Broadcasting models – TV Times
Deloitte Football Money League 2011
Broadcasting has been the key driver of Money League clubs’ spectacular revenue growth. With significant differences in broadcasting rights sales mechanisms between the major European leagues, and comprehensive changes being implemented in Italy and considered elsewhere, we compare and contrast the different approaches.
The finances of football clubs have been transformed over the last two decades, propelled directly and indirectly by television, which has provided both a mechanism to deliver direct revenue and the exposure required to drive other key revenue streams.
During the 1990s maturing broadcast markets, and in particular the development of Pay-TV, brought a step change in broadcast capacity, allowing premium channels to offer the extensive live coverage, analysis and other exposure which now makes football an integral element of popular culture. More recently, continuing technological advances, the proliferation of delivery platforms, and in particular the development of high speed internet connections to the mass market have extended the range of methods to connect the global consumer with top class football on a 24/7 basis.
Football’s ability to capitalise on these opportunities means that broadcasting revenue has been a key driver of overall revenue for Money League clubs. Our first Money League in 1996/97 reported that the then leaders Manchester United generated €134m in revenue, of which €19m (14%) related to broadcasting. By comparison, in 2009/10, United’s total revenue has grown to almost three times this level, at €350m, but broadcasting revenue, at €128m, has increased to nearly seven times its 1996/97 level and comprises 37% of the total.
The 20 Money League clubs’ collective broadcasting revenue is now almost €1.9 billion, and at 44% is comfortably the greatest contributor to total revenue. It is the largest source of revenue for 16 of our 20 clubs, and for seven clubs broadcasting comprises over 50% of revenue. The importance of broadcasting revenue cannot be overstated, especially given that the very limited associated direct cost means that it goes straight into boosting clubs’ spending power for their playing squad and other items.
A variety of legal processes have demonstrated that the ownership of broadcast rights largely rests with the clubs themselves. However, two primary marketing methods have developed for selling those rights. In many countries, the league – or competition organiser – markets and sells the rights on the clubs’ behalf, as has been the case in England, Germany, France and many other countries. This is also now the accepted model for the majority of matches in supra-national competitions such as UEFA club competitions, and may be adopted for European national team qualifiers if UEFA’s current exploratory proposals come to fruition. However, in some countries, most notably Italy and Spain, since the late 1990s, clubs have marketed and sold broadcasting rights individually and agreed deals direct with broadcasters or agencies.
The two approaches deliver widely differing results for the potential Money League clubs in each market. Where individual selling takes place, there is a limited level of revenue sharing, which means that clubs retain the vast majority of the revenue they generate. By contrast, where broadcasting rights are marketed collectively the distribution is more equal and consequently the revenue advantage accruing to the larger clubs more limited.
In 2009/10 the three Italian giants, Internazionale, AC Milan and Juventus, each held contracts with Mediaset reportedly worth over €100m per season. With only 20% of these revenues pooled centrally and redistributed between all clubs, total broadcasting revenue, including those from UEFA competitions, domestic cup competitions and other areas, increases to between €133m and €141m. Broadcasting remains the primary component in supporting the leading Italian clubs’ top ten Money League positions, with all three clubs earning over 60% of their revenue from this source.
Broadcasting revenue as a percentage of total revenue and sales mechanism (€m)
Similarly, in Spain, Real Madrid and Barcelona currently have individually brokered deals with Mediapro, each reportedly worth around €150m per season. With no meaningful revenue sharing in Spain, Real and Barca’s broadcasting revenues are the highest in club football. Barcelona’s broadcasting revenue totals almost €180m, with Real generating almost €160m, which helps to keep them in the top two spots in the Money League. Real and Barca have been successful in delivering a more balanced revenue model than their Italian counterparts, but nevertheless broadcasting remains critical to their Money League position.
The only other Money League clubs generating over €100m from broadcasting are the leading English clubs, Manchester United (€128m), Arsenal (€106m) and Chelsea (€105m). English clubs benefit from the Premier League broadcasting deal, which generates by some distance the largest broadcasting revenue of any European football league.
