered soon enough is how long can the lower teams keep pace with the big clubs? UEFA has done its best to accommodate this with FFP, however this has just encouraged the top clubs to demand more income to allow for more spending.

The difference between Manchester United and Liverpool this season is arguably transfer spend to finish in the final Champions League qualification spot. Considering that these clubs are two of the biggest clubs in English football history, what does this mean for teams further down the pecking order?  The table below from the 2012/13 campaign highlights the impact of finishing in a certain position in the Barclays Premier League. The teams that finish at the top generate more wealth aiding clubs that finish at the top to stay at the top. If clubs who finished at the top earned less than clubs nearer the bottom for finishing position alone may make the league more competitive as it would mean revenue closer throughout the league, this could work as the clubs who finish at the top may not necessarily need a lot of income to succeed once again. On the other hand it is highly competitive at the top of the league, and the top 5/6 teams feel that it is necessary to spend a large amount in the transfer window once again to ensure success and to strengthen their squads.

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Football in England has developed greatly from competing to win to a business model that requires winning but it is not essential. The globalised nature of the league means that clubs can now access funds from all over the world in terms of merchandising and sponsorship. The Barclays Premier League is in a superb financial position, but how long will it be before it is no longer competitive with such a financial imbalance.

Sources: Deloitte, Brand Finance Football, Barclays Premier League Review 2014, BDO, thesoccerdesk.com, Daily Mail.

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