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2 September 2017

The Premier League

Tag(s): Sport, Business
As you must have noticed the English Premier League has kicked off its 25th season and is celebrating its anniversary in its usual brash and noisy way. Those 25 years have seen a remarkable transformation in English football in just about everything but the fortunes of its national team. The two factors are related. To give one example, in 1992 when Manchester United and Sheffield Wednesday were both founder members of the competition, United’s turnover was roughly twice that of the Yorkshire club.

25 years on, and Wednesday, after spending most of that time in the lower divisions following their relegation in 2000, last year turned over £22 million. United, in the same year, reported revenues of £570 million. As the money has concentrated more and more among the top clubs, United has become one of the richest sporting organisations in the world, while clubs like Wednesday are struggling along.[i]

The Premier League is a corporation in which the 20 member clubs act as shareholders. It acts in concert with, but independently of, the English Football League which used to run its competition and the Football Association with which it was initially connected. The competition reformed as the FA Premier League on 20 February 1992 following the decision of clubs in the Football League First Division to break away from the Football League, which was founded in 1888, and take advantage of a lucrative television rights deal. BSkyB won the initial rights with a bid of £304 million over five years. By last season, 2016-17, that had risen to £2,400 million, nearly 40 times as much.

The Premier League is the most watched sports league in the world, broadcast in 212 territories to 643 million homes and a potential TV audience of 4.7 billion people. Despite a vastly increased number of TV matches shown live, most grounds are nearly full with average match attendance exceeding 36,000, only exceeded by the German Bundesliga’s 43,500, where ticket prices are significantly lower.  And its relevant performance in European competition is satisfactory, ranking third in the UEFA coefficients of leagues over the past five seasons, just behind Germany though some way behind Spain with its dominant Real Madrid and Barcelona franchises.

Back in the 1970s and early 1980s, with the pre-eminence of Liverpool FC, the fortunes of English football were competitive, but the late ‘80s marked a low point. Stadia were archaic, supporters suffered poor facilities, hooliganism was rife and English clubs were banned from European competition for five years following the Heysel Stadium disgrace in 1985. Liverpool, whose supporters were at the root of that, suffered terribly in another disaster at Hillsborough in 1989 when 96 Liverpool fans died and 766 were injured in a tragedy that was initially assumed to be caused  again by poor fan behaviour but we now know was by policing of a criminal standard. The Football League First Division was then way behind Italy’s Seria A and Spain’s La Liga in attendances and revenues, and several top players had moved abroad like Paul Gascoigne, England’s best player.
 
But then there was some revival in the fortunes of English football. Inspired by Gascoigne, England reached the semi-final of the 1990 World Cup. In 1991, now allowed to again enter European competition, Manchester United won the Cup Winners’ Cup, and the Taylor report, commissioned after the Hillsborough disaster, recommended that all First Division stadia must be all-seater.
Enlightened Chairmen like Martin Edwards of United, David Dein of Arsenal and Irving Scholar of Tottenham Hotspur began to run their clubs more like businesses and TV live coverage started to develop. The top clubs threatened to break away to attract the majority of this new revenue.

In 1990 Greg Dyke, then managing director of London Weekend Television, met with the top clubs to investigate the potential of this further.[ii] They agreed but thought the new league would have no credibility without the backing of the Football Association. That body was not getting along with the Football League at the time and welcomed the idea as a way of weakening the League’s position. The new League would be backed by the FA but commercially independent from it, allowing it to negotiate its own broadcast rights. The argument given was that the extra income would allow English clubs to compete with teams across Europe.

In 1992 the First Division clubs resigned en masse and formed the FA Premier League. But crucially it kept the same structure and links with the reduced Football League so that every season two clubs would be relegated to the Football League and two promoted to the Premier League to take their place.

The broadcast rights are split up depending on the final position in the League and although this formula has been amended from time to time the result has been that the same few clubs have largely dominated the League. In the eleven years from 1999-2000 to 2009-10 Manchester United were never out of the top three winning it six times; Arsenal were never out of the top four winning it twice; Chelsea were never out of the top six winning it three times;  and Liverpool were never out of the top seven but eight times in the top four.

The top four positions are crucial as England usually has four places in the lucrative Champions' League and top players are unlikely to be attracted to a club that is not already qualified to compete in that competition. To break into the top four requires immense resources. Chelsea achieved it with the backing of the Russian oligarch Roman Abramovich while Manchester City has done so more recently with the backing of the Abu Dhabi United Group, winning the Premier League in the 2011-12 season, the first outside the “Big Four” since 1994-95, They won it again in 2013-14 and by 2015-16 Manchester City had the fifth-highest revenue in the footballing world with annual revenue of €524.9 million.

