Will increasing competition for broadcasting rights reduce competitive balance in the English Premier League?

The enormous amounts of money broadcasters are willing to pay for the rights to show live football astonish most people. The figures have continued to rise despite the impact of a recession, slow economic growth and static or falling real incomes.

The deal to broadcast live games in the English Premier League (EPL) for the three seasons from 2007-10 was 65% higher than the agreement that ran from 2004-07. The recession did appear to slow growth down as the contract covering the seasons 2010-13 was only 5% higher than the previous one. However the total size of this deal was still a staggering £1.78billion or approximately £593 million per season. BSkyB was the most successful bidder in all of these auctions for live TV rights and successfully saw off competition from ITV Digital, ESPN and Setanta.

However in the last few years, BT Sport has entered the bidding process and has provided BSkyB with much stronger competition than its previous rivals. As a result, BskyB had to pay £2.3 billion in order to outbid BT Sport in the most recent auction. The three-year deal beginning in the 2013-14 season gives BSkyB the rights to show 116 lives matches each year. BT Sport also paid £738 million for the rights to show 38 live matches a season. In total this means that the EPL earns approximately £1billion per season from the sale of broadcasting rights in the domestic market – an increase of 70%!

The Champions and Europa League also auction the rights to broadcast live matches and there was a real shock when BT Sport recently announced that it had secured the exclusive rights to show all 350 live games in these competitions. Once again the figure it paid – just under £900 million for a three-year deal – took most people by surprise. It represented a 125% increase on the previous three-year deal with BSkyB and ITV. What was also surprising was that there was only one round in the sealed bid auction which suggests that BT Sport’s offer was well in excess of the one submitted by BSkyB.

Most of the initial reaction to this new deal has focused on its implications for the number of matches that will be available free to air: i.e. without having to pay for a subscription channel. The BT Sport contract does specify that the Champions League final and at least one match involving each British team will be shown free to air each season. However, this will be a significant reduction in the number of free to air games currently shown by ITV.

The new deal may also have implications for competitive balance in the EPL. This concept was discussed in a previous blog on this New Site Parachute payment problems for the English Football League and refers to how equally the most talented players are distributed amongst the teams in a league. This distribution will be heavily influenced by the degree to which the revenues of the teams in the league vary. Commenting on this latest contract Liverpool’s former managing director Christian Purslow stated that:

The fundamental effect of the BT deal will be additional wealth for England’s big teams. You will now have six teams (Manchester City, Chelsea and Manchester United, Arsenal, Liverpool and Spurs) playing for four Champions league places with the other 14 teams playing for survival. Never again will the likes of Everton, Newcastle or Villa get near the top – the difference in revenues will simply be too great.

To understand this statement one has to examine how the Champions League distributes the revenue it raises back to the teams that participate in the tournament. One part of the distribution mechanism is determined by the sporting performance of the teams in the competition. For example all 32 teams that make it to the group stages of the Champions League receive a minimum of €8.6 million. Each win in the group games earns a team an additional €1 million while a draw earns €500,000. The teams that make it to the last 16 receive an additional payment of €3.5 million, the quarter finalists earn an additional €3.9 million while the semi-finalists each receive €4.9 million. For example in the 2012-13 season, Manchester United received prize money of €16.1 million for reaching the last 16, whereas Bayern Munich received €35.9 million of prize money for winning the competition. If broadcasting revenues for the Champions League increase across the whole of Europe then the size of the prizes will almost certainly increase.

Teams also receive a share of the broadcasting revenue generated by the Champions League known as the market pool. The total size of the market pool allocated to the teams in any particular country depends on the value of the deal between the broadcasters in that country and UEFA. In the 2012-13 season the total market pool to be divided between the four English teams in the Champions League was €86.6 million. This was the second highest figure behind Italy. In contrast the four Portuguese teams had just over €7 million from the market pool to share between them because the value of the broadcasting deal in that country was so much lower. The market pool is split between the clubs based on (a) their finishing position in the domestic league the previous season and (b) how many games they played in the Champions League from the group stage onwards. FC BATE Borisov were the only representative from Belarus so did not have to share the market pool with any other team. Unfortunately for them the size of the market pool was only €290,000. Manchester United received a market pool payment of €19.45 million.

Given the dramatic increase in value of the broadcasting rights the size of the market pool for the English teams will rise significantly in 2015-16 season. The battle in the 2014-15 EPL season for the four Champions League places will be even stronger and more intense than ever. As a result, the competition for the services of the most talented players will probably push up their wages to ever higher levels.

Monopoly money: Football’s TV war makes the rich unreachable’ BBC Sport (17/11/13)
Champions League TV deal in focus BBC Business (11/11/13)
Champions League: BT Sport wins £897 football rights deal BBC Sport (9/11/13)
Top Soccer Leagues Get 25% Rise in TV Rights Sales, Report Says Bloomberg (11/11/13)
BSkyB could face Premier League premium The Guardian (11/11/13)
Clubs benefit from Champions League revenue UEFA (23/7/13)
Sky pleaded with football officials to reopen champions league talks The Telegraph (11/11/13).

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