How does the English Premier League make money?
Here is the video from this transcript: EPL
The English Premier League, or EPL, is the most-watched sports league in the world, with over 3 billion people across 188 countries tuning in to watch football matches. Although football clubs were operating in the English Football League since 1888, it was not until 1992, when the First Division clubs resigned from the EFL to form the EPL that the industry experienced an astronomical rise in revenue.
The EPL has built an impressive business model around broadcasting rights. The commercialization of the TV rights represents the highest source of income for most of the clubs. Here is how it is set up. The football clubs act as shareholders of the league.
The clubs rescind their broadcasting rights to the league that then licenses the rights to broadcasters such as Sky Sports and (British Telecom) BT. These broadcasters usually go through a bidding process to become the official rights-holder of the games and ultimately charge subscription fees to their audience and placement fees to advertisers.
The distribution of the proceeds from the domestic TV rights is set up as follows: 50% of the proceeds are shared equally among the 20 clubs. 25% of the proceeds are allocated to what is called merit fees, which is determined by the clubs’ position in the league at the end of the season.
The other 25% is allocated to facility fees, which varies on how often the games are shown on tv. As for the international broadcasting rights, all of the revenue is shared equally but as from the 2019/2020 season, any increase will be distributed to clubs based on their position in the league table.
If we look at the domestic broadcasting rights over the cycles, we can observe the immense growth from merely 191 million pounds for the 1992/1997 cycle to 5.1 billion pounds for the 2016/2019 cycle. It is interesting to see a cool off in the bidding wars, as the 2019/2022 cycle collected 13% less revenues.
Thanks to the continuous growth in the overseas broadcasting rights bids, total broadcasting revenue is still on an uptrend. Overseas broadcast rights jumped from 40 million pounds in the first cycle to 4.2 billion pounds in the latest cycle.
The rights were usually split between Sky Sports and BT but Amazon joined the party in the newest cycle. As we have discussed in our video on Equinix, Amazon has been making moves in the sports league broadcasting landscape, having scooped up rights from the National Football League and US Open tennis championships. Amazon has secured rights to 20 EPL matches per season in the newest cycle.
Facebook has also been making moves by buying rights to stream all of the new cycle in Cambodia, Laos, Thailand and Vietnam. It will be interesting to see how tech giants will be involved in the future bidding wars. Some broadcasters are already planning ahead for the next cycle. The NENT Group has paid around 2 billion pounds for the exclusive rights to broadcast EPL games in Scandinavia from 2022 to 2028.
Apart from broadcasting revenues, the EPL also rakes in commercial revenues from sponsorship and merchandise sales, which is naturally shared equally amongst the clubs. Now if we look at the total EPL payments to the clubs for the 2018/2019 season, Liverpool raked in the most revenues, followed by Manchester City.
You may be wondering why the total equal share does not match the revenue share description we mentioned earlier (notice how equal share of 687,230,380 does not equal 402,889,186+402,888,780). This is because the EPL also makes parachute and solidarity payments. Parachute payments are given to clubs that are have been relegated from the Premier League, while clubs that form part of the EFL who are not eligible for Parachute Payments receive Solidarity Payments.
Now let’s go one level deeper and look at the individual team economics. The clubs have two main sponsors: the kit manufacturer and the shirt sponsor. Kit manufacturers like Nike and Adidas pay the clubs to design the kits in exchange for a percentage of sales to fans. As for shirt sponsors, they pay the club to have their logos printed on the shirts.
If we take Manchester United as an example, Adidas pays them 75 million pounds per year to design the kits and Chevrolet pays them 64 million pounds per year to sport their logo on the Jersey. That might even increase to 70 million pounds as from next season. And to make even more money, clubs are allowed to have a sleeve sponsor as well.
The other obvious revenue stream that clubs generate is Matchday revenue. This is the income teams get when they sell tickets to fans when playing a home game. Manchester United’s Old Trafford takes the podium for having the biggest stadium in the league, with a capacity of around 75,000.
The top 3 clubs in terms of total revenue for the 2018/2019 season are Manchester United (627 million pounds), Manchester City (535 million pounds) and Liverpool (533 million pounds).
The coronavirus has the EPL worried about its revenues, particularly its broadcasting income. Since the broadcasters have already paid for the games in advance, they would naturally need to be reimbursed for a portion of the 2019/2020 season if the games were not played. It is estimated that around 762 million pounds of broadcasting revenue would be lost.
The EPL is definitely in for a rough ride. How do you think the novel virus will affect the financial dynamics of the EPL going forward? Do you think the tech giants will be more active in the sports broadcasting space? Let us know your thoughts.
