Focus on Football Finance

7/29/2019 Focus on Football Finance

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Focus on ootball nanceMarch 2012


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Focus on ootball fnance

Contents

03 2020 Vision

04 Football fnance air play

08 Club versus country

09 Eastern mystery

10 Where does the money go?

14 Is the Sky alling in?

16 Investment in youth is changing18 TV rights

21 About Grant Thornton

This is a game otwo halves: the havesand the have nots.And the haves want more


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3

Pulling together the dierent

themes covered in this newsletter

gives us a vision o the possible

uture or ootball, in England

and beyond.

Picture the scene: Manchester United

v Barcelona; the nal o the World

Champions League, played beore a

ull house in the Beijing National

Stadium in China. There are 100,000

ans, 50,000 each rom Manchester

United and Barcelona, watching the

game live, and all are Chinese residents.

The game is also being broadcast live

around the world, with 750 million

viewers paying $10 each on pay-per-

view. It is ootballs biggest game,producing revenues o $7.5 billion.

Sounds unlikely? Lets see how it

could happen.

In this brochure we talk about

UEFAs Financial Fair Play Regulations.

These will seek to bring stability to

the game by restricting the spending

o clubs to match their income. We

support this initiative strongly as it

will encourage clubs to develop young

players rather than spending their wayinto nancial trouble.

We consider FIFAs increasing

demands on the clubs to release their

highly-paid players or international

duties in an already xture-packed

season. These clubs are also required to

take part in domestic cup competitions,

such as Englands FA Cup and Carling

Cup. The weakened sides elded by

the Premiership Clubs in the early

rounds o these competitions already

send a clear message about how they

view them.

We look at the reasons behind

Manchester Uniteds decision to seek to

sell shares in Singapore, and conclude

that the Glazers may actually see Asia

as a major source o uture revenues

or the Club. We believe Chelsea,Liverpool, Manchester City and the

top European clubs share this vision.

And we comment on the monies that

the Premiership Clubs receive rom the

sale o media rights. Are the top clubs

really happy with their share?

I we put all these actors together,

we can see the background to what we

think may be the next big contest in

international ootball. Not Manchester

United v Barcelona in China, but

UEFA versus one o our top clubs. We

wonder what would happen i one, or

more, o the top European clubs were

to all oul o UEFAs Financial Fair

Play Regulations, prompting UEFA

to exclude them rom the Champions

League. Would the clubs simply accept

UEFAs ruling and be content to

pass up the prize o Champions

League money?

We suggest that would be unlikely.

Such a move by UEFA could thereorebe the catalyst or something truly

epoch-making: the break-up o the

game in Europe as we know it. This

might happen i a deaulting club

tempted others to break away and

orm a European Super League, or

a World Super League. This might

eventually lead to a league o perhaps

16-20 teams rom Spain, Italy, France,

Germany, England, Argentina, Brazil,

Asia and North America. Breakawayclubs, with the best brands and the

biggest supporter bases, could demand

a greater share o media rights, and

could generate increased income rom

sponsors and advertisers. Why play 60

matches each season i you could play

just 50 but still generate more revenue?

Why play in your home town every

other week when you have millions ooverseas ans, in Asia or the rest o the

world, keen to pay premium prices to

watch their avourite teams live?

For the bigger clubs the temptation

o the additional monies that could be

earned on a world stage must surely,

at some point, become irresistible. But

when? 2020? Is that a realistic timescale

or the Manchester United v Barcelona

vision sketched out above to

become reality?

Certainly, i it did happen, it would

give rise to a whole series o urther

questions. What would be the impact

on those clubs let behind? What TV

deal would these non-Super League

clubs be able to command? And what

sort o state would their nances be in?

And who would want to lend to them?

All points to ponder.

2020 Vision

For the biggerclubs the temptation

o the additional moniesthat could be earned on aworld stage must surely,at some point, become

irresistible.


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4

It was in September 2009 that

UEFAs Executive Committee

approved unanimously a concept

called fnancial air play. The

background to its decision was as

ollows: many clubs were reporting

fnancial losses in worsening

market conditions in the 2009

fnancial year. Total revenues

or top division clubs reached a

record 11.7 billion but increased

costs had created net losses o

1.2 billion, almost double the

previous record. Many clubs were

paying enormous bills or

players wages.

More than one in eight club auditors

expressed uncertainty about whether

certain clubs could continue as going

concerns. Those clubs with wealthy

backers were able to out-spend their

competitors, orcing transer ees andwages into a spiral that risked the uture

o the clubs, and the very abric o

the sport.

UEFA decided that action was needed

to level the playing eld. The air play

concept was its answer: an attempt to

orce clubs to live within their means

by limiting spending to the income they

were generating. Financial Fair Play is

crucial in order to promote the long-

term sustainability o European ootball

and is entirely consistent with the

sporting values we have in Europe, said

UEFA President Michel Platini.

The nancial air play objectives

are to:

improvetheeconomicandnancial

capability o clubs, increasingtransparency and credibility

ensureclubssettletheirliabilitiesona

timely basis

introducemoredisciplineand

rationality in club ootball nances

encouragelong-terminvestmentin

the youth sector and inrastructure

encourageclubstooperateonthe

basis o their own revenues

protectthelong-termviabilityof

European club ootball.

At Grant Thornton we endorse and

support the objectives o nancial air

play as we have campaigned or some

time or ootball clubs to be operated

with the same level o nancial discipline

applied by other business models,

rather than relying on the deep pockets

o their chairmen and other directors.

Introducing the new regime, UEFA

general secretary Gianni Inantino

summed up the situation rathermemorably. What kind o healthy

business is it that waits or a white

knight on a horse with lots o money to

throw round and then, rom one day or

another, he could jump on his horse and

ride away?

UEFAs Executive Committee

approved the UEFA Club Licensing

and Fair Play Regulations in 2010. The

Regulations introduced the air play

Football nancial air play

UEFA general secretaryGianni Inantino summed up

the situation rather memorably.

What kind o healthy businessis it that waits or a white knighton a horse with lots o money

to throw round and then, romone day or another, he could

jump on his horse and

ride away?


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5

measures that will be implemented

over a three-year period, requiring

clubs to operate on a break-even basis.