So where does all this money go? The vast majority goes to the players, and indirectly their agents. The agents play a crucial role, not just in the traditional and acceptable role of representing the player’s interests in negotiating his contract for perhaps 10% commission. But more significantly they act as middlemen in the charade that takes place twice a year in the so-called ‘Transfer Window’. This window lasts for the two months of July and August and then again the month of January and throughout Europe all transfers between clubs must take place and be completed by midnight on the last day.

This creates a feeding frenzy when all the clubs catch a disease that makes them increase transfer fees to a ludicrous and scarcely credible level.  This is not restricted to the Premier League Clubs, of course, but as they are among the richest more of the insanity takes place here. FIFA operate a rule that a club must not approach a player without the player’s current club’s permission. But if the club approaches the club first thus obeying the rule, the other club will say, ‘but how do you know he wants to move? Have you talked to him?’ If the buying club says ‘Yes’ they get reported. If they say ‘No’ the selling club will say ‘Well, he’s not for sale.’ So how do you resolve this stand off? The agent. He does all the toing and froing and then the buying club can deny any impropriety.

When Manchester United broke the world record fee by paying £89 million to secure the services of Paul Pogba from Italian club Juventus, £41 million of that was allegedly handed to his agent Mino Raiola. [iii]That’s 46%, not 10%. But that world record from just a year ago has been smashed this summer by Paris Saint-Germain for Neymar, the Brazilian star. He had a buyout clause in his contract with Barcelona of €200 million, obviously designed to deter even the wealthiest of clubs. But Paris Saint-Germain has apparently come through with the money.

Now FIFA has another set of rules designed to govern such behaviour: Financial Fair Play rules. These determine that if a club has lost more than €40 million per year over the previous three years then it may be prevented from competing in the transfer market, perhaps European competition and may face other financial penalties.  Paris Saint-Germain is another club that has sold out to Arab gas money, Oryx Qatar Sports Investments. Their backing has made Paris S-G one of the wealthiest clubs in the world but they still fell foul of these rules in 2014. It is impossible to see how they could afford this transfer fee and not break the rules again, but the rules are applied historically so we shall have to wait and see. If the Qataris try to get round the rules by increasing levels of sponsorship or taking over the contract themselves then such actions are deemed to be Related Party Transactions and so taken into account in the reckoning. Neymar will no doubt improve the performance of the team and they may sell some shirts with his name on but not that many.

This blog is primarily about the Premier League which has brought great wealth to some of its member clubs and to their players and the players' agents. It has brought some success to English clubs in European competition. But it has brought none to the English national team. That is because the clubs themselves have no interest in such success.  Most of the owners are foreign. They buy players from all over the world, usually ready-made stars and increasingly it is common to see the top clubs fielding just one or two English-qualified players. The poor English national team manager will go to a match between say Chelsea and Arsenal and be lucky if he watches as many as four qualified players that day.

FIFA demanded that all the nations reduce their top divisions to just 18 clubs thus reducing the number of matches each club would play in a season from 38 to 34. This would create more space for international competition. The English Premier League refused and still has 20 members. The clubs also play an increasing number of matches during the so called close season. Some warm up friendly matches are necessary, of course, to get players back to match fitness after a couple of months’ break. But some of these matches take place in rival tournaments and the actual time off is probably only a month or so, not enough for highly trained athletes. In such circumstances I believe the chances of England winning another World Cup are zero.

Football as a sport is regulated by its own authorities- at the national level by the Football Association; at the European level by UEFA; at the International level by FIFA. FIFA has been demonstrably corrupt for decades and has proved itself incapable of proper regulation. UEFA is not much better. Even at the English level the sport should be investigated by the competition authorities. The money that is so hideously wasted on vast transfer fees all comes from the fans, the ordinary people who consume the sport through buying tickets, paying TV subscription fees, buying merchandise etc. These fans have a quasi-tribal loyalty to the clubs they support. They grow up supporting the teams their fathers supported. In that respect the market is not open as the fans do not easily switch their loyalty.

The TV market is particularly perverse. Sky has always been the leading broadcaster of Premier League matches but from time to time a competitor emerges, most recently BT. But they each bid for a different package of matches to be shown at different times. The devoted fan now has to pay two subscriptions to watch matches with his or her beloved team. So the fans’ costs go up with increased ‘competition’, not down. But then I have been involved more than once with the competition authorities and always concluded that they seemed to be living on another planet. Have you noticed that actually there is only one Competition and Markets Authority?


[i] ‘The Premier League’ Jim White The Oldie September 2017
 
[ii] Greg Dyke was my guest once at a match between Tottenham Hotspur and Manchester United. We are both United fans.
 
[iii] Pogba had come through United’s academy but transferred to Juventus in 2012. 




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