New Premier League TV rights: How will they affect the clubs?

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Premier League champions Manchester City and current league leaders Chelsea will be among those to benefit from a record agreed television deal which kicks in next season. Surya Solanki investigates.

On July 10 2012, the English Premier League cemented its status as the most profitable and lucrative domestic league in world football by securing a whopping £3.018 billion deal in TV rights.

Long-term partners Sky maintained its stranglehold over the broadcasting rights by securing five of the seven available packages in exchange for £2.3 bn.

This means that the Rupert Murdoch-owned television station will broadcast 116 games per season from the 2013-14 campaign, the maximum allowed for a single broadcaster.

However, the biggest surprise was the fact that newcomers BT pipped Walt Disney-owned ESPN for the remaining two packages.

It was understood that ESPN were keen on increasing their portfolio from the current one-deal package, but they were surprisingly outbid by BT, who will now telecast 38 of the best Premier League games.

BT forked out £760 million for the two packages, that will include the opening game of the season, Saturday lunch-time kick-offs and matches held on bank holidays and midweek evenings.

What follows is an analysis of how the record-breaking deal will affect the big Premier League clubs.

Distribution of Revenue

In the Premier League, the TV rights are collectively sold and the total revenue generated is divided into three groups.

The first group consists of 50% of the revenue that is split equally amongst all the twenty teams. During the 2011-12 season, the £13,788,093 was distributed to all the twenty clubs in this pot, whereas with the new deal all the clubs could see an increase of £10m from this group alone.

The second group consists of 25% of the revenue that is split amongst the teams depending upon their final standings in the league, that is, based on merit.

If the team that finishes 20th earns an amount ‘X’ as the revenue from the second pot, then the 19th-placed team will earn ‘2X’, 18th-placed team will earn ‘3X’ and subsequently the team that has won the league will earn an amount ‘20X’ (via SportsIntelligence).

In the 2011-12 season, when the total domestic rights were worth 1.7m, Wolves finished at the bottom of the table and earned a total of £755,063 as merit revenue, whereas, the champions Manchester City received £15,101,240 as merit payment, that is, 20 times of what Wolves received.

However, with the new deal, City could rack up to £25m from merit payment, whereas the bottom-placed club could earn around £1.5m.

The third group consists of 25% of the revenue and is distributed amongst the clubs on the basis of the number of television appearances they make. Generally, the bigger clubs like the two Manchester sides, Chelsea, Arsenal, Liverpool and Tottenham Hotspur happen to earn the maximum amount from this pot due to the public appetite for watching these ‘big draws’ on screen.

This area of avenue too will see an increase for the big clubs by around £10m. However, one will have to take into account that the revenue from this source will mainly depend on the popularity of the clubs. Thus, even though Manchester United finished second, last season and were far from impressive in most of their games, they still received the highest facility fees of £13,426,422.

Another source of broadcasting income is the overseas payments, distributed equally amongst the 20 clubs. These overseas payments are expected to see a substantial rise in the wake of the mammoth domestic rights. Auction for these domestic rights has already started with Scandinavian rights already sold out for 2013-16, though, the total auction process, for all the territories could take months.

Nonetheless, one could expect the overseas payments to rise from the current £18,764,644 to around £20-£25m.

It can be concluded that if Manchester City finish first in the 2013-14 season, the club could see their TV revenue rocket up to more than £100m, almost £40m more than what they earned last season.

Now let’s have a look at how this massive increase in revenue could shape the future of European football and how it will benefit the big clubs.

Narrow Gap between Real Madrid and FC Barcelona with Equity

Unlike the Premier League, the TV rights in La Liga are sold individually by the clubs.

This means that the more successful and popular the club is and the more superstars it boasts, the more TV revenue will it generate.

As a result, the broadcasting rights are usually dominated by Real Madrid and FC Barcelona. The two Spanish giants bring in about £120m-£135m from their lucrative TV deals, almost twice what English clubs Manchester Untied and Manchester City earned in the past season.

However, from the 2013-14 campaign, the tide could change for the Premier League giants. As aforementioned, the new deal could enable the English clubs to close down the gap between Real Madrid and FC Barcelona and increase their competitive position.

