Football Regulation

Who pays, who earns from televised sport?

In the MSB5 chapter on the ‘Future of Television’, we make a reference to the successful development of the satellite-based broadcaster BSkyB and its reliance on two types of subscription-based programming — recent Hollywood films and popular sports.

Similar strategies have been employed by other multi-channel broadcasters (e.g. ESPN shares football with Sky in the UK) and BSkyB is part of a ‘FAmily’ of such providers linked by majority shares held by Rupert Murdoch's News Corporation and including Sky Deutschland, TATA¬† Sky in India, Foxtel in Australia and New Zealand and Sky Italia (wholly-owned by News Corp). In addition News Corp owns Fox cable channels in the US and Star cable channels in India.

The use of Hollywood movies to build a subscription base builds on the long-standing (eighty years or more) hegemony of Hollywood product in international markets. Although it has boosted the profitability of the major studios, this practice by satellite and cable channels has not by itself brought about a fundamental change in the operation of the filmed entertainment business internationally. By contrast, the growth of exclusive TV contracts to show certain popular sports has had a profound effect on the sports themselves and has raised questions for regulators of both the sports and the broadcasting services.

The highest profile example of this collision of national and international sports administration and global television interests occurs in football (referred to as ‘soccer’ in North America). Other important sports for broadcasters like BSkyB have been cricket and rugby league (in Australia and the UK). Formula 1 Motor Racing is one of the most popular major international sports and since 2010 has seen a virtual monopoly of negotiating rights for television output worldwide through one company, Formula One Management (FOM).

This case study looks specifically at the market in broadcasting rights for football.

Fans, football and investments

Football is in some ways a unique spectator sport. The World Cup is, next to the Olympics, the single biggest sporting event on television, with audiences claimed to be as high as 600–700 million (FIFA estimates). But as with the ‘regional’ championships in Europe, Africa, Asia and Latin America, it is a competition for national teams. The Olympics involves some team sports but mostly focuses on individuals as representatives of a national team. Though these competitions do attract enormous interest, the regular, weekly fan involvement in football is via a ‘club’ identity.

The original name for football in the UK was ‘Association Football’ — referring to the process of institutionalising the rules and regulations of the game so that local clubs who belonged to the ‘Football Association’ could play each other on an equal basis. The ‘FA’ became the ruling body of the game and spectators followed a local club to which they often gave lifelong loyalty — a form of considerable personal investment in an identity. The concept of a national FA was exported around the world and now football is administered by international associations such as UEFA in Europe and FIFA on a worldwide basis.

Football has always required financial investment in clubs, usually in the UK by local business investors. These investors have never expected to make any significant profit from their investment and there has been a general understanding that in some way the ‘identity’ of football clubs ‘belongs’ to the fans who support the club. In some countries the original idea of forming a club out of existing communities (e.g. of workers from a particular factory etc.) has been carried through to the modern era and major clubs like Barcelona and Real Madrid are indeed membership organisations effectively owned by fans.

It was the establishment of the English Premier League (EPL) in the UK in 1992 which fundamentally changed the financial basis of English and ultimately world football. By establishing a separate league (i.e. not controlled by a national association), the 20 leading British clubs were able to negotiate broadcasting and sponsorship deals for themselves (i.e. rather than for all 92 Football League teams). The EPL was founded on the basis of accepting a lucrative offer from the nascent Sky TV . The commercial presentation by Sky was very successful and the revenues of the EPL grew as it was able to increase its charges each time the broadcasting and sponsorship rights were re-negotiated. One consequence of the freedom to negotiate was the potential sale of broadcasting rights to overseas broadcasters. The leading English clubs, especially Liverpool, Manchester United and Arsenal and later Chelsea, had already developed a following in certain overseas territories. This could now be exploited to the full with local broadcasters taking EPL games, both live and pre-recorded.

Recognition of these growing markets for the EPL and its players had several consequences — not least, the growth of international football celebrities, which we discuss in a linked case study. Here we are concerned with:

  • the financial implications of the rising market price of EPL broadcasting rights;
  • the regulatory tensions between the EPL and football's national and international bodies;
  • the impact on individual fans;
  • questions for broadcasting regulators.