The rst season that a club could be

excluded rom European competition

or non-compliance is 2014-15, butthe rst break-even assessment will be

undertaken during 2013-14.

The period in which the assessment

is made is termed the monitoring

period, and the assessment is based

on the aggregate results o the three

previous reporting periods. For example,

in monitoring period 2015-2016 the

reporting periods will be those or the

nancial years ending in 2015 (T), 2014

(T-1) and 2013 (T-2). The exception

to this rule will be or the 2013-14

monitoring period, which will assess the

reporting periods ending in 2013 and

2012, (2012, o course, being the

current season).

The Regulations are applicable

only to those clubs with income and

expenditure o over 5 million euros. The

maximum decit that such clubs will be

allowed to incur will be 5 million euros

or the aggregate o the three reporting

periods (T, T-1 and T-2). This aggregatecan be exceeded in the early years but

only i the excess is made good by equity

injections. The allowable decits will

be 45 million euros or the combined

seasons 2013-14 and 2014-15, alling to

an aggregate 30 million euros or seasons

2015-16 to 2017-18. Where a club shows

aggregate losses in a monitoring period,

it can use prots rom the two years

prior to T-2, (T-3 and T-4) to reduce the

aggregate loss.

Whilst clubs are being challenged to

ensure they do not spend more

than they earn, they will be given some

fexibility i the trend is moving in the

right direction. Accordingly, in the

2013-14 and 2014-15 monitoring

periods, i a clubs decit arises because

o over-spending on players wages

in the 2012 reporting period, then the

expenditure on players wages arising

rom contracts signed beore 1 June

2010 can be excluded rom the break-

even calculation.

Clubs will still be able to spend on

long-term ventures such as inrastructureor academy projects, and this spending

will not count towards the break-even

calculation. This is to ensure that the

other aims o the Regulations, such as

youth development and improving/

upgrading sports installations, are not

aected adversely by nancial air play.

Monitoring is the role o the Club

Financial Control Panel, headed by the

ormer Prime Minister o Belgium, Jean-

Luc Dehaene. Its rst task was to look

at all transer and employee payables in

the summer o 2011. Transer spending

made over the summer o 2011 will

impact on the break-even results o the

nancial years ending 2012 and 2013, the

rst nancial years to be assessed under

the break-even rule. All payments due

on transers, and to employees, will be

assessed by the Panel. So, Mr Dehaene

and his colleagues will have been

watching with interest the summer 2011

transer window business conducted by

the Premiership Clubs, especially the

big our net spenders, Manchester City

(52.5m), Manchester United (42.9m),Chelsea (41.75m) and Liverpool

(34.1m).

Consideration has also been given

to the possibility o clubs attempting to

circumvent the regulations by articial

means. Provision is made to adjust

income and expenses rom related parties


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6

to refect the air value o any such

transactions. One deal, which is sure

to be considered closely, is Manchester

Citys 10-year sponsorship deal with

Etihad Airways announced in July 2011,

and said to be worth up to 400 million.City successully increased its revenue

rom sponsors and partners by 400% to

32.4 million in 2009-10, thanks to the

agreement with Etihad and other Abu

Dhabi based companies, such as Etisalat,

Aabar Investments PJSC and the Abu

Dhabi Tourism Authority. This latest

deal, the largest o its kind in sport, is

certainly a huge step towards a return to

protability or Manchester City, which

incurred a 194 million loss in 2010/11.

And given that City does not even

own its stadium, and that Etihad has

never made a prot, the deal is even

more extraordinary.

City, o course, is owned by Sheikh

Mansour bin Zayed al-Nahyan o Abu

Dhabi and Etihad Airways. The act

that this deal doubles the previous

record o $300 million (187 million)

or the world-amous Madison Square

Garden, and is way ahead o Arsenals

90 million, 15-year sponsorship dealwith Emirates, has already been noted,

not least by some o Citys competitors

in the Premiership. The club has

apparently already consulted UEFA

over the arrangement, which includes

nancial backing or inrastructure and

regeneration projects, both types o

expenditure that do not count in the

break-even calculation or nancial

air play. Arsenal manager, Arsene

Wenger, has already suggested that i

Manchester Citys sponsorship deal is

accepted by UEFA, then the nancial

air play rules will be blown apart.According to Wenger, The credibility

o Financial Fair Play is at stake. The

sponsorship cannot be doubled, tripled

or quadrupled because that means it is

better i we leave everybody ree. But i

they bring the rules in they have to

be respected.

The spectre o the nancial air play

regulations raises some key questions.

What will be their eect i they work?

And will UEFA really expel one or more

big clubs out o European competition i

they do not comply?

With regard to the rst question,

France gives a possible indication o the

impact o nancial air play. The DNCG

(Direction Nationale du Controle

de Gestion) is in its third decade o

monitoring that nations strict nancial

regulation regime. Clubs expenditure

is tied to income. As a result Lyon is the

only club to have nished in the top our

in Le Championnat more than ve timesin the past 10 years. By contrast in the

ree-spending English Premiership, our

clubs have achieved that goal. In France,

i a team incurs a loss it has to make

cutbacks, or generate compensating

income by selling a key player. This is

the nancial model that Michel Platini

is so keen to impose on the rest o

The spectre o

the fnancial air

play regulationsraises some

key questions.


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7

Europe. In terms o the nancial air

play objectives it will introduce more

discipline and rationality in club ootball

nances and will encourage clubs

to operate on the basis o their own

revenues. But how will it aect playersdenied pay rises, and talented managers

who have worked tirelessly to build a

winning team? Many o them may well

look elsewhere, beyond UEFAs reach.

Any club gambling on winning

a Champions League spot and its

resultant rewards, and ailing, may

well nd itsel caught out by nancial

air play. Will that club be content to

make the cutbacks necessary to ensure

its expenditure alls back to meet the

shortall in revenue, as required by

air play?

