Will TV bring down football?

Last month, the 2016/2017 Premier League payments were revealed. Champions Chelsea earned over £150m (€170m) between prize money and TV broadcast revenue. But, that wasn’t the most alarming thing.

Sunderland, who finished bottom still raked in £93.5m (€106m), more than Juventus, Bayern Munich and Monaco received for winning their domestic titles.

With the 20 top-flight teams having made £3.6 billion (€4.1bn) in total last year, Deloitte estimates that figure will increase to £4.5bn in 2017. And, with the Premier League just 12 months into a three-year domestic TV deal worth £5.1bn, the party, it appears, is only getting started.

But, according to some financial analysts, the finer details paint a different picture.

UK company Vysyble dug deep into the accounts of every Premier League club over an eight-year period and found that their apparent wealth is just an illusion.

Their report, entitled ‘We’re So Rich It’s Unbelievable’, delves deep into statements and balance sheets to show that despite record levels of income, the majority of clubs are losing more money than they’re making.

“The vast majority of numbers that have been bandied about to give this picture of a successful enterprise are revenue numbers,” says Vysyble’s John Purcell.

“It’s a revenue number that’s steadily been increasing year-on-year. Commercially, the Premier League have done a wonderful job and there’s a lot to admire. But a lot of the rhetoric regarding how the clubs are doing is on a pre-tax basis.

The approach we take is to go two, if not three, steps into the numbers to take into account not only tax but interest and any charges on capital the club may have incurred or used as its been going about its day-to-day operations. Only then do you get a true picture of the financial health of the club.”

The Vysyble analysis is centred around ‘economic profit’, which measures all costs within a business, even implicit ones. It’s an accounting principle used by the likes of Gillette and Coca Cola but not by Premier League teams.

“In our experience, the declaration of economic profit is a very rare thing,” Purcell says.

“The regulatory requirements mean that companies don’t have to get down to that level. It takes somebody like us — somebody who has a keen interest in looking at the financial forensics — to take a look. And it’s only then that you can see the true financial dynamics. Based on what we’ve seen in the period we’ve looked it, collectively the clubs have not made a single penny in economic profit. Despite the fact revenue has gone from £1.9 billion per year up to £3.6 billion.”

Cushioning the clubs is the Premier League’s incredible TV deals — both foreign and domestic. When Sky and BT Sport forked out £5.136bn for the rights to show live games between 2016 and 2019, it represented a 70% increase on the previous contract.

At the time, Premier League chief executive Richard Scudamore was asked whether it was obscene. He was incredulous at the suggestion.

“It is not,” he said. “It is market forces. It is unscripted drama, the show the clubs put on. Burnley are now, economically, bigger than Ajax.”

According to Purcell, Burnley are one of the better performers when it comes to being clever with their money. Though it’s quite a short list.

“We wanted to find out who were the most efficient at converting their revenue into economic profit,” Purcell says. “So, we developed something called the Football Profitability Index. And it gives us a very clear picture of a two-tier Premier League. There’s a seven-club upper tier: the guys spending or incurring expenditure at a faster rate than anyone else and accounting for the bulk of economic losses in the division.

“The remaining 13 clubs are faced with a choice: compete with the big boys and spend or be more cautious. Teams like Burnley, and in past years Norwich and Blackpool, fall into the latter category. Teams who made the decision not to put themselves at greater financial risk, accepted the greater risk of relegation but still said ‘so be it’. When we look at the Index values over the eight years of our analysis, the most successful club are Tottenham Hotspur but the second and third are Blackpool and Burnley.”

Vysyble’s findings show that the bulk of Premier League clubs rely far too heavily on TV money. And looking at the current media landscape, those clubs should be very concerned.

Last month, it was revealed that Sky’s viewing figures for the 2016/2017 Premier League season had dropped by 14%. BT, the new kid on the block, had also slipped.

“Clubs like Manchester United are the exception because their revenue base is predominantly coming from commercial activities outside of broadcast, which only takes up 21% of revenue for them,” Purcell says.

“But, when you get down to clubs like Crystal Palace or West Brom or Stoke, it’s 60% and higher. So there’s an increased risk. The TV money has always been there to bail them out. The view we’ve taken is, ‘Okay, what do you think might happen if there was a threat to that TV revenue?’ ‘If that TV revenue stagnated?’ Or didn’t increase as much as you expected?’ ‘Or, instead, it falls?’

“Over the years we’ve seen — in five out of the seven renewal cycles — an average increase of around 69% or 70% in value. If that 70% increase were to persist, we’re looking at £8.3bn in 2019 and that’s just for the domestic rights. Given the current economic positions that BT and Sky find themselves in, there’s a bit of a risk there. That risk is increasing.”

If a crash comes, Purcell can envisage the top clubs breaking away and high-profile, heavyweight partners getting involved.

“When you look at the ownership profile of Premier League clubs — particularly in that top-seven group — you’ve got American owners at Man United, Liverpool, and Arsenal.

"Those owners also have their own sporting franchises in the US and understand, very clearly, the relationship between sport, media and the financing of such.

"If I was an owner, I’d be saying, ‘How do we get control of this?’ If an Amazon or a Google or a Facebook or a Netflix come on board and say, ‘Right, we’re going to put a significant amount of money on the table but what we want commercially is a European Super League’, then that might be an interesting proposition for the bigger clubs.”


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