Fight or Flight??
The Premier League is facing unprecedented challenges. Can it rise to the occasion?
Hey there! Shounak here 👋
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Friends,
The Premier League broadcasting rights licensing has more or less stayed the same since 1994. Before we get into the particulars, it is worth recapitulating the structure of football clubs in Europe.
The English Premier League, The English Football League, and all subsequent tiers of English football are under the Football Association in England (The FA) which in turn is under the UEFA.
The English Premier League is a private company that is limited by guarantee. This is different from your run of the mill normal companies that are usually limited by shares. Here’s a quick difference between the two:
A company limited by guarantee does not have any shares or shareholders. Instead, it is owned by guarantors who act as custodians of the company.
Since the guarantors are not the shareholders of the company, they do not have a stake in the profits of the company. In case the company becomes insolvent or is riddled with debt, the guarantors agree to pay a fixed sum of money known as a “guarantee”.
Since these companies are “limited” by guarantee, they are essentially limiting their liability. This means that the members or guarantors will not be personally liable for the debts and liabilities of the company. The guarantee amount is a fixed amount paid by the guarantor in case of insolvency or winding up.
In the case of the Premier League, the guarantors of the company are the Premier League clubs themselves. And it is the Premier clubs that own the broadcasting rights to their football matches. However, the clubs allow the Premier League to license their rights collectively.
Some of these rights are utilized directly by the Premier League clubs. For instance, after midnight on the Sunday of the football weekend, the clubs get back the rights to broadcast their matches on their own TV channels (Think Liverpool TV) non-exclusively. The clubs are not allowed to sell these rights to third parties.
The ownership and licensing structure of these broadcasting rights are governed by the Premier League Constitution - and any change in this structure needs to be approved by 2/3rds of the constituent football clubs.
The Premier League has a centralized distribution model - which means that the money received by selling the collective broadcasting rights are distributed equally between the clubs. As you can see in the graphic below:
The split happens something like this:
50% of all broadcast revenue is split between the 20 Premier League clubs. The prize money earned by clubs for each place in the table is called Merit Payments and constitutes 25% of all UK broadcast revenue.
25% of broadcast revenue is paid in “Facility Fees” each time a club’s matches are broadcast in the UK. All international broadcasting revenue is split equally among the 20 clubs.
The Premier League was established in 1992 after clubs broke away from the erstwhile Football League. The new broadcasting rights for the 1992/93 season were sold to Sky - which remained the case till the 1996/97 season.
During the 1990s, the value of these rights grew exponentially, rising a whopping 176% by the end of the 2003/04 season. This growth slowed down for the next 3 years, only to pick up where it left off by the end of the 2006/7 season.
Since then, the domestic broadcast value has risen to $5 billion while the overall cost of broadcasting has risen up to $12 billion. While Sky and BT lead the way in traditional media, Amazon’s $110 million deal with the Premier League leads the way in live streaming of games to its Prime subscribers in the UK and Ireland.
The Premier League’s domestic broadcast rights are now worth approximately £4.5 billion. As large as that number may seem, the valuation has dropped 11% compared to 2018 when the valuation was upwards of £5 billion.
One reason for this decline may be the lack of interest in the younger generation to watch live sports. The small attention economy is not doing the football industry any favors. In fact, according to a survey by the Morning Consult, almost 50% of Gen-Z responders said that they don’t even consider themselves sports fans.
In fact, Gen Z is about half as likely as millennials to watch sports, and twice as likely to never watch sports. This shift in dynamic is why Gen Z-facing sports startups like Buzzer are making waves. This is probably why traditional sports business models are struggling.
Despite this, the Premier League’s overseas broadcast rights valuation has risen almost 35% from the end of 2016 to 2019 to £3 million.
As you can see, a large chunk of the revenue comes from the sale of the domestic rights to broadcasters like Sky Sports and BT Sports who have shared the broadcast rights between them since 2013.
The pandemic has not made things easier for the sports industry and the football industry in particular. Add to that the attention-deficit economy and depleting valuation, a change feels inevitable. Whether that change is for good or bad, only time will tell.
For Your Eyes Only…
It’s Boxing Day 1925: Bradford of Birmingham City, referee Mr. Crew, and Clay of Tottenham, before the kick-off at White Hart Lane.
Charlton v Liverpool (3-0), The Valley, London - Boxing Day 1959.
Barcelona's Allan Simonsen v Real Madrid's Vicente Del Bosque in 1979.
What Else Are We Reading…
- Esports Insider hosts a panel of esports betting experts to talk about integrity, growth markets, and FIFA’s growing appeal to traditional football fans.
- Football finance blogger Swiss Ramble has published a deep analysis of Man Utd's 1st set of COVID-19 impacted accounts (2019/20).
- A story about Viktor Maslov who took the art of 4-4-2 pressing to a whole new level.
- Burnley FC has become the latest target of foreign investors.
Strike Of The Day…
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