That then leads us to the question o

whether or not UEFA will act robustly

and seek an expulsion o that club i it

does not do so. UEFA president Michel

Platini is on record as saying We

have worked on the nancial air play

concept hand-in-hand with the clubs,

as our intention is not to punish them

but to protect them. But i it comes

to the crunch and UEFA has to punish

them what will happen? UEFAs record

on enorcement to date has not beenexemplary. For a man who has been

quoted as saying our policy on racism

is one o zero tolerance we have seen

no real eort rom Mr Platini or UEFA

to stamp out racism. That issue came to

the ore again in the recent England v

Bulgaria Euro qualier. Will Mr Platini

take air play all the way, or will he back

down and allow loss making clubs to

remain in Europe i the trend o losses is

heading in the right direction?

We believe that excluding a major

club rom European competition on

grounds o nancial air play will

threaten the continuation o the game as

we know it in Europe. It could threaten

UEFA itsel. I the excluded club were

able to persuade other clubs that their

uture lay outside UEFA, in some orm

o elite European League, or even a

World Super League, then would others

ollow? Liverpool, as we note elsewhere

in this brochure, is one club apparently

unhappy with its current allocation

o European TV monies. How many

others rom Europe and the rest o the

world could be tempted to share in the

inevitable riches that could be generated

rom such a league? And where would

that leave the others, and the nancial

institutions lending to them?

Will Mr Platini take air play allthe way, or will he back down and

allow loss making clubs to remain

in Europe i the trend o losses is

heading in the right direction?

We believe

that excluding a major

club rom European

competition on grounds

o fnancial air play will

threaten the continuation

o the game as we know it

in Europe. It couldthreaten UEFA itsel.


8/238


European clubs were told by FIFA

that they must release their players or

13 international dates in 2011. They

included the 10 August clash between

England and Holland that

was cancelled due to the rioting in

London. That game would have been

played just three days beore the start

o the English Premier League season

a state o aairs that was not exactly

popular with Premier League managers.In 2013, FIFA has plans or an

unprecedented 15 international dates.

No wonder clubs, under pressure to cut

losses, question the commercial sense

o being orced to allow highly-paid

players to participate in international

games or little or no payback.

Europes leading clubs in England,

Germany, Italy and Spain dream o

the prots they could make rom a

European Super League. This, plusthe increasing demands o FIFA

or international games, mean the

current status quo is unsustainable.

The memorandum o understanding

between FIFA and the clubs expires in

July 2014. The memorandum creates a

legal requirement or the top European

clubs to play in UEFAs Champions

League and to release players orinternational riendlies, or tournaments,

including the World Cup.

It seems unlikely that it will be

renewed on the same terms. Umberto

Gandini, o AC Milan, and the

European Club Association suggested

in July 2011 that a reusal o co-

operation in respect o international

ootball was a possibility. The

potential riches that a Super League

could generate are best illustrated

by the FIFA World Cup. A total o

$3.7billion o income was generated

rom the 2010 World Cup. Yet the

400 clubs providing the players

shared a total o only 25.3million

in compensation. Barcelona, which

released 13 players, received the highest

amount at 557,000. English clubs, the

best rewarded in the scheme, shared a

combined 3.8 million. These clubs will

be wondering how much they could

have earned had they been in control othe revenues o a world

club competition.

The English Premier League was

ormed over 20 years ago when leading

clubs broke away rom the Football

League. The commercial success o the

Premiership sets an example that could

be replicated by the top European

clubs. Bayern Munich, Real Madrid,

Internazionale, Milan, Manchester

United, Liverpool and Barcelona havewon 36 European Cup and Champions

League titles between them. They

would be the natural choice or any

elite European Super League, and

approaches would surely be made

to other clubs that demonstrate an

ability to generate revenue rom their

international an-bases. These might

include Arsenal, Chelsea, ManchesterCity, Juventus, Roma, Ajax, Porto,

Marseille, Celtic, Rangers and others.

And why stop at Europe? Clubs,

ater all, are increasingly ocusing their

attention on Asia. Taking into account

the major teams in Argentina and

Brazil, which enjoy substantial support,

as well as the growing commercial

interests o American owners, surely

a World Super League is the logical

conclusion or elite clubs seeking to

maximise their revenue potential?

Club versus country:a memorandum o misunderstanding

No wonder clubs,under pressure to

cut losses, question theommercial sense in beingorced to allow highly-paidplayers to participate ininternational games or

little or no payback.

The English PremierLeague was ormedover 20 years ago

when leading clubsbroke away romthe Football League.The commercialsuccess o thePremiership sets anexample that couldbe replicated by thetop European clubs.


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The growth in theeconomic power o

the East and the resultantincrease in disposable

incomes have combined

to attract the interesto western brands.

It is seven years since the Glazers

took Manchester United private

or a purchase price o 790

million, provoking ury amongst

supporters.

It looks like they are now moving to

ofoad 25% o their shares at more

than double the purchase price, leaving

themselves with a healthy capital gain

and the ans more outraged than ever.

In June 2010 the Glazer amily held

talks with several investment banks

with a view to listing Manchester

United on the Hong Kong stock

exchange. This ollowed a number o

recent high-prole fotations in HongKong. Clearly the Glazers and their

advisers were attracted by suggestions

that a listing could value the club at

1.7 billion.

Hong Kong has been the worlds

biggest Initial Public Oering (IPO)

market or the past two years, raising

$57.4bn (35.6bn) in 2010. Recent

listings include luggage manuacturer

Samsonite, Macau casino operator

MGM China and, in June 2011, Prada.

Ater our previously unsuccessul

fotation attempts, Prada recognised

the importance o Asia as a consumer

o luxury goods and decided to list in

Hong Kong.

However, it is Singapore, and not

Hong Kong, that is expected to see the

launch o Manchester United shares,

slightly later than planned due to

volatility in the world nancial markets.

No explanation has been provided

or the change o venue to Singapore,but indications are that 25% o the

shares will be oered or sale and the

listing is expected to raise 600 million,

although there are suggestions that

the valuation o the club is too high.

Despite 2010 revenues o 286m, and

an operating prot o 91m (the highest

in the Premiership), the club reported a

79m loss ater interest costs). The highinterest costs refect the act that the

Glazers nanced their 2005 purchase

with 600 million o loans.

The growth in the economic power

o the East and the resultant increase in

disposable incomes have combined to

attract the interest o western brands.

