Is elite football’s business sustainable?
There’s now under two weeks left until the transfer window closes at midnight on the 31st August, but already Premier League transfer spending has broken records once again with spending passing the £1 billion mark for the third season in a row.
The problem, though, is that much of elite football’s business strategy relies heavily on the premise that spending on football rights will keep rising exponentially as it has done since the beginning of the Premiership back in 1992.
The first ever rights package paid by Sky was in 1992, which gave them the exclusive broadcast rights to the Premier League for 5 years at a total cost of £191 million. The next batch of games that were sold, for the years 1997 – 2001, went for £670 million. 2001-2004 went for £1.2 billion. 2004-2007 went for £1.2 billion again, 2007-2010 went for £1.706 billion. 2010-2013 went for £1.773 billion whilst 2013-2016 went for a staggering £3 billion. The latest round of rights were sold to Sky and BT respectively at a total of £5.14 billion.
Clearly there is precedent to suggest that spending by the big broadcasters on TV rights will keep rising by as much as 40-50% every 3 years but a closer look at the current climate suggests that all may not be well.
Sky has recently announced a shakeup of how they will offer their Sports subscriptions, with the broadcaster splitting up its 7 sports channels into specific offerings for customers. Customers can choose Premier League, Football, Golf, F1, Cricket and Action and Arena, depending on what they watch.
The reasoning behind this, many think, is that Sky simply isn’t getting the numbers to its sports subscriptions that have classically allowed it to blow its competitors out of the water when it comes to purchasing the rights to the Premier League. Viewing figures, reportedly, have been dropping off a cliff for a few years now and it’s hardly surprising when up until this recent change customers cheapest option for a Sky package including sports was £49.50 per month.
Sky are beginning to see a possible plateau of what it can charge its customers and reasonably expect them to keep paying. BT Sport, in comparison, costs non-BT customers up to £30 per month to get all the BT Sport channels as well as HD. Once HD is taken into consideration, for a customer to get Sky Sports and BT Sport channels in HD together, the cost comes to a staggering £101.50 per month, or £1218 per year.
Many are now predicting that we’ve seen the last round of increasing sports rights, with the next round, if they follow previous trends, costing a potential £7 billion for three years. These are staggering sums.
Even if we set aside for a moment the fact that Premier League clubs have never been richer, many are still spending well above their own turnover and running enormous deficits. As reported in The Independent, according to a new report by financial analysts Vysyble, the long-term implications of those losses could be a breakaway by the league's biggest clubs and the creation of a European Super League.
Titled 'We're so Rich it's Unbelievable', the document is based on the accounts of all Premier League clubs between 2008/09 and 2015/16, the last season for which data is available. The report claims Premier League clubs lost £2billion in eight years.
One of the report's co-authors, Roger Bell, said: "Financially, football is failing. Britain's biggest football clubs are spending much, much more than they are making. The Premier League, and its executive chairman Richard Scudamore, should be very worried.”
"Our analysis shows clubs are losing a record £876,700 every single day. Despite TV bringing in huge amounts of cash every year, it does not meet the many millions spent on players' wages. Clubs needs to face reality about their dire financial situation before they can't afford to pay the bills and some go to the wall."
"Most of them are spending a lot more than they're taking in," said Purcell. "Across the league, clubs are losing £8.80 for every £100 they bring in, and that's based on 2015-16. I suspect it will be more like £12-13 now. The game is facing massive financial and structural risk."
With Premier League clubs yet to complete their business for the year, there’s likely to be a few more big money signings completed before the window shuts in a few weeks.
The question we have to ask is, if people aren’t prepared to pay big bucks to watch live football anymore, then where will the money keep coming from? And if the clubs are already spending money they haven’t got, what happens if their income actually drops? Based on current analysis it seems likely that the world’s biggest clubs will continue to grow whilst the smaller clubs may well face financial ruin. But even clubs such as Chelsea, Man City, Man United and Barcelona aren’t immune to basic economics.