£200 Million Players, £1 Billion Clubs and the Future of Football Business

Richard Jolly@@RichJollyContributor IJune 27, 2017

Manchester's Paul Pogba holds the trophy after winning 2-0 during the soccer Europa League final between Ajax Amsterdam and Manchester United at the Friends Arena in Stockholm, Sweden, Wednesday, May 24, 2017. (AP Photo/Michael Sohn)
Michael Sohn/Associated Press

A club with a £1 billion turnover, world-record transfer fees of over £200 million and players earning £1 million a week. The figures sound outlandish now. By 2030, they may be the norm.

The prognosis from experts is that football's boom time will continue, certainly for the next decade-and-a-half. The structure of the competitions may change, along with the distribution of income generated by them, but, providing the television rights market continues to rise, it should remain profitable for those at the top.

Manchester United's projections, which were voiced in their quarterly financial reports and have tended to be accurate, are that their revenue will top £560 million. By 2030, they could be England's—and possibly the world's—first £1 billion club.

"If you double revenue over 15 years, then it is not hugely surprising," says football finance expert David Bick, the chairman of Square1 Consulting.

"If Manchester United recover their domestic and European form, which you would back them to do, their turnover [will be] about £900 million to £1 billion," football finance expert Rob Wilson from Sheffield Hallam University says.

The implications for players are apparent. United broke the world transfer record last summer to sign Paul Pogba from Juventus for £93.2 million.

Forbes named Cristiano Ronaldo the highest-paid athlete in the world for 2016, with total earnings of $88 million.

"Transfer fees and wages will track what happens to the revenues," Bick says. So if income doubles, so might expenditures. "In inflation terms, £50,000 a week will probably be £100,000 a week in 15 years' time. That would only be pro rata, so the United wage bill might be £600 million in 2030."

Yet where that income will derive from is likely to change.

For now, television is driving the boom. Current Premier League deals, which kicked in at the start of the 2016/17 season, are worth more than £8 billion. Domestic British rights for 2016, 2017 and 2018 were sold to Sky and British Telecom for £5.1 billion, a 71 per cent increase on the previous three-year cycle.

Leicester City's surprise 2015/16 title triumph helped drive up the demand for overseas rights, Wilson says, because they demonstrated the Premier League's unpredictability, which is its great selling point. "Nothing goes up forever," Bick says. "I think the deal will continue going up for the next two or three cycles. The domestic rights will flatten before the overseas rights do."

Wilson concurs: "I don't think we have reached the top of the market for the foreign rights; I don't think we will see other European leagues overtake the Premier League."

Peter Ridsdale, the former chairman of Leeds United, puts it bluntly: "The Premier League is a true competition. The Spanish league is not. The German league is not."

This may have produced a situation in which Spanish and German clubs have dominated the Champions League since Chelsea's 2012 triumph, while the Premier League has become less about quality and more about equality. That could change.

"The Premier League has a new deal where the clubs will get a minimum of about £100 million [per year in television income]," Bick says. "The money has produced a more level playing field, but the likelihood of a big-club breakaway increases. If you are Manchester United, Manchester City and Chelsea, you are going to feel threatened. They have to qualify for the Champions League to maintain the brand profile."

BT and Sky have inflated the TV revenue of the Premier League.
BT and Sky have inflated the TV revenue of the Premier League.PAUL ELLIS/Getty Images

A source at a leading Premier League club suggests that, as overseas rights grow larger and because the foreign market's interest is concentrated on a few teams, overseas broadcast income will be distributed differently: according to viewing figures.

But he acknowledges that such a distribution plan would require 14 Premier League clubs to vote in favour of it, and as he puts it, "turkeys don't vote for Christmas."

"Overseas rights are like topsoil," Bick says. "To have them distributed equally is like Tesco subsidising the corner shop. Why should Stoke or West Bromwich Albion get the same money as Manchester United or Liverpool?"

The Premier League's view on that question has been that everyone benefits from a stronger league.