From Via Dawn.com “In a deal announced this month, broadcaster BSkyB and former state telecoms company BT will share live domestic English Premier League rights from next year. They agreed a three-year contract worth 3.018 billion pounds ($4.70 billion) that will narrow the revenue gap between clubs like Manchester United, City and Chelsea and Real and Barca. ‘There is no doubt that this TV deal will improve the competitive position of English clubs,’ the Swiss Rambler, a widely-respected blogger on soccer finances, wrote last week. The top two in England, United and City, earned about half as much from TV rights as Real and Barca last season but the gap may close altogether depending on the size of overseas rights deals and whether Spain’s dominant pair can be persuaded to adopt an English-style bargaining system, he added.”

Henceforth, the new rights will finally allow the dominating clubs of English football to generate almost the same amount of revenue as their Spanish counterparts without disrupting the stability of the league as the weaker clubs too will see a gradual increase in their own funds. Therefore, growth will be promoted with equity. (Source: swissramble.blogspot.in)

FFP and Debt Reduction

With UEFA’s FFP (Financial Fair Play) fast approaching, it is becoming increasingly pivotal for the clubs to balance their sheets and keep their losses ‘under limits’.

The basic rationale behind FFP is to ensure that the clubs don’t spend more than what they earn.

Hence, even though the likes of Arsenal and Manchester Untied have mounting debts knocking on their doorsteps, the two are financially stable and generate enough revenue to meet their expenditures.

The same can be said for the likes of Manchester City and Chelsea after their recent successes over the past season. The two, particularly the Citizens, might not have followed Mr Platini’s idea of financial fair play at certain times due to the deep pockets of their respective owners and the inability to yield the desired results on the pitch;however, the situation seems to have changed lately.

Manchester City’s Premier League win and Chelsea’s Champions League and FA Cup coup have made the duo one of the most profitable clubs in Europe.

Manchester City’s deal with the Etihad Airways earns them around £400m over a period of ten years, whereas Chelsea’s Champions League victory alone helped them rack up more than £45m.

Hence, an increase in TV rights revenue will only improve their financial situation. The higher the funds generated from the domestic and overseas rights, the more easily will clubs like City and Chelsea comply with the FFP rules and avoid any sanctions from the FIFA or UEFA.

Via FootyTube: “You’d have to say that this is a timely boost for both Man City and Chelsea. With the Financial Fair Play regulations intending to be enforced from 2014 onwards, this increase in revenue kicks in just in time. When Peter Kenyon claimed at Chelsea in 2009 that they were virtually debt free the footballing world scoffed at the idea, and rightly so. However, the West London club are not as far as many people think from complying with the new financial regulations. Yes, the purchases of Eden Hazard and Fernando Torres were far from helpful on that front yet in their latest financial results they published figures of under £100m for their overall debt. If you then consider the £30m+ they could be receiving annually from 2013 onwards, not to mention the increased international television rights, then suddenly Chelsea look as though this could be their ticket to complying with the FFP rules. Admittedly, Man City will need slightly more help if they are to achieve the same goal but it is nevertheless a step in the right direction.”

Therefore, even after spending ludicrous amounts of money on players’ transfer fees and wages, the new TV rights might play a very essential role in helping both Manchester City and Chelsea to break even before the FFP comes into effect.

On the other hand, clubs like Arsenal and Manchester United can use the funds to bring down their debts by substantial levels.

Increase in Transfer Budget

One of the prime reasons why Real Madrid are able to make their famous ‘Galactico’ signings and FC Barcelona are the best paying team in the world are the galvanizing earnings of the two clubs from their respective TV deals.

As aforementioned, the two dominant Spanish giants earn around £120m-£135m by selling their TV rights. Much of this money goes towards paying their players large chunks of wages and also buying the best available talents in the market.

With the new rights, the transfer funds of the English clubs are bound to increase.

Via Soccerlens: “More money gives the clubs more spending power on the transfer market, and the ability to continue to attract the top football talent from all around the world, but is also likely to have the effect of bloating transfer fees & player wages (history would suggest the majority will flow directly into the pockets of players). “

With more revenue coming from the TV deals, clubs will have sufficient amount of money to spend in the transfer market, even with the commencement of FFP.

However, the big clubs will have to ensure that the players do their duty on the pitch so that the clubs don’t miss out on the equally important bonuses, higher revenues and sponsorship deals.

Many might complain that the new rights will harm the league in these times of a global crisis, but one thing is for certain, the Premier League heavyweights are surely going to benefit from the billions that are going to be poured into the league by Sky and BT from the 2013-14 season.

Do you think the influx in money will be good for the Premier League?

image: © 401K

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