Analysis of The Deloitte Annual Review of Football Finance

United Kingdom

Last week, Deloitte published its Annual Review of Football Finance (the "Review"), assessing key developments in the 2016/2017 season. The comprehensive report, found here, contained several commercial insights into the state of European football, especially the "big five" leagues in England, Italy, France, Spain and Germany.  Our highlights from the report can be found below.

1. The Premier league remains in a league of its own

The Review highlighted the dominant financial position of the FA Premier League ("FAPL"), cemented by its impressive broadcasting revenue figures. The average revenue per club in the FAPL was €265m, considerably more than the next highest; Germany's Bundesliga at €155m. The FAPL also took the largest portion of revenue distributed by UEFA, receiving more than €300m, which is 50% more than France's Ligue 1, for example.

2. Reliance on broadcasting revenue

The reliance of the "big five" leagues on broadcasting revenue is emphasised in the Review. On average, it accounts for around 50% of each league's revenue, although for the FAPL, this figure is higher at 61%.

2016/2017 saw the first results of La Liga's new regime of the collective sale of media rights and it is interesting to note that this led to an increase in broadcasting revenue across the league. Previously, clubs in Spain's La Liga sold their media rights individually which meant that the larger clubs such as Barcelona or Real Madrid were able to demand much higher fees due to increased interest in their games.

The importance of media rights is currently a pressing issue in Italy's Serie A due to the controversy around Mediapro's initial successful tender for the media rights being subsequently cancelled in the courts and last week rejected by clubs despite the Spanish company offering a €1.6 billion guarantee. 

The FAPL recently announced that Amazon has obtained one of the FAPL broadcasting packages from the 2019/2020 season. DAZN, subsidiary of the Perform Group, already streams live football in Germany amongst other European countries and La Liga has recently announced plans to launch an OTT platform. It will be interesting to see how the emergence of these and other OTT platforms in live sport shape the battle for broadcasting rights in the years to come.

Despite Amazon entering the race, and despite offering more live games, the FAPL failed to command the same fees for the UK rights in this latest rights cycle than it did in the last one. This may allow other European leagues to close the gap on the FAPL but the Review predicts that after the sale of international rights, the FAPL will still be worth in excess of €1 billion more than any other league. Further, if Amazon's trial of FAPL rights is successful, it may well mean it enters the race for one of the more substantial packages in the next cycle and thus drive up prices again.

3. Financial fair play

The Financial Fair Play ("FFP") rules at both national and European level seem to be having the desired effect. This is emphasised by the wage/revenue ratio in each of the five leagues falling below 70%, the industry's marker of a club's financial health. However, one of the criticisms of FFP is that it reinforces the position of elite clubs, which is exemplified by wage costs. For example, in Spain, Barcelona and Real Madrid combined accounted for almost half of all wage spend, spending 30 times more than smaller clubs such as Leganes. This is also reflected in the other leagues and may be exacerbated by developments such as the future increased share of international broadcast revenue in the FAPL for the top six clubs which was announced last week.

4. New revenue streams

Due to increased financial pressure through FFP, clubs and leagues are looking at new ways of increasing commercial revenue. La Liga publicly announced its desire to close the revenue gap with the FAPL, looking to international expansion through the "LaLiga Global Network" with the objective of engaging with new fans to generate commercial opportunities for clubs and increasing international broadcasting revenues. The Review also refers to other innovative international strategies such as Digital Billboard Replacement technology which allows different brands to advertise to different audiences or geographies simultaneously. The Review briefly mentions eSports but this also represents a significant opportunity for clubs to increase revenue. There are several examples of clubs incorporating eSports into their commercial strategy, for example, Manchester City's recent announcement that it will be the first FAPL club to have a FIFA Online team in China.

5. Player transfers and intermediaries

While the increase in player transfer fees has received much coverage, the Review highlights the high rates of commission that intermediaries are obtaining in the transfer market. According to a recent UEFA study, the average intermediary commission rate for European transfers was 13% of the fee.

In response to such figures, the FAPL as well as FIFA and UEFA are considering introducing further regulation on governing intermediaries. UEFA has in fact stated it is considering looking at how a cap on intermediaries' fees could work.