"In a commercial enterprise, that would not happen," Bick says. "I think it will be the carrot and the stick: either fairer distribution of rights or a European superleague."

Last August, UEFA announced a restructuring of the Champions League so the top four leagues in its coefficients—currently Spain, Germany, England and Italy—will be guaranteed four places each in the group stages starting from the 2018/19 season.

However, those four places will go to those with the highest finishes in their domestic leagues. A contact at a second major English club denied that discussions about restructuring had involved granting major clubs automatic entry into the group stages regardless of where they finished in the Premier League.

Peter Ridsdale has some forthright views on football.
Peter Ridsdale has some forthright views on football.Nathan Stirk/Getty Images

English clubs occupied eight of the top 20 positions in the 2017 Deloitte Football Money League, which is based on annual income, although Wilson argues that, via transfer fees, clubs in other leagues are already indirect beneficiaries.

"European clubs are concerned about the amount of money coming into the Premier League, but a lot of the TV money will leak out into other countries," he says.

The Premier League will face pressure to change not just from abroad but from below. Ridsdale warns that the explosion in income at the top could create a permanent divide between the Premier League and the English Football League.

"The Premier League money is moving so fast that the Football League is being left behind," says Ridsdale, who left Leeds in 2003. He ran Barnsley and Cardiff during their times in the second tier and is now adviser to the owner of Championship club Preston North End.

"There has to be some radical restructuring of the gulf between the Premier League and the Championship," he says. "You can't have a situation where the Premier League clubs get £100 million [in television revenue] and the Championship get £6 million."

A situation like that, Ridsdale says, could push Premier League teams toward Europe.

"We would all be better off in an expanded Premier League structure so the gap is less obvious," he says. "The Football League have to have the foresight to understand that, with due respect to Accrington and Barnet, their fans don't expect to be playing Liverpool. The Championship clubs have more in common with the Premier League clubs than with League Two."

The counterargument is to point out that the elite clubs would get more by sharing their wealth among 20 members rather than 40 or 44, but Ridsdale says it would be an error if England's leading clubs were to secede to join their continental counterparts.

"The Premier League's biggest single risk is if the top teams in England thought they would be best served in a European league," he argues. "It would be a big mistake. I don't think that the attraction of CSKA Moscow against Man City would stand in a stand-alone league structure."

Does CSKA Moscow vs Manchester City have global appeal on a regular basis?
Does CSKA Moscow vs Manchester City have global appeal on a regular basis?AFP/Getty Images

Instead, he says more attention from abroad will be focused on England—with financial consequences. Fourteen of the 20 Premier League clubs who will contest the 2017/18 season are either wholly foreign-owned or with majority shareholders from other countries. Ridsdale believes that will increase.

"Absolutely," he says. "They will look for a guaranteed presence in the Premier League in return for their investment."

That would mean no relegation, which, Ridsdale says, would cause television rights to plateau and then decline.

"It will go up assuming the infrastructure remains appropriate," he says. "It won't be if there is no relegation and a higher European element. I think then it would peak and drop off."

Wilson takes a different view. He believes the cost of top-flight clubs has become prohibitive and that investors will speculate at a lower level in an attempt to accumulate.

"There are clubs in the Championship and the League One that have the history and pedigree," he says. "Those with large stadia in big cities have good appeal to buyers; some could change hands. There is certainly money to be made if you can get the teams up.

"But there are clubs in the Premier League who are quite unaffordable. That is why clubs like Aston Villa have not been bought. Stoke have an unearned income of about £150 million, so you are talking about upwards of £300 million if you want to buy Stoke."

Seeing Stoke play Liverpool may not entail a trip to the Bet365 Stadium or Anfield. Wilson says he thinks the Premier League may revive a controversial proposal, which was abandoned in 2010 after a backlash from supporters and the media.

