Highly liquid, but are red flags starting to flutter for football?
Posted on July 19, 2017
IN A week in which Barcelona announced record revenues of EUR 708m and rumours of the world’s first EUR 200m player abounded, you could be forgiven for assuming all is healthy at the top end of the football universe.
But one of the most relevant pieces of news that came out recently, one that should concern football executives from Liverpool to Lyon and Manchester to Madrid, is the declining viewing figures for pay TV. Why is this so important, you might ask?
We’ve known for some time that football at the highest level is a bubble waiting to burst. If there’s one thing that is inevitable in modern day commerce it is that growth bubbles eventually come to an end, and then damage limitation comes into play. Football continues to over-heat at an alarming rate at the top and it just cannot be sustained, however healthy the figures might look today.
If you need convincing, just recall that before the financial crisis of 2008 broke, stock markets were peaking and it was spend, spend, spend. The fact is we were all dancing on a volcano and football 2017 may be doing the same. Admittedly, we’ve been saying it for some time, and it is going to be akin to “the boy who cried wolf”, but at some point, we will tip over the edge.
If the global economy slumps again, and the cycle suggests that may come soon, football could find itself facing challenges.
And just as the United Kingdom suffered one of the biggest GDP falls at the height of the crisis, it could be the Premier League that will experience the greatest pain should the bubble suddenly deflate.
The Premier has a very high, and almost unhealthy, reliance on TV broadcasting revenues. Consider that SKYTV experienced a 14% drop in viewers in 2016-17 and BT was down by 2%. SKY blamed the new broadcasting deal on its dramatic fall, claiming it gave greater exposure to the lesser lights of the Premier. There’s another factor, though, and that is the growing trend to illegally stream matches via the internet. A poll by the BBC revealed that around a third of Premier League fans source their football via unofficial means. Like the music and movie industry, football may be approaching its point of technical disruption.
It is also feasible that we have reached saturation point for TV football – you can watch it almost every day at any time. From being a treat for viewers, it has become as ubiquitous as elevator music. It could not have come at a more inconvenient time for the broadcasters or indeed, top level football.
Deloitte’s latest review of football finance underlines that the Premier League is way ahead of its peers (Germany, Spain, Italy and France) in securing enormous backing from broadcasters. In 2015-16, the Premier League received a combined EUR 2.6bn in TV revenues, more than double that of Spain’s La Liga and Italy’s Serie A, three times the Bundesliga’s TV fees and x4 Ligue 1 in France. Big questions should be asked as to why the Premier remains an under-performing league when it comes to the UEFA Champions League when so much money is entering the British game.
Broadcasting accounts for 53% of Premier League revenues, but Spain is not far behind with 51% from TV rights and Italy is seriously over-exposed with 62%. The Bundesliga weighs-in at 34% and Ligue 1 derives 44% from broadcasters. Hence, if the TV bubble bursts, or we experience another major downturn in the global economy, big-time football in Europe could face some serious challenges.
At the moment, it is difficult – certainly in the case of England and Germany – to see how clubs can extract much greater value from their matchday income. Unless the English game gets a number of new, bigger stadiums, crowds are unlikely to increase much – the current utilisation rate is 96% in England, 90% in Germany and 76% in Spain. There’s upside in the latter, as well as in Italy, where they have a very low utilisation rate of just 52%, a legacy of the golden age of Serie A and crowds nudging 40,000. In some ways, Italy’s time came too early, before the onset of lucrative TV contracts.
Clearly, the inflated TV fees created the monster that is the Premier League today. But a lot of the money is finding its way into wage packets. The Premier’s combined revenue total for 2015-16 amounted to EUR 4.9bn, but EUR 3.6bn was paid out in wages, that’s 63%. But that’s not the worst example, by any means – Spain pays out 74%, Italy 70% and France 69%. Germany, unsurprisingly, pays out less than half of its total revenues. But the Premier has by far the highest average wage bill – some EUR 151m per club, more than double Germany and Spain and three times France.
What is also evident from the Premier figures is that some clubs are spending way too much to try and preserve their top status. In 2015-16, Aston Villa’s wage bill was 88% of income, while Swansea (85%) and Crystal Palace (80%) were not far behind. Interestingly, Manchester United came in at 47%, but then this is a club with multiple global revenue streams. Watford and Bournemouth, obviously uncertain of Premier League longevity, spent 64% and 68% respectively on wages.
Equally, teams clamouring to get into the Premier are running dangerously close to the wire. Championship clubs spent 101% of their total revenues on wages and during the 2015-16 season, generated combined losses of EUR 240m. There is also a high level of debt among these clubs, hardly surprising given the gulf that exists across English football.
Rich man, poor man – the class structure in England
|Average Revenues per club (£)||Average Wagebill per club (£)||Average match
As it stands, the Premier’s wage bills look set to increase as the TV money circulates the game, but can the enormous wealth of the clubs in England translate into success on the European and global stage? The Premier has a plethora of world-class players, but often they are big names due to their track record, very few arrive in the UK in the prime of their career. The last UK-based players to be placed in the Ballon D’or were Cristiano Ronaldo and Fernando Torres in 2008, the last English–born players were Frank Lampard and Steven Gerrard in 2005. There may be plenty of cash, but are English clubs really giving value for money and, more importantly, how long can the Premier be the multinational gravy train it is today?