What are the economics and problems of the English football Premier League?

12th September 2013 by The Harried House Hunter

This morning the BBC has produced an update on the price of football in 2013 and by this they mean the cost of attending a match. On this basis they declare this.

It found average ticket prices across English football’s top four divisions have fallen by up to 2.4%.

Initially this sounds rather cheery does it not as we review the possibility of falling ticket prices and indeed disinflation making attending a match more affordable. However for fans of the Premiership the picture is by no means so happy.

The average cost of the cheapest season ticket at Premier League clubs has risen by more than 4%, with prices ranging from £299 to £985.

In this instance praise goes to Manchester City (cheapest) and opprobrium to Arsenal (dearest). No wonder Arsenal fans were expecting more spending in the transfer window you might think! Indeed the most expensive season tickets are to be found in a North London enclave at Arsenal (£1950) and Spurs (£1895) a long way ahead of even Chelsea (£1250) where I assume they have ignored the one purchased by a certain Mr. R Abramovich. Not the working-(wo)man’s game anymore is it?

The Economics

Some of the economic themes of this blog are already at play here. One of the earliest in fact is the simple concept of price as football clubs offer a wide variety of prices these days just like utility suppliers,mobile phone companies et al. For example a friend who is a West Ham fan was telling me earlier about a membership deal where he and his son can get cheaper tickets for 6 games a season. So we find another example of an area where simply discovering the price is much more complex than the economic textbooks seem to think. Comparisons and measures of inflation are harder than you might think. Speaking of West Ham, who would have thought that their theme song would turn out to be a critique of UK economic policy (mortgage lending up 29% year on year as I type this)?

Also we have an inequality theme as West Bromwich with its maximum season ticket price of £449 may win cheers from its fans but in terms of budget is way behind North and South-West London. If we continue with that theme and look down the divisions this theme does not echo as loudly as I thought it might, but the major source of inequality is yet to come.

Food and drink

If we continue in a naming and shaming mode there is also this in the report.

The Eagles sell the most expensive pie in England’s top four divisions, charging £4, while Manchester United sell the dearest cup of tea in the country at £2.50.

We do not get told if the tea is drinkable or even resembles it!? Or for that matter if the pies give you indigestion or worse? Nor why Manchester United deserves bold type when the nickname of Crystal Palace does not.

A Fuller Picture requires broadcasting and commercial revenues

If we are looking at a football club in the English Premiership there are substantial broadcasting revenues and often significant commercial ones too. I took a look at the latest accounts for Arsenal (May 2012) to get a handle on this, because they are relatively transparent. Here are the major revenue elements that relate to football.

Gate and match day revenue £95.21 million

Broadcasting £84.7 million

Retail and licensing £18.3 million

So the traditional sources of revenue (tickets, programmes, food and drink) are being outstripped over time. Indeed the latest unaudited accounts for the subsequent six months show broadcasting exceeding match-day revenues something that – as I will discuss in a moment – looks a clear trend.

The costs

Of these the hot topic is the wages of the players which the media regularly reports as something in the stratosphere. There is a nod to this in references to increased wage costs and then this.

The changes in playing personnel have also contributed to an increased wage bill. However, the full wage impact of the revised contracts awarded to a number of key young players – including Walcott, Wilshere, Ramsey, Gibbs, Jenkinson and Oxlade-Chamberlain – will not come through until the second half of the year and subsequent periods.

As you can see from the numbers below, they were not to be found in this particular set of accounts, which also way predate the impact (and perhaps consequences…) of the terms offered to and accepted by Mesut Ozil.

The Group’s employment costs are the principal driver for the increase in football operating costs to £101.1 million (2011 – £98.4 million).

Sponsorship

This is an increasingly major influence on revenues for the major clubs. Arsenal expect some quite substantial growth.

In the second half of the year Commercial revenues will increase significantly as we will start to account for the extended partnership contract with Emirates; revenues from the £150 million contract extension (over five years..)

Broadcasting Revenue

This has boomed and boomed. After the impact of British Sky Broadcasting offering  what were then considered substantial sums to the Premiership as a way of kicking-off its own business model came the success of the league in foreign climes. According to the datablog of the Guardian that first contract back in 1991 was for £191 million. Seems like chicken-feed now does it not?

Sporting Intelligence crunched the numbers on the latest deal which also involves British Telecom as a new entrant.

