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The Premier League – a business model ‘like no other’

  • Premier League football returns Friday 9th August
  • English clubs reign in transfer spending whilst continental rivals speculate heavily
  • New TV rights agreement drives Spanish spending
  • Euro strength against pound sterling also rebalances European spending patterns
  • Global appeal of the game incentivising further ‘investment’ and expansion

The 2019-20 Premier League season kicks off at 8pm on Friday 9th August. An industry with a billion-dollar turnover continues to be driven by personality ‘dynamics’, management structures based on intrigue and sporting outcomes that involve a good degree of pure luck.

Source: City AM

It’s no surprise that most Premiership clubs are privately owned rather than publicly listed. The reporting obligations associated with having shareholders don’t sit well with a business model greatly dependant on the whims of individuals. The business approach adopted by the Premiership clubs ranges somewhere from venture capital or private equity through to billionaires’ play-thing.

It’s also a sector of the economy that gives an insight into the latest ground-breaking approach to media trends, marketing to a global audience and consumer sentiment.

 

Behind closed doors

The history of Manchester United’s relationship with the stock markets shows how major business restructuring can benefit from being done away from the public eye.

The Glazer family took control of Manchester United in 2005 using their holding company Red Football. Taking a majority stake holding in the LSE listed firm saw them obliged to make an official takeover offer for the club. In line with the trend of that time, they followed the private equity model and borrowed funds to finance the transaction. The majority of the loan was in fact secured against the club’s own assets. The plan to buy an organisation by borrowing against its own assets had one major drawback and that was the punitive interest rates on the loans. Annual payments of £60m per annum were due on loans of £800m, which remained in place until 2010.

Source: Manchester Evening News

The financial restructuring included the issuance of £500m of bonds in 2010 and a partial listing on the New York Stock Exchange in 2012. The IPO target price was reduced from the $16-20 range to $14 each after the prospectus disclosed that part of the proceeds of the sale would go to the Glazer family, and Class A shares would have fewer dividend and voting rights than the Class B shares owned by the Glazer family. Even from this lower base level of $14, MANU stock has only rarely outperformed the S&P 500.

(NYSE:MANU) – Lifetime share price

Source: TradingView

 

Spending patterns to suit all needs

 The Glazer family would likely be happy with how their investment has turned out. Issues involving voting rights and PIK (Payment in Kind) loans might feel a long way from the tribal roar of the terraces, but when compared to other clubs, the governance structure of Manchester United is a relative paragon of transparency.

Roman Abramovich bought Chelsea FC in 2003 after negotiations that are reputed to have taken only 15 minutes to conclude. Ownership of a high-profile London-based club offered a successful but shy Russian businessman the chance to raise his profile, justify his self-exile from his home country and mitigate the risk of being embroiled in the Putin-led putsch of oligarchs that took place at the time.

GBPEUR – Five year price chart

Source: TradingView

Premier League clubs made a record combined revenue of £4.8bn in the 2017–18 season. By the end of transfer deadline day on Thursday 8th August, the top clubs in English football had spent £1.4bn on signing new players. This falls just short of the £1.43bn record set in 2017, but there are reasons to believe falling short of previous spending levels doesn’t necessarily signal the top of the market. In the 2018–19 season, both showcase European club finals were contested by English clubs (Liverpool, Tottenham, Arsenal and Chelsea). European clubs are playing ‘catch-up’ and spending on the continent is up this year, particularly out of Spain where new TV rights agreements will bring increased revenue streams.

 

Bucking the trend

One of the exceptions to the Premiership spending trend is Norwich City, promoted to the top tier this season. The club has put in place a policy of improving its performance through player coaching rather than buying in others. The team’s ability to gain promotion out of the second tier Championship using the same methodology meant its gross spend in the 2018–19 season was £5m. Norwich City’s approach has left a legacy and spending in the Championship is down compared to last year.

Source: BBC (Getty Images)

This time last year, Fulham FC instead of Norwich City were looking forward to a season in the Premiership. The London club spent over £100 million on new signings but its plan didn’t work out and the team was relegated with five games left to play.

 

Full-time whistle?

 Daniel Ayers, consulting partner at leading digital sports agency Seven League, writing in City AM said:

“There is no shortage of analysts who feel the rights market has peaked.”

Source: City AM

The move towards the global market is as much about establishing a younger fan base as it is about the total number of fans.

Charlie Beall, writing for SportsPro in August 2019 said:

“Sport still remains one of the few entertainment formats that drives live audiences, but the inconvenient truth is that these audiences now skew older.”

 Source: SportsPro

Sports events still largely take place within traditional time frames – for example two halves of 90 minutes for a football match.

By comparison, drama has adapted to new technology and is packaged and consumed using video on-demand technology. Binge-watching has triggered a virtuous circle where writers adapt to new viewing habits and extenuate the positives of that experience. Fewer plot call-backs are required when viewers auto-play from one episode to the next.

There have been ground-breaking technological improvements relating to the delivery of football viewing. Sky in particular, realised the returns they could make on investments that improved the quality of the product. However, there is only a limited extent to which the match format can adapt to meet the preferences of viewers.