English football- Less profit more trophy asset

17/07/2014  -  11.13

Andrew Jones

The recent publication of the 2014 Deloitte annual review of football finance highlighted the ever-increasing financial power of the Premier League. For the 2013/2014 season it is forecast that total revenue will break the £3bn barrier.

When looking at the headline figure more deeply, the Premier League only broke the £2bn barrier in 2009/2010 and the £1bn mark in 2001/2002. The rapid growth of revenues can be mostly attributed to television, with the added competition of BT Sport vastly inflating the domestic rights deal beginning in the summer of 2013.

The Premier League has also exploited international rights sales more effectively than any other European league. Between 1992/1993 and 1996/1997 international rights averaged £9m per season (for the entire league). By 2007/2008 to 2009/2010 this had reached £208m. In the most recent deal (for 2013/2014 to 2015/2016), the value of international television rights will average £744m per season.

The staggering increase in the value of these deals reflects the Premier League’s global popularity, particularly in Asia. Premier League clubs stand to benefit with the bottom placed club in 2013/2014 (Cardiff City) receiving £62.7m in television rights revenue alone. At the top, Liverpool earned £97.8m which was more than eventual champions Manchester City due to a greater number of live matches shown.

The ever-increasing growth in Premier League revenues has implications for those lower down the football chain. In the Championship, net debt reached £1bn in 2012/2013 as its member clubs continued to chase the Premier League dream. In comparison to the buoyant environment of the Premier League, revenues in the Championship declined by £39m in 2012/2013.

This decline was mostly driven by a broadcast rights contract of lower value beginning in the summer of 2012. The new three-year agreement is worth £195m, with the previous contract being worth £264m.

Unlike the Premier League, the Football League has yet to benefit from the arrival of BT Sport into the pay-television market, and it does not hold the same global appeal. Indeed in the short-term, revenue increases are expected to be driven by an increase in the ‘parachute payments’ relegated clubs receive after relegation from the Premier League rather than greater broadcast or commercial income.

Deloitte expects these payments to have averaged £18m in 2013/2014. For other Championship clubs without these payments, broadcast income is around £4m per season, so large disparities in income are present within the division.

Despite the ever-increasing revenues present in the Premier League, English football is still an industry which does not generate consistent profits. In 2012/2013, the twenty Premier League clubs generated a combined pre-tax loss close to £300m. Although this is below the ‘peak’ figure of £406m recorded in 2009/2010, changes in revenue and ownership structures have not changed the loss-making nature of the division.

This is despite the entrance of profit seeking’ investors from North America into the Premier League. However, other foreign investors have purchased a club as a form of ‘trophy asset’ or in order to generate ‘indirect’ profits.  Thus, direct profits from the football clubs are not sought as team performance is considered as more important. The behaviour of English clubs has not radically changed despite this significant shift in ownership structures.

Andrew Jones is a Researcher within the University of Wolverhampton Business School with a specialist interest in football finance.