Jaws dropped, mine included, when the Premier League held a press conference last Wednesday at the Landmark Hotel in London to announce they had sold their UK live TV rights for 2013-16 to Sky and BT – for £3.018bn.

This represented a staggering increase of a bit more than £1.2bn over the cash paid by Sky and ESPN for the three years, 2010-13.

As an economist, my immediate thought is how much of that rise of about two-thirds is economic growth and how much is inflation? Let me throw that question out to the comments section…..

Also there has been enormous growth in interest in the English Premier League in the United States and parts of Asia. If you want to know where just check where the big teams go on tour in the summer! Here again is the estimate of the impact of this from Sporting Intelligence.

I would expect total Premier League media revenues to rise from around £3.5bn in 2010-13 to way above £5bn and perhaps as much as £6bn for 2013-16.

I don’t know about you but the theme song of West Ham United comes to mind again.

I’m forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.

Harsh? Well I spotted this opinion piece on Yahoo Singapore.

Just this week, SingTel announced that its prices for EPL viewers would increase to S$60……..  This is up from the current price of $34, an increase of close to 75%.

We might be on track to be the world’s richest country but that doesn’t mean we should be exploited! Wayne Rooney definitely owes us a couple of visits here in Singapore!

I always thought it was absence and not distance that makes the heart grow fonder, or perhaps be careful what you wish for is more appropriate!

A force for equality?

Whilst there are plainly illustrations of inequality throughout this article and indeed hints of the 0.01% versus the 99.99% within it there is a surprising amount of equality. When Manchester City won in 2011/12 they received £60.6 million from television rights whereas bottom club Wolvehampton Wanderers received £39.1 million.

The European Central Bank

How exactly has it boosted the Premiership? By a rather odd route to say the least. It is beyond the scope of today’s blog post to look at the finances of Real Madrid apart from to point out that Real has provided around £80 million twice via the transfers of Cristiano Ronaldo from Manchester United and now Gareth Bale from Tottenham Hotspur. It borrowed the money for Cristiano from the nice friendly (ahem.. insolvent) Bankia which deposits the loans as collateral at the ECB for freshly minted liquidity, and there are suspicions that some of the money for Gareth Bale came from the same route.

So in the not entirely unlikely possibility that Bankia collapses the ECB would have a none to shabby left-side to its football team…..

Comment

So if we look at the economics we see the following, problems with price discovery, growth, inflation, inequality and a likely bubble and that is just for starters! However I am hooked (is it a type of addiction?) and will be watching, what about you?

Quantitative Easing

One of the comments below has helped coalesce my thoughts on the impact of all the monetary stimulus going on. It has long been a thought of mine that the sort of debt model that is applied by the Glazers who own Manchester United in effect was bailed out by the various monetary stimuli such as QE. From the link quoted.

The reduction in the amount and cost of United’s debts is an unequivocal good thing.

For Manchester United fans of course it is but for savers who are on the other side of this trend? I would suspect that savers who support Manchester City will be fuming at this point!

Please do not misunderstand me as there are other factors such as ones I have described above and ones added to by JW’s comment but were they given time to breath by another bailout albeit an implicit one? Along that road we see a risky business model succeeding because of intervention, what could go wrong?

 

 

 

31 thoughts on “What are the economics and problems of the English football Premier League?”

  1. Anonymous says:

    Shaun,
    Have not watched a “professional” match since leaving Manchester many years ago. As a City fan I admired the likes of Best & Charlton even though my team were in the doldrums!
    Lack of homegrown talent is obvious at the moment (only circa 30% in the premier league regular players?) and highlight England team shortcomings!
    With so much money with the clubs I would like to see them become better local citizens and offer youngsters (male & female) use of training grounds/sponsorship, advice etc for all sports not just football.

    1. Anonymous says:

      Hi Chris

      We were spun the line a while back that the academies would fix this and yet there is so far little sign. So they need something of a re-boot. Also someone I had respect for, Trevor Brooking, seems to have joined the “suits” who collect their salary and tell us all is well…

      1. JW says:

        Hi Shaun
        At the risk of turning this into a football blog….
        The main mistake made when academies were set up was to simultaneously impose very restrictive ‘drive-time’ boundaries on where clubs could take kids from for their academies. This has resulted in some of the best academies being starved of their historic ‘breeding grounds’. It led some clubs to increasingly look abroad for youngsters not captured by this arbitrary effect , to the detriment of many English kids.This is now changing, and hopefully excellence will be nutured in the best ‘schools’ , but it will be years before we see results I guess.

