The Premier League is the most followed championship, not only in Europe but also worldwide. Not because it’s the oldest, but simply because it seems to be the most competitive championship of all. This happens thanks to a winning formula which, at the moment, it’s only possible to see at work in England.
The success of the Premier League is based on various factors, perfectly fitting into a tailor-made puzzle, to preserve the majestic spectacle of the game, to grow income and to attract champions from all over the globe. And the cornerstone of this success is called “TV Rights”, the driving force behind a system that can’t be easily stopped and will continue to benefit the English Championship instead.
Within the Wheel of Success of the Premier League, thanks to the immensely valuable agreements for TV rights, a mechanism has been activated, triggering a continuous income growth and underpinning the championship’s success.
As set out in detail in an early entry from our Blog (Let’s study English to learn about football on TV and in the stadium), with a new agreement running from 2016 to 2019 – replacing the previous and already enviable 3-year agreement worth 6 billion euro – the English Championship will earn around 3.8 billion euro per annum in total – with approximately 1 billion euro coming from international rights, split as described below.
The super-earnings linked to domestic rights are divided among the clubs in the top English division, following a formula that takes into consideration both the merit and the safeguarding of all competing clubs. First, 50% of the total value is divided into equal parts. This ensures all clubs – including the smaller ones – have a net income of 70 million euro from domestic rights, just for qualifying for the Championship. The next 25% of income is allocated on a merit basis at the end of the season, starting from the 20th ranked club, which is awarded around 1.4 million euro, and adding the same amount for each higher ranking position, rising up to around 28 million euro for the top ranked club. The remaining 25% is divided during the championship depending on how many matches are broadcast on television for each team.
The income from international rights, worth 1 billion euro, is split evenly between the clubs, for a total of 50 million euro for each of them. Thus, the revenue of each club at the start of the championship, just from national and international TV rights, can be placed at 120 million euro in total.
This higher liquidity available to all clubs ensures there is also an increase in the acquisition of star players, not only for top clubs, such as Manchester City, Manchester United, Chelsea, Arsenal, Liverpool and Tottenham, but also for those considered as second-tier teams, such as West Ham, Crystal Palace or Stoke City, which have been able to see their ranks include – respectively – stars such as Payet, Cabaye and Shaqiri.
The fact that every club can afford to buy quality players leads to a downright increase in the competitiveness of the Championship, where any team can beat any other, thus allowing for an even more exciting spectacle.
This approach becomes even more obvious if we consider the other four main championships in Europe. First, we have the Bundesliga (the German championship) where Bayern Munich has won the championship four years in a row; second, we have the Ligue 1 (the French championship) where Paris Saint Germain has also won for four years running; third, in the Italian Serie A it has fallen to Juventus to win the title for five consecutive years; and finally, we have La Liga where, apart from the 2013/2014 season – when the title was secured by Atletico Madrid – it has gone back and forth between Barcelona and Real Madrid for over a decade.
In the Premier League, on the other hand, for the last four years there have been four different champions: Manchester United in 2012/2013, Manchester City in 2013/2014, Chelsea in 2014/2015 and Leicester City in 2015/2016, amounting to decisive evidence that in the Premier League anything can happen, thus leading to greater competitiveness and a more unpredictable and exciting spectacle.
Naturally, both the increase in star players of worldwide recognition wearing jerseys of English clubs, and the increase in competitiveness of all Premier League teams, led to a greater dissemination of the English championship’s brand around the globe, among football fans who love the sport for its top stars and great emotions. Of course, the spread of the Premier League brand in its turn also boosts an highly important football shirts’ market (which we have already covered in a previous post: Globalisation is revolutionising income in football).
This brand dissemination abroad also promotes an increase in fans worldwide, resulting in a growing demand to broadcast English games internationally, a fact which finally leads to growth of the TV rights themselves.
However, Premier League’s winning formula does not stop with an increase in income. On the reverse side, we find the second part of the formula, focused on safeguarding the spirit of football as a shared experience, as a great show and as a passion: in short, protecting the fans.
In England, the higher value of TV rights is not linked to the number of matches shown nationally. If that was the case, then income would not be so high. In fact, matches offered to the English public represent fewer than half of all games, and fans are not told in advance which matches will be broadcast. The only thing they know for sure is that three or four games will be broadcast each week, meaning they might run the risk of missing their team play. Unless they go to the stadium.
Using this approach, English stadia can reach high average attendance levels which, except for Germany, have no rivals in other European championships. So, on the one hand, it is possible to safeguard the figure of the fan and the passion for football. On the other hand, the spectacle offered by English stadia on TV is enhanced, with better choreography in the stands.
The improved spectacle guarantees English football can make even more inroads abroad helping it, once again, boost the value of TV rights.
The mechanism of the Premier League and the Bundesliga compared
Bundesliga comes as the second championship in Europe – after Premier League – when it comes to growth formulas for domestic football. German football, although first in some European rankings – it is first for the average number of fans attending games and for the number of innovative stadia – cannot be considered on the same level as the Premier League’s football. What really differentiates this championship from the English one is, essentially, the financial factor.
Rather than a wheel – as that of the Premier League – the mechanism of the Bundesliga looks like a semi-circle. The German championship system, although largely based on the same factors as Premier League’s, evolves in its distinct way and is focused on something other than cash income.
The central factor for Bundesliga’s growth is, above all, maintaining rigid governance in league and club institutions, aiming for continuous growth and financial stability of the system as a whole. Thus, at the end of each season, every club’s financial situation is assessed and, if a team is considered unsuitable, it is excluded from the upcoming championship. Adding to this, there is also an important law restricting foreign investors of acquiring more than 49% of a club, pressing clubs to take on fewer risks and debt.