These brands now include some o the

top European ootball clubs. The places

clubs visit on their pre-season tours give

a clear indication o where they expectgrowth to come rom. Liverpool toured

in China, Malaysia and Singapore,

Chelsea in Kuala Lumpur, Bangkok and

Hong Kong, and Arsenal in Malaysia

and China. Did they go there or

the weather, or to raise their proles

amongst their growing Asian supporter

bases? Manchester United has an

estimated 333 million ans, o whom

190 million live in Asia.

Demand or live Premiership action

led to a erce bidding war amongst

Asian broadcasters or the 2010-2013

broadcast rights. In Singapore, an island

with a population o only 4.8 million

people, the rights are held by SingTel,

which paid 200 million - more than

three times the amount paid by the

previous holder. In Hong Kong, i-Cable

paid 150 million, again a signicant

increase on the previous arrangement.

The ootball-hungry younger ans

in Asia are very IT literate, and eageror the latest computer and telephone

gadgets. This growing market oers

new opportunities or streaming and

downloading o ootball matches.

With UK ans currently having

to watch their spending, it is no

surprise that European clubs should

see Asia as a key growth area. So a

listing in Singapore or Manchester

United should similarly occasion no

surprise. United, ater all, does have a

number o advantages over its rivals.

On the playing eld, United is the

most successul team in the history o

English ootball, although, o course,

Liverpool has won a greater number o

European trophies, making it the most

successul English team in Europe.

The Manchester United brand wasrated second most valuable in 2010 by

Forbes magazine behind the New York

Yankees, and the club is one o the best

supported in the world.

We believe that i its IPO does

succeed, Manchester United will

progress to another level that very

ew others will be able to replicate.

Yes, others may be tempted to ollow

Uniteds example. But, while Asia has a

real and increasing hunger or ootball,appetite can be quickly sated. The most

successul clubs are likely to be those

rst to market with attractive oerings.

Eastern mystery


10/23

1110


Premiership Football Clubs ought to be

among the most proftable businesses

in Britain. They have a quality product

or which there is a seemingly insatiable

demand. Ticket prices increase year

on year, and the Premier League has

delivered signifcant and incremental

increases in TV monies with every

new deal. Our ootball clubs should

be awash with cash. But in 2009/10

only three Premiership clubs reported

profts, and one o those (Arsenal)

would have incurred a signifcant loss

had it not been the or one-o sales o

156 million worth o apartments in

its Highbury residential development.

Premiership winners, Manchester

United posted losses beore taxation

o 79 million. The combined net debt

o the 20 Premier League clubs in 2010

was 2.5 billion. So the questions are:

How can this be? Where does the

money go? Lets ocus on the

TV monies.

According to the Ofce o National

Statistics fgures, the average UK

worker earns 24,076 per year, and

10.26 million people in the UK

subscribe to Sky, paying an average o

535 each year. Approximately hal

o these subscribers take some sport

content and some Sky subscribers are

also amongst the estimated 1.2 million

ESPN subscribers, paying another

108 each year (or 144 or non-

Sky subscribers).

Sky and ESPN are paying circa 1.7

billion over 3 years to the Premiership

or TV rights, equating to 567million

each year.

The Premier League distributed

at least 19.6 million rom domestic

broadcast rights (13.8 million equal

share plus a minimum o 5.8 million

acility ees) to each o the 20 Premier

League Clubs in 2010-2011. Additional

appearance monies were paid to the

clubs, depending on the number o

times they eatured on TV. And, o

course, the Premier League does make

parachute payments to relegated clubs

and solidarity payments to the Football

League or distribution to its clubs, as

well as fnancing youth development

programmes and making various

charitable donations.

So the clubs collect the TV monies,

along with their other incomes rom

ticket sales, merchandising, sponsorship

and overseas broadcasting rights and

use them to deray their expenses, the

biggest o which is the players wage

Where does the money go?

The economics o the mad house

clubsmillion

players,managerial, coaching

and support staff

millionsubscribers paying

PremierLeague

According to the

Ofce o National

Statistics, the

average UK worker

earns 24,076 per

year, and 10.26

million o them

subscribe to Sky,

paying an average

o 535 each year.Approximately hal

o these subscribers

take some

sport content.

costs. Each club has a squad o 25 frst

team players, earning an average basic

salary o 1.2 million. With bonuses

and appearance money this could rise to

between 1.8 million and 2.4 million.

In addition, the clubs have Under 21

players and the associated managerial,

coaching and support sta. Manchester

Citys wage bill in 2010-11 was 174

million, 21 million more than its total

income o 153 million!

In eect then, the hard-earned

money o the estimated 5 million Sky

sports ans ends up helping to line

the pockets o circa 800 players and

support sta. Rather than using the

increasing TV monies to repay debt, it

seems that the clubs have preerred to

pay higher wages to their players and

sta. In 1992-93, the frst year o the

Premiership, the average Premiership

basic annual pay was 77,000, over our

times the average UK wage. Ten years

later in 2002-03 the average players

pay had increased by nearly 800% to

611,000, but the average UK wage was

only 53% higher. By 2009-10, players

pay had virtually doubled again, to an

average 1.2 million, against a 20%

increase or the average worker.

The gul between the Premier League

and the rest o ootball has also widened

signifcantly. The average Premiership

wage is now 5 times more than the

average in the Championship, and 30

times more than the average League

Two wage. Back in 1992-93 those

fgures were 1.9 and 4.6 respectively.

Why has the gap widened so much?

Look no urther than the level o TV

monies in the lower leagues.

What is more, this cash does not stay

in the Premiership ootballers pockets

or long. Despite the massive increase

in players wages, in some cases it is

What is surprising is that despite themassive increase in players wages,

it still isnt enough or some players

to avoid fnancial problems. In 1992-

93, the frst year o the Premiership,

the average Premiership basic annual

pay was 77,000, over our times

the average UK wage. Ten years later

in 2002-03 the average players pay

had increased by nearly 800% to

611,000, but the average UK wage

was only 53% higher. By 2009-10,

players pay had virtually doubled

again, to an average 1.2 million,

against a 20% increase or the

average worker.

1992-93

2009-10

2002-03


11/2312


still not enough and the number o

ex-Premiership players experiencing

insolvency continues to rise.