  2. Justathought says:

    Hi Shaun,

    I am definitely not a fan and supporter of the sport illustrates in your article however you are wisely demonstrating some fundamental of the financial irrationalities which are governing our supposedly “best” ever made and “wealthy” civilization.
    Listening to the latest interview from Stanley Druckenmiller (Someone you had the privilege to deal with…) http://www.zerohedge.com/news/2013-09-11/stanley-druckenmillers-world-view-catastrophic-entitlement-spending-bizarre-illusory

    I am slightly concern that we might become more like some actual
    African countries where only two choices for the youth are offered… “Honour” and financial wealthy style for athletes playing at highest level of money spinning games or a life of survival including crime… We had few years ago the example from Lucas Radebe former Leeds player whom starting from a criminal background when gunned down, turned his life around and entered the field of sporting entertainment. (Let’s be honest as much as people love to watch sports it is primarily entertainment… much people are living their life by proxy… so different than practising sports in any level).

    The Roman empire ‘collapse took a couple of hundred year during which circus games were at the highest delivery, our civilisation’s collapse might be quickest due to the speed and interconnectivity of our modern technology…

    1. Anonymous says:

      Hi Justathought

      I completely agree about a lottery style choice being something to fear. In the US it has been raised too particularly around black kids and the NBA…..

  3. JW says:

    Hi Shaun

    I link the andersred website for the definitive analysis of United’s finances.

    http://andersred.blogspot.fr/

    After several years of ‘leverage buy-out’ pain, the finances are now looking positive. Indeed if the new Nike deal goes through as anticipated, the debt levels and interest costs will be negligible. Why, how? Besides an ex-manager’s genius, its partly because of increased ticket prices, more because of TV/media revenue, but mainly because of remarkable growth in ‘commercial’ revenue. This last aspect is probably only repeatable by very few clubs but just emphasises the point you make which is the difference bewteen a ‘global brand’ business and what was previously a football club for local working men ( not many women in those days attended matches).

    So the ‘champion’ club only survives/prospers because it has distanced itself from its roots commercially. Yet incidentally continues to field more British born players in its starting 11 than most second-level clubs, and won the inorgural national reserve league with 8 out of 11 kids born within 10 miles of its ground. So maybe there is hope.
    The PL TV deal is at least reasonably fair across clubs, in stark contrast to Spain, with the lion’s share just going to perpetuate a duopoly. The Madrid financing would be a joke if it wasn’t so blatantly corrupt, from selling and leasing back at a peppercorn rate training fields, and getting indirect ECB support with the full connivance of the national govt. As in a lot of things across Europe, the German ownership ‘model’ has arisen as the one to aspire to.

    1. Anonymous says:

      Hi JW

      Thanks for the link and I will use a sentence from it to add something to the article which was on my mind anyway…..

    2. Anonymous says:

      “and won the inorgural national reserve league with 8 out of 11 kids born within 10 miles of its ground.”

      Didn’t know that. Amazing. Really well done to them. I’ve always liked how ManU are at least spending their own money, unlike City or Chelsea who, IMHO, loose their identity with these benefactors as their success is the product of being chosen by a rich person not success built on hard work.

      1. JW says:

        The other 3 were all Belgians, the new ‘hot spot’ for talent apparently.

        1. Anonymous says:

          Hazard is a cracking player. If United can produce 8 players that beat out other international youngsters why do they never make it into the England team. True Jones is there but where is our Hazard? Chamberlain has yet to produce and fair enough he’s young, but why do we have such little depth! Very frustrating. Guess I’m used to it though :-)

  4. Mike from Enfield says:

    Hi Shaun,
    For years now there has been a part of me that just wishes the bubble would burst, then football could return to normality (such as it was) and maybe the money could go into more deserving sports; or perhaps we could arrest the decline of the England team from going the way of Scotland (nothing against Scotland but there was a time when I could have named the whole team but now….). I still find it hard to think of football being a professional sport. Notwithstanding the crazy amounts of money they pay each other, it feels like the world’s last great amateur game when you look at the attitudes of players, managers, owners, administrators, referees etc. I suspect that is a reason for its success, however.