Some of the developments that you could explore:

  1. leading EPL clubs attracted the attention of international investors/owners and some were opened to public investment — effectively challenging the concept of local ownership and making boards answerable to the stock market and corporate shareholders;
  2. as the revenue from broadcast rights increased, the clubs received more from the EPL ‘pot’ and could afford higher wages for players, thus attracting big stars from other countries;
  3. the iNFLux of star players from around the world further increased the quality of the games and their attractiveness to international audiences;
  4. but, the new revenue also increased competition between clubs and encouraged even higher wages in order to maintain EPL status (and therefore higher prices for fans at matches);
  5. the growing audience overseas watches ‘live’ games in different time zones and in order to maximise revenue Sky demands that ‘big games’ between ‘top teams’ take place at different times: the result is that EPL matches are now spread across Friday–Monday (and sometimes midweek) at various times which make physical attendance at games difficult for many fans;
  6. the growth of regional club competitions (e.g. the European Champions League) has created strains between the EPL and UEFA/FIFA, increased pressure on top clubs to qualify to enter these competitions and required them to sign even more top players to compete in several competitions at the same time;
  7. the disparity in revenue and turnover between the top five or six teams (who qualify regularly for European competition) and the bottom teams who face relegation has grown much wider;
  8. although the EPL does ‘cascade’ some of its revenue to clubs lower down the English football ‘pyramid’ (there are four professional or semi-pro divisions below the EPL ), most English football clubs are now in a perilous financial state.

In October 2011, The Guardian produced a series of articles about the financial strength of the EPL and some new ideas about how it should operate coming from the latest American owner of Liverpool FC, the Fenway Sports Group.

Currently, the EPL negotiates TV rights collectively on behalf of all its 20 teams (it also provides so-called ‘hangover payments’ to teams that are relegated each year). The ‘domestic’ rights generated are shared between the teams on the basis of which are the most frequently featured on TV, so the top teams get around twice as much as the bottom teams. All teams keep the revenue they earn from gate receipts, merchandising etc. However, the overseas income is shared equally between all 20 teams. This is what Fenway proposed to challenge. If, like Real Madrid and Barcelona, they could negotiate their own overseas rights, the leading sides could exploit their large Asian fan bases.

The contrast with ‘American football’, the National Football League, is interesting and surprising in the context of debates about regulation and the market. The NFL is a ‘closed’ competition without relegation and promotion but it requires the ‘franchises’ to share all their revenues equall. So, in what is otherwise a ‘free market economy’, sports broadcasting requires a form of collective negotiation. The Fenway Group appears to have recognised that the UK and Europe are actually more open to a free market in sports broadcasting rights and are attempting to exploit this. So far, the other EPL clubs have not supported the challenge, but that doesn't mean that the issue has gone away.

The capacity of the top EPL teams to exploit their overseas fanbase might be affected by EUFA's new FFP (Financial Fair Play) Policy. FFP would prevent one of the effects listed above and might be beneficial in respect to others.

Fans and identity

The financial changes in football in the UK have had a profound effect on fans of teams in the Premier League and, by extension, fans of teams in the lower leagues which have been relegated from the Premier League or have aspirations to be promoted.The impact of the EPL globally may also have affected the experiences of fans of teams in other leagues or overseas fans of English clubs — although the treatment of fans in some leagues, especially the Bundesliga in Germany, has been promoted very positively in comparison with the EPL.

The pressure to compete in terms of wages for players, new stadia etc. has driven clubs into financial insolvency, in some extreme cases meaning that teams have had to leave professional football and re-form in non-league football. This has left some fans distraught but ‘success’ has not necessarily cheered fans as the drive for greater revenue to fund spending has priced out fans on lower incomes from live matches or exploited their club loyalty through aggressive selling of merchandise and subscriptions to exclusive club media (video material online on club websites or via club-branded television channels).

Here is a personal view on the financial politics of football in the UK and how it affects fans.

Broadcasting regulation issues

In the UK, the development of the EPL (and its link to BSkyB) has raised two further issues which may have international implications:

  1. The UK/news/business-15162241">European Court of Justice (ECJ) has decided that a publican in the UK has the right to purchase a Greek satellite decoder in order to gain access for her customers to EPL games at a lower cost than if she used BSkyB. “National laws which prohibit the import, sale or use of foreign decoder cards are contrary to the freedom to provide services” was the statement of the ECJ.
  2. The UK has also been engaged in a long-running debate about universal access on ‘free-to-air’ television for certain sporting events which are considered to be of overwhelming national interest. The relationship between a national regulator like Ofcom in the UK and subscription service providers like BSkyB/ESPN hinges on which events should be ‘listed’ in this way and which should be fully open to commercial exploitation which excludes access for those who can't (or don't wish to) pay a subscription. Test Match cricket has not been available ‘live’ on ‘free-to-air’ UK television for several years now and there are arguments that this has damaged the game as a national sport. However, as international cricket is increasingly becoming dominated by the interests of the much larger audiences in South Asia, the possibility of ‘listing’ for the UK may be affected by the negotiations between international cricket bodies and broadcasters with South Asian interests.

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