The pressure o paying such

unsustainably high wages has resulted

in many clubs likewise succumbing to

insolvency. The ranks o the Football

League include a long list o clubs thathave entered Administration - some

o them shortly ater having been

relegated rom the Premiership. (These

include Leeds, Ipswich, Leicester and

Wimbledon.) Portsmouth became the

rst club to enter Administration whilst

actually in the Premier League.

HM Revenue and Customs

(HMRC) is oten blamed or orcing

clubs into insolvency. But clubs

deducting income tax and national

insurance contributions rom the

unsustainable wages paid to their

players can hardly expect HMRC (and

the taxpayer) to oot the bill. Any club

that has spent the tax it has deducted

rom its employees on higher wages

and transer ees deserves no sympathy

rom the hard-pressed taxpayer.

There will always be ootball.

The present model, however, is

not sustainable. The paying public

who subscribe to satellite TV areencountering real nancial pressures,

and those in work nd themselves

obliged to make sacrices, aced with a

reduction in disposable income as wages

ail to keep pace with infationary price

rises. Can the ootball industry expect

the public to continue paying more andmore each year to nance the increased

wage demands o such a limited number

o individuals? Clubs cannot aord

to continue to operate the same way,

relying on the ongoing support o their

ans digging ever deeper into

their pockets.

We call upon the clubs to

demonstrate a greater sense o morality

and show some empathy with their

supporters, who are under increasingnancial pressures. We call upon all the

directors o our ootball clubs to live

up to the air play ethos that Monsieur

Platini and his colleagues at UEFA are

eager to impose, and to ensure that their

clubs live within their means. We call

upon the ootball authorities to show

the leadership required to ensure that

clubs do attain the breakeven nancial

air play standards demanded by

UEFA. That will require the clubs to

be brave enough to deny the increasedwage demands rom players, to resist

the inevitable pressure o the ans

however hard-up they themselves might

be - to spend those extra millions in the

transer windows, and use their income

to reduce debts. We say: so what i the

clubs dont sign the expensive players

that their ans want? Many o the clubs

that did gamble on spending their way

to ootballing success have entered

insolvency and allen out o sight othe upper leagues. Spending does not

guarantee ootballing success. We

urge the clubs to look realistically, and

We call upon theclubs to demonstrate a

greater sense o moralityand show some understanding

to their supporters, who are

under increasingfnancial pressures.


12/23

13

modestly, at their ambitions, and ollow

the air play protocols. Operating

within their means will allow clubs to

nd their true economic level in theleague. That may well be less glamorous

than living the dream, but club directors

and supporters must decide what they

want rom their teams: one gigantic

gamble that is more than likely to ail

and risk the very existence o the club

they love so dearly, or a long-term

sustainable uture.

So we say the

economic model

has to change.

It represents the

economics o the

madhouse, and

cannot continue.

Surely everyone cansee why UEFA is so

keen on fnancial

air play.

Key fnancials or Premier League clubs at June 2010

Turnover Wages

Wages as% o

turnover

Proft/(loss)

beore tax Net debt

million million million million

Arsenal 382 110 29 56 136

Aston Villa 91 80 88 (38) 110

Birmingham 56 38 68 0 16

Blackburn 58 47 81 (2) 21

Blackpool 9 13 144 (7) 4.3

Bolton 62 46 74 (35) 93

Chelsea 213 174 82 (78) 734

Everton 79 54 69 (3) 45

Fulham 77 49 63 (19) 190

Liverpool 185 121 65 (20) 123

Man City 125 133 106 (121) 41

Man Utd 286 131 46 (79) 590

Newcastle 52 47 90 (17) 150Stoke 59 45 76 (5) 8

Sunderland 65 54 83 (28) 66

Tottenham 119 67 56 (7) 65

West Brom 28 23 82 1 10

West Ham 72 54 75 (21) 34

Wigan 43 39 91 (4) 73

Wolves 61 30 49 9 0

Total Net Debt at June 2010 = 2.5 billion


13/2314


It could be argued that Premier

League ootballers and BSkyB are

the only players in the ootball

market who have ared well in the

recession up to this point.

Even though the credit crisis has orced

UK consumers to make cutbacks in

their spending, it seems that many are

reluctant to cancel or downgrade their

Sky TV subscription. Sky customers

now spend an average o 535 each year,

quite an increase rom the average o

452 they were paying three years ago.

Increased take-up o high denition

services and broadband and xed line

telephones have been the main reasonsor the uplit. Despite an increase o

10% in revenue over last year, the

recession does nally seem to be

catching up with Sky. Estimates indicate

that the number o new subscribers in

the September quarter is down over

80% on the same period last year.

Meanwhile, ootballers wage

demands seem to go orever onwards

and upwards. One wonders how much

more Sky customers, some o whom

are unemployed, will be asked to pay to

keep Premiership ootballers living

in the manner to which they have

become accustomed.

There may be trouble ahead or the

pay-TV broadcaster, however. And

trouble or Sky could mean diculties

or ootball clubs that depend so heavily

on their share o the seemingly ever-

increasing bonanza that TV rights have

turned out to be.

BSkyB is considering careully thedecision o the European Court o

Justice (ECJ), Europes highest court,

in the Karen Murphy case. Ms Murphy

is the Portsmouth pub landlady who

appealed against her conviction or

broadcasting illegally live Premiership

matches by using a Greek TV signal

decoder. The Football AssociationPremier League Limited (the private

company which represents the

broadcasting interests o the 20 English

Premier League clubs), brought the

prosecution arguing that only Sky TV

had exclusive rights to show its games

in the UK.

Ms Murphy considered that BskyBs

charges or commercial premises in

the UK, which can be over 1,000 per

month, were too high and opted or

a much cheaper Greek service until

stopped by the English courts. Having

paid nearly 8,000 in nes and costs Ms

Murphy took the issue all the way to

the ECJ.In essence, the legal case was about

whether or not a rights holder such

as the Premier League can license its

content on a country-by-country basis.

Licensing in this way has allowed the

League to maximise ully the value o

its rights.

The Premier League and Sky were

given a strong indication as to what

the decision o the ECJ would be in

Is the Sky alling in?

