William John Market Report 06-09-21
William John takes a look at football finance with the negotiation of the CVC/La Liga television rights deal
William John, Football, Premier League, Revenue, Private Equity, Television Rights, La Liga, Football League

William John Market Report 06-09-21

William John Market Report 06-09-21

Category: Reports

Football became a professional vocation in 1888 with the establishment of the Football League. In the 133 years since the professional game was founded, it is fair to say football has evolved. Whether it be tactics, finances, clubs, players, or fans, almost every aspect of the game has changed. 

The first statistics collected on gate revenues (the initial and traditional source of revenue for football clubs) and ticket prices was taken from the 1926-7 season onwards. A study conducted by Stephen Dobson and John Goddard in the November 1998 edition of the Economic History Review, analysed data collected from the Football League archives:

Source: William John Analytics, The Economic History Review, Nov. 1998, New Series, Vol. 51, No. 4, pp. 763-785

Analysing this data, it is clear to see that gate revenues and ticket prices have grown substantially since records began. Transforming these nominal figures to real value, between 1927 and 1994, real gate revenue in the Football League grew by 434% and ticket admissions prices grew by 476% (figures deflated using the Retail Price Index). 

This has undoubtedly transformed these once local football clubs into institutional companies. However, the role of gate revenue in growing professional football clubs is diminishing and has been so since 1992. 

To understand why, the situation in the late 20th century concerning English professional football ought to be contextualised. Despite significant success for English football through the mid-to late 20th Century, with England lifting the World Cup in 1966 and significant European success famously exhibited by football clubs Liverpool FC under Bob Paisley and Nottingham Forest FC under Brian Clough, by the mid 80’s British football was in dire straits. 

Stadiums and club infrastructure were crumbling, football hooliganism had emerged as a violent and dangerous force across the country and the Hillsborough and Heysel disasters respectively had left a powerfully symbolic mark of shame on the state of football. Furthermore, the financial power of the Football League had fallen behind its contemporaries in Spain and Italy, leading to many notable players signing for clubs abroad and English clubs feeling they needed to address their financial power and image to keep up with the rest of Europe. 

Consequently, with a need to rebrand English football and a need to refinance the game, the clubs of the Football League First Division decided to break away from the Football League and form the FA Premier League to take advantage of a lucrative television rights sale to Sky from the 1992/93 season onwards. Since then, Premier League television rights have grown at an accelerated rate:

Source: William John Analytics, Statista.com, BBC

Between 2016 and 2019, for example, Premier League broadcasting rights generated more than £5.1 billion in average annual revenue. The power of broadcasting rights fees has become the dominant force for professional football and as a result has had many positive outcomes for football. 

Primarily, it has fuelled the rise of successful clubs to become billion-pound businesses. According to Sportico, the average value of a Premier League of a club stands at $1.29 billion (just over one billion pounds). Whether through reinvestment in Club assets (fixed or current – building the Emirates Stadium or signing Cristiano Ronaldo) or through acquisition by financially powerful ownership such as Roman Abramovich’s purchase of Chelsea or the purchase of Manchester City by Abu Dhabi royalty, the attraction of Premier League football has drawn the highest calibre level of investment.  This has created thousands of jobs, contributed to urban regeneration and has been procyclical – more investment has improved the quality of English football on and off the pitch, driving further investment, and the process repeats. 

But not all outcomes have been positive. Sportico also reported that the “Big Six” clubs of the Premier League: Manchester United, Liverpool, Manchester City, Arsenal, Chelsea, and Tottenham Hotspur are worth approximately $3.675 billion on average, whilst the remaining 14 teams in the league are valued at $3.7 billion combined. This highlights the growing financial disparity between the clubs at the top end of the “football pyramid” and those at the bottom. 

This was exacerbated by the European Super League (ESL) proposal in April 2021 by the aforementioned Clubs alongside some of Europe’s other elites. It was an attempt to further gain control of television rights and protect Club access to them by closing off competition and, crucially, cutting off revenue redistribution to lower division clubs. The ESL proposal has rightly been shut down. Nevertheless, it represents a more sustainable, autonomous way to drive Club value and control Club revenue which reflects the “American” model. But, it is a ‘closed’ competition that protects financial interests rather than club interests – institutions of which the majority have represented communities for over 100 years. 

The ESL provides a stark reminder of the new reality for professional football: finances dominate decision making. These “clubs” are now clubs in name only and billion-pound commercial businesses in every other aspect. So, what does the future of football finance look like? 

Whilst closed competition revenue models are unlikely to redefine professional football anytime soon with the quashed attempt of the ESL, ownership of television rights is the singularly most important existential question of football. 

CVC Capital Partners, a private equity buyout firm with over $114.8 billion of assets under management, recently struck a deal with La Liga – Spain’s premier football division – to take approximately 11% of La Liga’s television rights over up to 50 years in exchange for €2.1 billion in funding, most of which will be offered as interest-free loans to clubs, with CVC planning to take an active role in managing media rights. Interestingly, FC Barcelona and Real Madrid opted out of the deal. 

Financial disparity is widening, and top division football needs to reflect on how to address this challenge as television rights seem to be the pivotal factor in determining club and league sustainability. Will private equity investment provide the financial sustainability that clubs need? Highly doubtful – this is a short-term fix to fill financial holes left by the COVID-19 pandemic and CVC unquestionably has won the La Liga deal. 

True financial sustainability moving forward will involve an entire overhauling of the football financial system – wage caps, transfer caps, development of current Financial Fair Play regulations, and a commitment to redistribute some portion of television revenue to the lower parts of the football pyramid. 

These are solutions to stabilise a sinking ship. Whether they will be enough or whether ‘closed competition’ models will resurge with a vengeance is a question of timely execution of structural change and warding off outside investors. Private equity, private ownership of teams by very high net worth individuals, and other stakeholders that will either have the power to control television rights or own far too much of it for far too long, is the true cost to football finance in its current state by the time football’s governing bodies have enacted change. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.