    One hopeful sign is that the FA does seem to have a good Academy system for training youngsters. My 8-year old has been signed to one of the London clubs’ Academies and I’m pleased to say that it isn’t run by spitting, swearing yobbos; that the training emphasises positive aspects, not just hoofing it up the field and going in hard; and that the FA’s Respect policy to which they must all adhere, when you read through it, is really quite sensible(!) with the main emphasis being on respecting yourself.

  5. Jan says:

    Football leaves me cold but I have been “forced” by my 2 sons to follow the ups and downs of Cardiff City. They and their teenage friends used to go to matches when there were only a few stalwarts at the games. Now one of their fellow schoolmates is earning £300,000 per week ie Gareth Bale at the age of 24. Actually my sons are now both in their 30s so had left Whitchurch school by the time Gareth was a pupil there.
    Now my youngest has just started another degree course and we worked out it will cost at least 60K to finance the 3 years (£9K tuition fees plus living expenses). To me this is a huge amount but it would be chicken feed (about 2 days wages) to the likes of Gareth Bale who is probably a nice enough chap.
    My point is that there is something wrong there which mirrors the real world outside of football where some people are earning obscene amounts however good they are. Yet there are people in the world with literally nothing and scratching about on rubbish tips and the like for a few pence per day.
    I don’t know what can be done about it…..I wish I did but something’s got to give sooner or later.

    1. AG says:

      I don’t think you can compare your son with Gareth Bale, or any other individual with any professional football player because these players (including Bale) are the best in the world. If your son or any individual were the best in the world at what they did – ANY field – they would be earning just as much, if not more.

      Is the money spiraling out of control? Maybe… but do we have a right to decide how much another individual is allowed to earn? In my opinion, any individual is allowed to earn just as much as someone is willing to pay them.

      If, tomorrow, Bale were to turn around and say that you were being paid too much for your job, what would you say? Just because they are in football and you aren’t, you think they are just out there having fun. I am sure they have to work really, really hard to earn their wages and if they are making 300,000, you can bet every single penny is being squeezed out of them.

      Lets not try to bring someone else’s salary down just because we are not doing what they are… you know, the “grapes are sour” argument. If the entire system collapses, so be it, but willing ill onto Bale for earning as much as he can is just not right. Also, anyone ever thought about saying that to Bill Gates? “Mr. Gates, that’s it! No more than 10 million a year to you…”

      If you cannot do that, then why target a football player? Just like a business would collapse if they were spending more than they earned, so will football. Until then, its not our place to comment on what they are earning. Could be some insecurities within us that make us question their salaries.

      1. Anonymous says:

        I can’t think of many fields where the very best earn £16m per year, probably largely free of tax. Banking apart, please name some.

      2. Anonymous says:

        Perhaps you should ask where the money comes from. Real Madrid’s may be coming from dodgy loans, German fans might be unhappy to see their taxes going to subsidise the ECB’s support of Real’s creditors.

        Likewise, while Chelsea is spending up large, spare a thought for struggling Russian schools, teachers, hospitals and medical staff …

  6. Paul Gailey says:

    anderson & sally in their recent book argued that 92 per cent of the differences in English football clubs’ league position can be explained by a club’s relative wage bill.

    yet for all the noise about the Premiership finances and the player wages – and trust me I know it, I spent weeks researching it – £18.7m per week on EPL wages [ bit.ly/footballdebtblog ] – the effect on the lower clubs of the unbelievable distortion of the parachute payments of premiership relegated clubs is surprisingly under reported.

    Thus: Wolves will receive £16 million from the EPL for their first year in League 1 whereas other clubs will get under £300,000! from the Premier League solidarity payments.

    No, it’s not as severe an imbalance as the duoploy in spain but it’s a peverse setup.

    1. JW says:

      Hi Paul
      Man City and Chelsea have distorted the picture, but Anderson and Sally are confusing cause and effect with their ‘correlation’. Wolves could have paid their players the same as Chelsea, they would still have been relegated.

    2. Anonymous says:

      Hi Paul and welcome to my part of the blogosphere

      Whilst I am sure that players salaries do contribute to success if we look at Wolves there were also other reasons. For example just after I wrote this article I noted that Roger Johnson was being loaned out by Wolves. I know his circumstances to some extent because my father is a Birmingham City fan and I watch then with him when they are on tv.