Despiteanincreaseof10%inrevenueoverlas

t

year,therecessiondoes fnallyseemtobecatchingupwithSky.


14/23

15

February 2011 when the court was

advised by one o its Advocate

Generals, Proessor Dr Juliane Kokott,

to rule that EU law does not prohibit

pubs showing live Premier League

matches rom oreign broadcasters.

Advocate General Kokott s opinion

was that the idea o selling on a

territorial exclusivity basis wastantamount to proting rom the

elimination o the internal market

and that there is ... no specic right to

charge dierent prices or a work in

each member state.

When the judgement was delivered

on 4 October the ECJ, as expected,

ollowed the guidance o its Advocate

General, deciding that the TV rights

deal breached EU competition law. Any

ban on the use o overseas decoders,

said the ECJ, could not be justied

either in light o the objective o

protecting intellectual property rights

or by the objective o encouraging the

public to attend ootball stadiums.

The decision o the ECJ must now

be considered by the High Court in

London, which had sought guidance

rom the ECJ. It is rare or a national

court to take a dierent view rom

the ECJ.

It appears rom the ECJ decisionthat individuals will be able to watch

live TV matches using a decoder

card rom anywhere in the European

Union. The situation or viewers in

pubs and clubs is less clear. The ECJ

ound that the Premier League could

not claim copyright over live ootball

matches as they are not an authors

own intellectual creation, and hence

works as dened in EU copyright

law. Works do, however, include

logos, the Premier League anthem andrecorded highlights, transmission o

which would need the permission o the

Premier League, as they are protected

by copyright. So, whilst pubs and clubs

seem to be ree to purchase a decoder

rom anywhere, transmission to the

public appears to be prevented unless

the transmission can exclude works.

Consequently, the High Court will

need to interpret the ECJ decision and

rule on its implications.

This decision could potentially

revolutionise the way media rights are

sold across Europe, and not only in the

sports sector : the lm industry has also

sold rights to its products on a country-

by-country basis.

Sky has around 44,000 pub, club

and oce subscribers in the UK and

revenues rom such subscriptions are

thought to be about 200m a year.

Exactly how much o this will be at risk

is unclear.So what are the potential

implications i the High Court ollows

the ECJ decision?

Skymaylosecustomersandrevenue

to oreign broadcasters o Premier

League ootball i UK ans are

prepared to accept oreign language

commentaries. Fewer subscribers

would probably mean Sky oeringless when the Premier League

auctions its TV rights this year.

Loss o exclusivity would almost

certainly mean that bidders would

not be prepared to oer as much or

UK rights as they have in the past.

Less money or the Premier League

would mean a smaller payout or the

ootball clubs.

Foreignbroadcastersdonotface

the same restrictions on showing

live ootball that have been imposed

on BskyB by the Premier League.

Matches kicking o on Saturday

at 3pm would be widely available

to watch on TV. How many empty

seats will we see in the stands as ans

are tempted to watch their team on

high-denition TV rom the comort

o their armchairs? More armchair

ans would mean less money through

the turnstiles or the clubs. Would

clubs seek to raise the cost o ticketsin these economically dicult times?

Or would they reduce their budgets

or salaries to players?

Is the sky about to all inon ootballs spiralling TVrights valuations? Watchthis space

This decision couldpotentially revolutionise the way

media rights are sold acrossEurope, and not only in the sportssector: the flm industry has alsosold rights to its products on a

country-by-country basis.


15/2316


Investment in youth is changing

On 20 October 2011 the 72

Football League clubs voted

in avour o plans or radical

reorm o the structure o youth

development in England.

One aspect o the Elite PlayerPerormance Plan (EPPP) will be a

signicant change in the mechanism by

which clubs are compensated or the

transer o their talented youngsters to

other clubs.

Under EPPP, clubs academies

will be graded. The better their youth

development set-up is deemed to be, the

more money they can expect to receive

in the orm o grants in the coming

years. This theoretically incentivisesclubs to develop their youth operations.

However, the EPPP will also bring an

end to the tribunal system or valuing

the transer o young players. Some ear

that this could reduce substantially a

potentially lucrative income stream or

many clubs: the sale o young players to

bigger clubs.

EPPP sets out a ormulaic approach

to value young players based upon the

time the selling club has invested in

their development. It does not actor

in their potential. This could put an

end to any prospect o major windalls

rom the sale o the next potential star

player. It is important to note, however,

that, should the player go on to play

or the acquiring clubs rst team,

the EPPP rules would trigger urther

compensation payments. These could

possibly be in excess o 1 million.

Not surprisingly, given that a

recent ballot produced only a 46-22vote in avour o reorm, the nancial

implications o EPPP have already

triggered much debate. Will the changes

be good or the game? This is likely

to depend upon the structure within

individual clubs. At present there are

signicant variations between clubs in

terms o the time and money they invest

in their youth development initiatives.Consequently, the importance o

developing players or promotion into

the rst team or resale to other teams

tends to dier rom club to club.

Investment in young talent

What one can say based on the

monitoring o transer activity in

English ootballs top three divisions

by Grant Thorntons Sports Advisory

Group over recent transer windows

is that the reorm comes at a time

when Premier League clubs have been

raising the proportion o their transer

expenditure spent on young players

very substantially.

This trend is detailed in the

table below

In the summer 2011 transer window

this increasing investment in young

players would appear to be infuenced,

as suggested in our Football Transer

Tracker, by the Premier Leagues squad

composition rules, which provide anincentive or investment in youth. With

players such as Jordan Henderson, Phil

Jones, Romelu Lukaku and David de

Gea costing upwards o 15 million

each, the prospect o being able to sign

the best prospects rom around the

country or, say, 150,000 under EPPP

might be very attractive or the nancial

powerhouses o the Premier League.

Indeed, at such levels, big clubs may be

happy to speculate on a ew promising

teenagers, in expectation that one or

two o them will appreciate in value

very considerably.

2009 2010 2011

Age at transer m m m

Under 21 years 21.2 59.7 130.0

Proportion of total spend 5% 17% 27%

21 years and above 428.2 296.5 344.8

Proportion of total spend 95% 83% 73%

Summer transer window


16/23

17

What may be the fnancial impact on

the lower league clubs?