Could Stoke City vs Liverpool be played abroad in the future?
Could Stoke City vs Liverpool be played abroad in the future?Rui Vieira/Associated Press

"There will be pressure on the clubs to do something, whether it is the 39th game or an exhibition game," he says. "The Premier League were ahead of the game when they talked about the 39th game, and now American football have seen it as a good way to grow the game. I am not saying Premier League clubs will relocate to another country, but a regular game could be played abroad."

If the Premier League has become the world's league—and the feeling from experts is that it will see off competition from its European rivals to remain the most popular division in 2030—its growing rivals could be in other continents. The landscape is changing, and a sense that football is the global game is increasingly reflected in the locations of leading leagues.

"You have to pat the Premier League on the back that we have the world-leading product in the UK—but will they all be coming here in 15 years' time?" Bick asks. "Football is the most popular sport in the world...so you could argue if you want to be a world power, you have to be big in football. The superpowers are America and China."

They are taking different paths.

"China is the interesting one," Wilson says, referring to the state-encouraged investment from billionaires in clubs. "The government said they would be better, but I think it will take a quarter of a century. The challenge will be when their clubs try to become self-sufficient. Plus the Premier League has got its cultural teeth into those markets."

Ridsdale, who calls Leeds, his former club, a worldwide brand, points out that comparative newcomers are not. "China has a huge domestic market, but it will take a long time for China to create a market outside it," he says.

Bick agrees that the Far East will not overhaul Western Europe just yet. "It will probably take a 15-year timescale to develop," he says.

The Chinese government appears to concur, having unveiled a blueprint to become a "world football superpower" by 2050. But China is playing catch-up. Major League Soccer is in its 22nd season and making progress. It is seen as a growing force on the global scene.

Oscar's big-money move to China showed the league's intentions.
Oscar's big-money move to China showed the league's intentions.Power Sport Images/Getty Images

"There is a sense of inevitability about it," says one British agent who has done deals with American clubs.

"MLS has got its act together," Wilson says. "But in the U.S., American football, basketball and baseball will continue to be ahead for TV rights."

Bick says he believes the American influence will increase on both sides of the Atlantic. "They own a quarter of Premier League clubs, and they will own more," he says.

Citing the FBI's involvement in exposing corruption in FIFA as proof of greater American interest in football, he adds: "The really big threat [to the Premier League] is the U.S. [But] Brazil might be a threat too."

Brazil is the most populous country with football as the national sport. Its middle class accounted for around a third of Brazil's 190 million inhabitants in 2012, and there is a clear opportunity. But for now, Premier League clubs' moneymaking tours have been focused on the United States and Asia.

"No one has really toured South America or large parts of Africa. There are huge territories that they have not got their teeth into," Wilson says.

Bick says the most farsighted English club is Manchester City, and that they’re best-placed to profit from globalisation and, in particular, the greater influence of the United States and China.

Liverpool and Manchester United, he says, have been undermined by "rank bad management," while Manchester City announced in December 2015 that a Chinese consortium, China Media Capital, had bought a 13 per cent stake in the City Football Group, which also includes New York City FC, Melbourne City and Yokohama F. Marinos, for $400 million.

"Manchester United have let City through the door," Bick says. "Manchester City have recognised the lucrative markets from football are not just in the UK. Manchester United have taken a world view on sponsorship, but that was the easy kill."

In other respects, though, United have blazed a trail. Executive vice-chairman Ed Woodward's commercial model of having both global and regional sponsorship and commercial partners has been widely imitated.

Ed Woodward is pressing to bring a new set of fans to Manchester United.
Ed Woodward is pressing to bring a new set of fans to Manchester United.OLI SCARFF/Getty Images

As technology improves, a contact at a major club told Bleacher Report such far-reaching sponsorships could become even more profitable. For example, perimeter advertising could show different adverts to televisions in different markets.

A club may have an Indian tyre partner whose products would be promoted in that country while, at the same time, European, American or African viewers could see messages advertising sponsors in those markets.