Centrally negotiated deals are typically accompanied by a distribution mechanism to reflect the collective nature of the league, normally including a component shared equally among all clubs, with other monies shared according to variables such as league position, numbers of TV appearances, TV ratings or other measures of a club’s reach or popularity. In the Premier League’s case, for domestic revenues, of the amount distributed to its 20 member clubs, 50% is shared equally among clubs, 25% according to TV appearances with the remaining 25% distributed according to finishing position. More critical for the future development of their member clubs’ revenue balance, all revenues from international broadcast contracts are shared equally. Thus, in total, league winners Chelsea received €65m in 2009/10, while Portsmouth, the league’s bottom club, received over 60% of this amount, €39m.
Hence the most successful English clubs (and those in Germany and France) typically receive considerably lower domestic broadcast revenues than their counterparts in Italy and Spain. It is testament to the ability of English clubs to capitalise on all revenue streams that they occupy seven Money League positions – the most of any individual country – including six of the top 12 positions. Similarly, Bayern Munich’s top four position owes much to its excellent commercial revenues and its clear leading position in the Europe’s largest economy.
The differentials between the revenues of clubs in countries where individual selling takes place are significant – in Spain the leading clubs reportedly generate 19 times more from TV deals than the smallest clubs in the top division. Atlético Madrid earned €62m from broadcasting (including UEFA distributions) but this is only c.40% of Real’s income from these rights, while other Spanish clubs generate fair less than this amount. In Italy Roma and Fiorentina each generated around €70m from broadcasting in 2009/10, €60-70m less than each of the ‘big three’.
These wide variations in broadcasting revenues between clubs in Italy and Spain, and their impact on overall revenues, have a significant impact on the sport in each country, exacerbating both competitive imbalance on the pitch and financial tensions off it. Collective selling – and hence the more equal distribution of revenue – is widely credited with delivering important benefits to the game, a view long held by many inside football. In a notable recent communication, following a series of inquiries the European Commission recommended collective selling, saying that it was ‘a good example of financial solidarity and redistribution mechanisms within sports’.
Italy and Spain have both seen recent moves to promote a more equal distribution of revenues. In 2010/11 Italy returned to collective selling, following Italian legislation passed in 2007, which overturned the 1999 decision to authorise individual selling. However, some issues remain unresolved. In principle there is agreement that revenue should be split 40:30:30, with 40% shared equally, 30% according to on-pitch performance and 30% according to the size of each clubs’ supporter base, but the finer details of the revenue sharing mechanism – in particular relating to the mechanism for distributing the share relating to the supporter base – are yet to be finalised.
Following a complex negotiation process collectively negotiated deals for the 2010/11 and 2011/12 seasons were agreed which are reportedly worth over €900m per annum. This is a considerable increase compared to the previous values, and gives Serie A the most valuable domestic football rights in Europe, marginally ahead of the English Premier League. We expect that this increase – which illustrates the premium to broadcasters of having the ‘whole product’ rather than the rights to individual clubs – will help the largest clubs keep the levels of broadcasting revenues closer to those they enjoyed during the individual selling regime than they might have previously feared.
Many Spanish clubs and other stakeholders are keen to see a more equal distribution of broadcasting revenue between clubs. Most Spanish clubs have existing broadcasting contracts in place until 2013 or 2014, making short term reform unlikely. However, detailed discussions are taking place, with initial proposals from Real and Barca focusing on developing a more balanced distribution of revenue. The current proposal would reportedly see their share of the La Liga clubs’ combined TV revenues fall from 45% to 34%. A tentative agreement between the majority of clubs proposes some level of revenue sharing between the clubs from 2015/16. It remains to be seen whether a more fundamental move to collective selling moves onto the agenda as discussions progress.
These experiences highlight the challenges of delivering a material change to regulations governing such an important aspect of revenue, due to the far reaching implications for clubs both domestically and further afield, and vested interests of stakeholders. Reform requires careful political, managerial and leadership skills to implement, a key element being the need to build trust and the long term vision to carry all stakeholders through the process.
Reform of the individual sales mechanisms which are in place may deliver a more even revenue distribution within certain leagues. However, it is unlikely that we will see significant movements up and down the Money League as a result. Although broadcasting revenue remains important, the challenge for clubs remains to develop their businesses in all areas and hence mitigate any impact of a reduction in revenue from any single aspect, be that related to on-pitch performance, regulatory factors, or other developments.
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