Changes to the Economics of the English Premier League

Written by Rohin Mehta

Europe’s clear market leader in football, the English Premier League (EPL), generates over 40% more revenue than its nearest rival league, the German Bundesliga. The league is enjoying unprecedented success and record profits thanks to global TV deals, recent rule changes and an influx of U.S. investors.

Record TV Deals Flood Teams With Revenue

The growing worldwide popularity of the EPL is paying huge dividends for every club in the league. In the 2013-14 season, the first of the league’s current three-year TV deal, broadcasting revenue accounted for a record 54% of the league’s total revenue and was 48% higher than the previous year. Under the current deal, which expires at the end of the 2015-16 season, the league makes GBP £2.23 billion from overseas rights, or GBP £743 million a year.

In February 2015, the league announced a record GBP £5.1 billion three-year deal for live domestic Premier League TV rights with Sky and BT Sport, representing a 70% increase over the league’s previous deal. With the domestic rights taken care of, the league set its sights on cashing in on the league’s increasing global appeal. After months of bidding wars, the league agreed to worldwide TV deals valued at more than GBP £3 billion, including NBC’s new six-year deal for the U.S. TV rights, believed to be worth over $1 billion. The deal represents a 100% per-year increase over the network’s previous deal three years earlier when NBC paid just $250 million.

Financial Fair Play

Football’s European governing body, the Union of European Football Associations (UEFA), instituted rules to prevent professional clubs from spending more than they earn. The Financial Fair Play Regulations were established in response to over 50% of member franchises losing money, and many were not paying their debts. Teams that violate the set budgetary framework are penalised with fines, withholding of prize money, player bans and potential disqualification from prestigious and profitable European competitions. Before the new regulations were in place, more than 50% of European professional soccer teams were losing money. While the new rules were approved in 2009, they were not implemented and enforced until the 2013 English Premier League season. Under the new regulations, Premier League clubs made an overall profit for the first time in 16 years. Teams are restricted to putting only a portion of the extra money received from the league’s increased TV deals into player salaries. Forcing teams to live well within their means paid off as salaries increased by only 5.5%, while overall income soared by 22%.

Foreign Investors

The league’s international appeal is not limited to its fan base, as recent years have seen a flood of foreign investors. Thirty-five percent of the league’s current teams have U.S. ownership ties, and with Iranian business man Farhad Moshiri’s February 2016 £200 million purchase of a 49.1% stake in Everton, foreign money continues to pour in. Focusing on medium- to long-term holdings, owners are replicating the formula that U.S. sports franchises have proved successful, which is showing patience as value increases from lucrative corporate sponsorship and TV deals.

The U.S. influence is so great, the league is re-branding itself in the summer of 2016 and plans to be known as the English Football League, or the EFL. If that sounds a lot like “NFL,” it is not by coincidence; a key reason for the change is to attract more attention from American investors and football fans.

In a recent statement, newly named English Football League chief executive Shaun Harvey said, “In an increasingly challenging global sports market, it is absolutely essential that sports properties can project a modern identity that not only resonates with their regular audience but is also easily recognisable to a broader audience of potential fans, viewers and commercial partners.”

Is this Premier League money ruining the top tier? Let us know in the comments below!

featured image by Peter Woodentop