Given Bundesliga’s club debt is negligible – thanks to the impact of this legislation – clubs in the German championship can ignore one of the most important sources of income in the football world: that from ticket sales – with the lowest prices amongst the five main European championships. In this way, Bundesliga has the highest average match attendance in Europe in absolute terms and – just as in Premier League – the role of the fan is protected.
Unlike Bundesliga, Premier League clubs tend to take on debt much more easily. And by accumulating debt, clubs must cover themselves by – among other things – increasing the price of tickets, which are therefore the most expensive in Europe. However, thanks to the TV rights factor set out above, Premier League can allow this increase in prices while maintaining a very high average attendance at games.
Returning to the Bundesliga – and considering its low revenue from ticket sales – the only other sources of income on which German clubs can rely on are TV rights and commercial sponsors, from which clubs manage, in any case, to get decent revenue, thanks to important commercial and partnership agreements.
On the other hand, with such rigid governance, German clubs tend to try and invest as little as possible in players’ wages, in order to avoid the risk of becoming too indebted. Some estimates state that clubs in the German championship use just 50% of their earnings to buy players, while the Premier League uses 70% (considering income in the Premier League is much higher than in other European championships, 70% of their income is definitely much greater, in absolute terms, than a similar percentage of the income of any club in any other European championship).
Therefore, unlike the English Championship, where sky-high wages have the power to attract star players, in the German Championship less is invested in buying established stars and more emphasis is put into the development of youth academies from where to draw young talent, in order to avoid too much spending on the market.
Although focusing on young talent is a point in favour of the German Championship, having a smaller number of internationally known stars leads, however, to less global interest. Unlike the Premier League – which is widely followed both in America and in Asia thanks to being broadcast on the most important TV channels – Bundesliga still remains fairly behind. However, starting last season, the agreement with Fox Sports has raised hopes of growth in the sector.
The mechanism of the Premier League and La Liga compared
Following on the steps of its English counterpart, La Liga is also starting to develop a project for international brand growth and recognition. For the Spanish championship, the very first steps towards a new football system have been taken very recently, again drawing on Premier League’s experience.
La Liga’s growth project is essentially based on changing the system for TV rights distribution into the clubs taking part in the championship. La Liga is the only championship which up until now continued to be based on the individual sale of TV rights through which each club received a given amount depending on its results, number of fans, and interest aroused both domestically and internationally.
It is clear that with such a system the clubs which managed to obtain most of the earnings were Barcelona and Real Madrid, the two most successful Spanish clubs in recent years (both in Spain and in Europe), and also the two most closely followed clubs with the most fans worldwide. In numeric terms, we can say around 40% of all global earnings of the Spanish La Liga went directly into the coffers of Barcelona and Real Madrid – with incomes close to 140 million euro per annum – while the income of the other clubs was between 15 and 50 million euro. In the long run, this has caused a monopoly of earnings for the two top teams, and an increasing gap between them and the remaining clubs.
This widening gap has consequently caused a loss of competitiveness, leading to the Spanish championship no longer being considered as an attractive brand for TV and sponsors (which the Premier League, on the other hand, is). In an interview, Luis Suarez – the star player from Barcelona – stated the main difference between La Liga and the Premier League is the impossibility of predicting results. In La Liga it is always possible to anticipate, with some degree of certainty, the outcome of a match, while in the Premier League this is almost impossible, as all clubs show enough quality to be able to overturn any prediction.
And it is for this very reason that the Premier League, despite failing to win much in international competitions over recent years – unlike Spain which has managed to bring home three titles in the last three years, for both Europa League and Champions League, and unlike Germany which won the World Cup in 2014 and the previous year saw Bayern Munich and Borussia Dortmund play each other in the Champions League final – remains the championship which, thanks to a lesser gap between clubs, manages to deliver the highest number and most varied range of clubs, all of them able to participate in European competitions. This is in clear contrast with Spain, where competing clubs have been more or less the same for many years.
In the long run, the lower attractiveness of the Spanish championship has led to a fall in match attendance — they almost never sell out, except for Barcelona, Real Madrid and, sometimes, Atletico Madrid. According to some La Liga estimates from last season, while the average attendance per stadium capacity was 67% and TV audience for the championship stood at around 300 million, in the Premier League average attendance was 97% and TV audience was over 3 billion people.
Empty stadia and low competiveness have thus led to a fall in interest for this championship, which – despite Barcelona and Real Madrid popularity overseas – is not widely followed. Furthermore, overseas fans prefer to follow these two teams in European competitions instead, both more competitive and exciting than La Liga itself.
With the new centralised system for TV rights sales, La Liga is therefore starting to focus on eliminating what is – also according to Suarez – the biggest problem of this championship: limited competition.
The new formula, which has been adopted for 2016-2019, will therefore be based on the English model, with the distribution of 50% of TV rights earnings into equal parts for all the clubs, a further part based on season’s results, another part on the basis of season and match tickets sales (to address the problem of low attendance), and a final part distributed according to each club’s own contribution to national and international visibility of the championship. As for the last two parts described, the new programme envisages that no club can receive more than 20% total of these two categories, so as not to further favour Real Madrid and Barcelona.
Thanks to the launch of this new formula it is estimated that in future years we’ll be able to witness real growth within La Liga’s smaller teams, thus guaranteeing a rise in competiveness and greater interest from the public, with a resulting increase in the value of TV rights and its wider dissemination internationally.
As for this last point, of particular interest is the LFP World Challenge Project, started in 2014 to promote matches between Spanish clubs and teams from other countries worldwide, pushing La Liga clubs into the international arena, and ensuring the Spanish championship becomes a genuine global brand, in the same way as the Premier League.