      Roger Johnson has gone from a class centre half who got a few goals leading to rumours of maybe an England cap and perhaps a move to Arsenal to someone to be loaned out. All that decline has happened at Wolves…..

      1. Paul Gailey says:

        Hi Shaun – I didn’t mean to infer that the player salary levels at Wolves in particular were responsible for their relegation. But I wanted to draw attention to the inequity of the parachute payment issue for the other clubs in the leagues underneath the Premiership.

  7. forbin says:

    Hello Shaun

    I guess that the problem with the economics of football is that Adam Smith is nowhere to be seen

    A bit like the EU ! Seen their accounts lately ??

    Forbin

    1. Anonymous says:

      Hi Forbin

      Today has been a day for statistical issues elsewhere as the US Department of Labor released an initial claims figure of 292k and is the first credit crunch sub-300k number. However later on after markets had begun to move we were told this.

      “The decrease in filings doesn’t signal a change in job-market conditions because most of it was caused by computer-network conversions in the two states, according to a Labor Department spokesman.” (Bloomberg)

      They are believed to be Texas and Rhode Island..

      1. forbin says:

        ” computer network conversions ” !

        is that going into the lexicon ?

        :-)

        Forbin

      2. JW says:

        Hi Shaun
        The BLS has computers……..? Must be moving to Windows 3.1 !
        Re US labour participation rates, the only age groups showing ANY positive increases over the last 23 years are men over 55 years and women between 44 and 55 years.

  8. DOW says:

    I was brought up 15 miles away from Old Trafford. In the mid-60’s it cost me 2s 6d (12.5p) on the train, 1s 6d (7.5p) to get into the ground and 3d (almost nothing) for a programme. Happy Days…..

    1. Anonymous says:

      And would you say today’s youth are on balance better of having been excluded but able to watch a better standard on TV? Or that you had it better going to watch a competitive game that might not have displayed world-beaters but did have lots of local kids present?

      I’m pretty sure local communities have lost out here to the gain of big business. It’s very sad.

      1. DOW says:

        Much different game today but the gulf between players and fans is so big now that only in the lower leagues is their any sense of community.

        1. Anonymous says:

          Agreed. I’m in Montreal now where the game is less glitzy. If I were still in the UK I’d have a dilemma. My team, Hull City, went from rags to riches. I had earmarked them for the kids but now they are one of the bigger clubs. The grandfather supports Aldershot so that might be worth a try.

  9. Max says:

    I heard an amusing comment on LBC radio last night in which an ‘expert’ guest was claiming that the intervention in the UK housing market by Zirp and help to buy did NOT amount to market manipulation but was merely ‘supply and demand’.
    It is fascinating how so many fools in our nation think that blatant market manipulation of supply (ie no reason to sell since rents are high and interest rates in banks is low) and demand (huge permitted immigration to London from all over Eurozone which is falling apart and from the world in general) do not amount to manipulation.

  10. Walt Kowalski says:

    Here across the pond the cost of attending NFL and MLB games is quickly becoming out of reach of middle class folk. Even for nose bleeders to go to a Minnesota Vikings football game is over $100; good seats go for 3-4 times that.

    1. Anonymous says:

      Hi Mr.K

      Some years ago when on holiday in Chicago (a town I enjoyed) I took in a MLB game as I figured I was there etc. By that slightly circuitous route I ended up at one the last games at the old Comiskey Park. But it was not well attended and I was left with the impression that regular season games even then were more for TV and radio,would that be fair?

  11. JW says:

    Hi Shaun
    Re your comment about the Glazers and QE. Undoubtedly the vast swathes of liquidity ( and low interest rates) helped the Glazers and the ‘leveraged buy-out’ experiment for purchase of a football club.

    The only saving grace for other supporters of English teams is that in this case the ‘savers’ directly subsidizing the debt recovery were based in New York, Chicago, LA etc, the debt being financed almost entirely in the States.
    Talking about debt financing, Verizon purchase of Vodafone’s share of its business is going to be the biggest debt bonanza of all time, Verizon is already a debt zombie and is going to add well over $100bn to that. Lunacy? Yes of course, except for all the 3rd parties who will milk this ‘dead cow’ for years to come. This is what ‘capitalism’ has become, something far removed from reality.

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