Advertisers are likely to concentrate on the biggest and most glamorous clubs. "Those clubs with astute commercial departments, like Manchester United and Manchester City and to a lesser extent Arsenal and Tottenham, will suck up the sponsors," Wilson says.

Ridsdale points out that many Championship clubs have resorted to companies run by their owners or chairmen for shirt sponsors. Meanwhile, deals with independent companies tend to last for only a season or two. Blue-chip brands might be prepared to engage in longer agreements, but they're interested in the behemoth clubs.

"Manchester United were trailblazers with lengthy deals that allow you to have fluctuations in performance," Wilson says. "United tie them down for five, six or 10 years."

United began a £47 million-per-year, seven-year shirt sponsorship deal with Chevrolet in 2014 and a 10-year, £750 million kit deal with Adidas in 2015.

Neither is a British company, and that's another financial probability—that the proportion of income that derives from abroad will increase. So, too, the amount of indirect income, compared to takings on matchdays. At most clubs, commercial and broadcast revenue makes up a larger percentage of turnover than it used to.

"One of the biggest changes will be ticket prices," Wilson says. "The proportion of revenue generated has been diminishing over the last 10-15 years. In the '80s and early '90s, it was about 50 per cent of revenue; now it is about 20-25 per cent. You will either see clubs build bigger stadia or will continue to see ticket prices diminishing [as a] part of income. You will either see price freezes or real-term reductions."

Premier League clubs agreed in March 2016 to cap away fans' ticket prices at £30 for the next three years, while a series of clubs, including Arsenal, Chelsea, Manchester United, Manchester City, Newcastle, Stoke and Tottenham, have announced price freezes in season tickets. Liverpool suffered a backlash when they tried to raise prices and ended up reversing course.

Assuming prices remain frozen and there is enough inflation to make tickets effectively cost less than they once did, watching football in the flesh is likely to be cheaper—providing enough fans are watching on television and, crucially, paying the subscription fees that are subsidising those price freezes.

One potential growth area is United States television. NBC retained Premier League rights for six seasons through to 2022/23 for around $1 billion, doubling the amount it had been paying per season. Should other major American networks enter the bidding thereafter, we could very well see rights auctions play out as they have in the UK.

"We haven't yet seen the big American channels coming, but I think they will," Bick says.

Others could enter the auctions, too: Twitter agreed to a deal in July 2016 to show Premier League highlights, opening the possibility other technology or social media companies, such as Google and Apple, could enter the bidding in future years. Wayne Rooney's August 2016 testimonial between Manchester United and Everton was streamed live on Facebook, another possible bidder.

Mark Warburton, the former Rangers manager and analyst and trader in London, told The Times: "Sky Sports and BT are relatively small players in global terms, but if Google or Amazon bought the rights and started streaming games to billions of people around the world, they would want a guarantee of the biggest clubs."

Yet football's reliance on broadcast income could also put it in perilous position. While many view games on tablets and smartphones, broadcasting is still something of a traditional model. One warning is that those who pay to consume football that way are an ageing generation. Their juniors may not follow suit.

"Technology moves at a hell of a fast pace," Bick says. "My boys are in their 20s and hardly ever watch a match from end to end. They just watch snippets."

Technology is giving traditional broadcasters plenty to think about.
Technology is giving traditional broadcasters plenty to think about.JUNG YEON-JE/Getty Images

He cites the £7 million investment by Liberty Global, a telecommunications company that rarely gets directly involved in sport, in Bigballs Media, an independent digital football media business that targets young fans, as evidence of a changing environment.

"Broadcasters don't know how to get the youngsters," he says. "The big platforms are definitely worried about losing a younger audience. There is global recognition that they are not eyeballing a 90-minute game. If I was Sky or BT, I would be worried."

Television has made football a multi billion-pound industry and given clubs and players untold wealth. It could prove its undoing, too. But the lesson of the sport's recent past is that it has proved a resilient and adaptable business in which income keeps going up—sometimes in ways few forecast.

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