What has happened in practice in

recent transer windows? Our Football

Transer Tracker also looks at the

cascading unds rom the Premier

League to the lower divisions. (It must

be noted that the data is an estimate

based upon available inormation.

Transer ees are less widely reported

the urther down the ootball pyramid

one examines.)

As shown by the table, summer 2011

saw some exceptional expenditure by

Premier League clubs acquiring players

rom clubs in the Championship.

However, despite receiving large sumsor players such as Alex Oxlade-

Chamberlain, Connor Wickham and

Charlie Adam, Championship clubs

reinvested only one-tenth o these

monies with lower league clubs. Unless

this situation changes, the impact o

EPPP on League 1 and League 2 clubs

may be relatively slight, simply because

little money has been fowing down

to them under the old system. For

Championship clubs, the impact o the

new rules will bear careul scrutiny.

No doubt there will be examples o

players whose transer ees under EPPP

will be lower than they might have

been under the tribunal system. In these

instances the selling club could miss

out on a lucrative windall. This will

cause problems or clubs which rely ontranser income to balance the books.

Then again, it could be argued that it

would be no bad thing i clubs were

deterred rom engaging in this risky

practice.

Under EPPP it will be easier or

clubs to work out how much income

might be generated rom the sale o

youth team players. Initially, the level

o such income is not great. But the

ormulaic methodology will allow

more accurate prediction o the cash

set to be generated each year. And i a

clubs ormer player becomes a Premier

League regular, it will receive a bonus o

additional monies in years to come.

2010 2011

m m

27.7 75.1

Championship 24.6 72.0

League 1 2.8 3.1

League 2 and below 0.3 0.0

Premier League to lower leagues

2010 2011

m m

6.5 7.2

League 1 4.4 6.3League 2 and below 2.1 0.9

Championship to lower leagues


17/23


TV rights

With the next round o Premiership

TV rights to be presented to the market

in 2012, (or the years 2013-2015), and

clubs looking to break even to meetnancial air play rules, what levels

o broadcasting income can the clubs

expect to actor into their orecasts

and budgets?

The current SKY/ESPN three-year

deal netted 1.782 billion and overseas

deals produced a urther 1.4 billion or

the Premier League. The resultant TV

rights income reported by Premiership

clubs in 2009-10 was 952 million in

total. Six clubs earned more than 50

million each, with the highest being 60million and the lowest 39 million. Each

round o bidding or TV rights has

seen an increase in the money received

by the Premiership. In 1992-1997 the

average TV income per Premiership

game was 633,000. It leapt to 2.79

million in 1997-2001 and ater steady

increases is currently 4.3 million per

game. Will the increase continue?

The trend in the Football League,

embracing the three divisions o English

ootball below the Premier League,gives a possible indication o the uture

direction o Premiership TV monies.

The bad news is that its new three-

year deal with Sky Sports is worth 69

million less than the current contract.

This appears to be because the BBC

will not be providing any live coverage.

Instead, Sky Sports has agreed to pay

195 million or the rights to screen

75 matches rom the Npower Football

League, the play-os, the Carling Cupand the Johnstones Paint Trophy. The

2009 2011 joint deal with Sky and the

BBC yielded 264 million or the TV

rights. This time around, however, the

BBC decided it was unable to make a

competitive bid ollowing its strategic

review o budgets. Whilst the new deal

does show a signicant reduction or

the Football League, Skys bid is still

well ahead o the 109.5m it paid or the

2006-2009 rights.

In the most recent bids or theEnglish Premiership TV rights, EU

competition law prevented Sky rom

securing all six o the packages, and

Setanta beat rival ESPN to win the

sixth package. Setanta o course,

subsequently ailed and ESPN was

invited to take its place. Owned by

Disney, ESPN is a much larger operator

than Setanta ever was. Indeed Disney

- which owns ABC, one o Americas

biggest networks and operates indozens o countries - out-sizes News

Corporation, which eectively

controls BSkyB.

18


18/23

19

ESPN depended heavily on Sky

when it launched its UK business, as

it had neither the inrastructure nor

the expertise to create its own UKsubscription business. It has now

established itsel, and has a UK ootball

oering that includes:

PremierLeague-23livegames

ScottishPremierLeague-30live

games, covering all 12 teams

FACup-25livematchesincluding

one exclusively live FA Cup Semi-

Final and live coverage o the FA

Cup Final rom Wembley

The question now, is whether this taste

o UK ootball has given ESPN the

appetite to mount a challenge to Sky

in the next round o Premier League

bidding. Having just acquired rights

or Europa League games rom 2012-13

to 2014-15 in conjunction with ITV,

ESPN has increased its ootball line-up.

I ESPN decides to expand urther

with more Premiership games, the

competition may orce Sky to increase

its oer to maintain its market position.On the other hand, i ESPN is

content with its current presence, it

may simply submit a low oer or one

o the six packages, and rely on Sky

again being prevented by the EU rom

winning all six packages. Last time,

Setanta secured Package D, (comprising

mainly Saturday games at 5.15pm),

or just 159 million, beating ESPN

in the process. This equated to 2.3

million per game, which was less thanhal o the Sky bid. Obviously, ESPN

as the under-bidder oered less than

Setanta. I ESPN is not prepared to

bid signicantly more than it did last

time, Sky would be able to retain its

TV oering by submitting a similar, or

possibly a lower bid. That could meanno increase, or even a decrease, in TV

income or ootball clubs.

There is certainly prot to be earned

rom broadcasting TV matches. BskyB

has ounded its business on ootball.

ESPN and other broadcasters can see

the potential, but are they prepared

to challenge Skys dominant market

position, and at what cost?

Potential bidders must also take

into account the impact o the KarenMurphy case, considered elsewhere in

this brochure, in which the European

Court o Justice (ECJ) ruled that the

Premier Leagues approach to selling

exclusive TV rights breaches EC

competition law. That decision will

certainly change the way the rights

are sold next time around, as it is

exclusivity within national boundaries

that has driven the price up to the

current level. The Premier League will

be anxious to make sure it continues

to maximise its potential income.

The High Court has still to give itsjudgement on the Karen Murphy

case. It remains to be seen, thereore,

whether the Premier League will seek to

sell UK rights across Europe next time

around, and whether this will tempt

overseas broadcasters into the UK

market.

Al Jazeera, owned by the Qatari

royal amily, is one overseas broadcaster

which could pose a challenge to

Sky. Qatars interest in ootball hasincreased since it won the right to

stage the 2022 World Cup nals. Qatar

is the Barcelona shirt sponsor, and a

Qatari investment rm acquired Paris

St Germain, a leading French club.

Al Jazeera has already demonstrated

its interest in televised sports by

purchasing some o the domestic rights

to screen matches rom Frances top

division, Ligue 1, as well as regional TV

The trend in theFootball League, embracing thethree divisions o English ootballbelow the Premier League, givesa possible indication o the uture

direction o Premiership

TV monies.

I ESPN decides to expand urther with more Premiership

games, the competition may orce Sky to increase its oer

to maintain its market position. On the other hand, i ESPN is

content with its current presence, it may simply submit a low

oer or one o the six packages, and rely on Sky again being

prevented by the EU rom winning all six packages.


19/23


20

rights or the next three World Cups

and the Champions League, with Gary

Lineker ronting such coverage.

Because o all this, it is dicult toassess whether the price or Premier

League rights will be driven down

by the lack o exclusivity, or up by

increased competition.

It is also possible there may be a

change in the allocation o TV monies

between the clubs. Last year, the

Premierships top club earned 1.54

times as much in TV monies as the

bottom club. In Spain, where clubs

negotiate deals separately, Real Madridand Barcelona, Spains Big Two, earned

12.5 times more than the smallest La

Liga clubs. The discrepancy is explained

by the act that, while TV monies in

the Premiership are distributed partly

on League perormance, the bulk is

distributed equally amongst the clubs.

Liverpool managing director, Ian

Ayre, has recently been voicing his

dissatisaction that, in his view, clubs

such as Real Madrid and Barcelona have

an advantage over Liverpool becausethey are able to negotiate their own TV

rights deals separately rom their rivals

in the Spanish league. The Premiership

clubs share international TV monies

equally, as the Premiership negotiates

a collective deal on behal o all the

clubs. Liverpool is clearly unhappy

about this position. However, others

such as Arsenal and Manchester City

have indicated that they are happy with

the status quo. Any move to changethe arrangement would require the

approval o 14 o the 20 Premiership

clubs. It seems unlikely that those clubs

which would benet rom individual

negotiation o TV monies will be able

to persuade enough o the others to

abandon the collective principle. Thoseopposing any change have highlighted

the expanding revenue gap between

the top clubs and the others in the

Premiership. Allowing the bigger clubs

to take a larger share o TV monies will

only widen that gap, and jeopardise the

unpredictability and competitiveness o

the Premiership, that is at the root o

its popularity.

One nal point to consider

is whether UEFAs nancial airplay regulations will orce clubs to

consider or the rst time allowing live

broadcasts o matches kicking o at 3

oclock on Saturday aternoons the

traditional start-time o all UK ootball

matches beore the age o pay-TV.

The Premier League has ought shy o

allowing 3pm live broadcasts or ear

o the damage that might be caused to

attendances in the lower leagues. Given

the option, many ans might indeed

preer to sit at home in ront o theirHD TV watching a top-fight match,

rather than travel to sit in a draughty

stand with a distant view o the game.

For clubs desperate to increase revenue,

the chance to earn additional income

rom broadcasting 3pm kick-os on

Sky, their own TV channels or the

internet, may just be too tempting.

So the stage is set or the next round

o bidding or Premiership TV rights.

Karen Murphy and the ECJ havemoved the goalposts. The impact o

the recession is urther distorting the

picture. When the whistle is blown

to start the contest, will we see the

same players participating, ollowing

the same game-plan? Or are the

broadcasters tactics about to change?And or the clubs, concerned about

the nancial air play regulations,

will they receive more or less rom

broadcasting rights or their games?

Time will tell. Its ootball, it could go

either way!


20/23

21

About Grant Thornton

Football ocus

Grant Thornton is a leading business

and nancial adviser to ootball clubsand recognises the priorities o key

stakeholders in the sector including

club management, bankers, sports

agents, management companies and

regulatory bodies.

We also have extensive experience

working with distressed ootball clubs

and their lenders. This means that

we are well placed to nd the right

restructuring solution or clubs acing

nancial diculties. Our ootballsector team is committed to the delivery

o rst-class advice encompassing

restructuring, corporate nance,

taxation and orensic investigation

services. Our geographic spread and

network o oces across the UK allows

us to deliver the strength o a national

practice through local contacts with the

expertise as required by our clients.

Recovery & Reorganisation

Grant Thornton Recovery &

Reorganisation is one o the UKs topve advisers or corporate recovery,

turnaround and restructuring

assignments to mid-size, large and

global businesses and their nancial

stakeholders. Grant Thornton Recovery

& Reorganisation comprises over 50

partners and directors and over 600

proessional sta.

We supply a wide range o services

to underperorming businesses and

their stakeholders. This is ocusedon identiying and resolving issues

aecting protability, protecting

enterprise value and, where necessary,

recovering value or stakeholders. Our

team in the UK regularly leads complex

and multi-jurisdictional assignments

and we continually make investments

in our international network to allow

us to deliver on the most complex cases.

Amongst others, recent assignments

or our UK team include some o the

largest retail, care home and hotel group

restructurings. Our last 14 international

and complex assignments alone involve

Grant Thornton handling debts o over

US$25 billion.


21/2322


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independently owned and managed

accounting and consulting rms.

Combined, these rms have over 2,500partners and 28,000 personnel based in

more than 500 oces in 112 countries.

Member rms in 52 countries are

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We have invested heavily in training,

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ollow the same processes and

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Countries with a Recovery & Reorganisation accredited member firm within Grant Thornton International

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The international reach o our Recovery & Reorganisation practice


22/23

23

Identiying and resolving

issues aecting protability,protecting enterprise value and,where necessary, recovering

value or stakeholders.


23/23

2012 Grant Thornton UK LLP. All rights reserved.

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Grant Thornton UK LLP is a member irm within

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Documents

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