Focus on football finance

March 2012

Focus on football finance

This is a game of
two halves: the haves
and the have nots.
And the haves want more

Contents
03 2020 Vision
04 Football finance fair play
08 Club versus country
09 Eastern mystery
10 Where does the money go?
14 Is the Sky falling in?
16 Investment in youth is changing
18 TV rights
21 About Grant Thornton

2020 Vision
Pulling together the different
themes covered in this newsletter
gives us a vision of the possible
future for football, in England
and beyond.
Picture the scene: Manchester United
v Barcelona; the final of the World
Champions League, played before a
full house in the Beijing National
Stadium in China. There are 100,000
fans, 50,000 each from 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-perview. It is footballs biggest game,
producing revenues of $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
of clubs to match their income. We
support this initiative strongly as it
will encourage clubs to develop young
players rather than spending their way
into financial trouble.
We consider FIFAs increasing
demands on the clubs to release their
highly-paid players for international
duties in an already fixture-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 fielded by
the Premiership Clubs in the early
rounds of 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 of future revenues
for 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 from the
sale of media rights. Are the top clubs
really happy with their share?
If we put all these factors together,
we can see the background to what we
think may be the next big contest in
international football. Not Manchester
United v Barcelona in China, but
UEFA versus one of our top clubs. We
wonder what would happen if one, or
more, of the top European clubs were
to fall foul of UEFAs Financial Fair
Play Regulations, prompting UEFA
to exclude them from the Champions
League. Would the clubs simply accept
UEFAs ruling and be content to
pass up the prize of Champions
League money?
We suggest that would be unlikely.
Such a move by UEFA could therefore
be the catalyst for something truly
epoch-making: the break-up of the
game in Europe as we know it. This
might happen if a defaulting club
tempted others to break away and
form a European Super League, or
a World Super League. This might
eventually lead to a league of perhaps
16-20 teams from Spain, Italy, France,
Germany, England, Argentina, Brazil,
Asia and North America. Breakaway
clubs, with the best brands and the
biggest supporter bases, could demand
a greater share of media rights, and

could generate increased income from

sponsors and advertisers. Why play 60
matches each season if you could play
just 50 but still generate more revenue?
Why play in your home town every
other week when you have millions of
overseas fans, in Asia or the rest of the
world, keen to pay premium prices to
watch their favourite teams live?
For the bigger clubs the temptation
of 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
for the Manchester United v Barcelona
vision sketched out above to
become reality?
Certainly, if it did happen, it would
give rise to a whole series of further
questions. What would be the impact
on those clubs left behind? What TV
deal would these non-Super League
clubs be able to command? And what
sort of state would their finances be in?
And who would want to lend to them?
All points to ponder.

For the bigger

clubs the temptation
of the additional monies
that could be earned on a
world stage must surely,
at some point, become
irresistible.

Focus on football finance

Football financial fair play

It was in September 2009 that
UEFAs Executive Committee
approved unanimously a concept
called financial fair play. The
background to its decision was as
follows: many clubs were reporting
financial losses in worsening
market conditions in the 2009
financial year. Total revenues
for top division clubs reached a
record 11.7 billion but increased
costs had created net losses of
1.2 billion, almost double the
previous record. Many clubs were
paying enormous bills for
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, forcing transfer fees and
wages into a spiral that risked the future
of the clubs, and the very fabric of
the sport.
UEFA decided that action was needed
to level the playing field. The fair play
concept was its answer: an attempt to
force 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 longterm sustainability of European football
and is entirely consistent with the

UEFA general secretary

Gianni Infantino summed up
the situation rather memorably.
What kind of healthy business
is it that waits for a white knight
on a horse with lots of money
to throw round and then, from
one day or another, he could
jump on his horse and
ride away?

sporting values we have in Europe, said

UEFA President Michel Platini.
The financial fair play objectives
are to:
improve the economic and financial
capability of clubs, increasing
transparency and credibility
ensure clubs settle their liabilities on a
timely basis
introduce more discipline and
rationality in club football finances
encourage long-term investment in
the youth sector and infrastructure
encourage clubs to operate on the
basis of their own revenues
protect the long-term viability of
European club football.
At Grant Thornton we endorse and
support the objectives of financial fair
play as we have campaigned for some
time for football clubs to be operated
with the same level of financial discipline
applied by other business models,
rather than relying on the deep pockets
of their chairmen and other directors.
Introducing the new regime, UEFA
general secretary Gianni Infantino
summed up the situation rather
memorably. What kind of healthy
business is it that waits for a white
knight on a horse with lots of money to
throw round and then, from 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 fair play

measures that will be implemented

over a three-year period, requiring
clubs to operate on a break-even basis.
The first season that a club could be
excluded from European competition
for non-compliance is 2014-15, but
the first 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 of the three
previous reporting periods. For example,
in monitoring period 2015-2016 the
reporting periods will be those for the
financial years ending in 2015 (T), 2014
(T-1) and 2013 (T-2). The exception
to this rule will be for the 2013-14
monitoring period, which will assess the
reporting periods ending in 2013 and
2012, (2012, of course, being the
current season).
The Regulations are applicable
only to those clubs with income and
expenditure of over 5 million euros. The
maximum deficit that such clubs will be
allowed to incur will be 5 million euros
for the aggregate of the three reporting
periods (T, T-1 and T-2). This aggregate
can be exceeded in the early years but
only if the excess is made good by equity
injections. The allowable deficits will
be 45 million euros for the combined
seasons 2013-14 and 2014-15, falling to
an aggregate 30 million euros for seasons
2015-16 to 2017-18. Where a club shows

aggregate losses in a monitoring period,

it can use profits from 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
flexibility if the trend is moving in the
right direction. Accordingly, in the
2013-14 and 2014-15 monitoring
periods, if a clubs deficit arises because
of over-spending on players wages
in the 2012 reporting period, then the
expenditure on players wages arising
from contracts signed before 1 June
2010 can be excluded from the breakeven calculation.
Clubs will still be able to spend on
long-term ventures such as infrastructure
or academy projects, and this spending
will not count towards the break-even
calculation. This is to ensure that the
other aims of the Regulations, such as
youth development and improving/
upgrading sports installations, are not
affected adversely by financial fair play.

Monitoring is the role of the Club

Financial Control Panel, headed by the
former Prime Minister of Belgium, JeanLuc Dehaene. Its first task was to look
at all transfer and employee payables in
the summer of 2011. Transfer spending
made over the summer of 2011 will
impact on the break-even results of the
financial years ending 2012 and 2013, the
first financial years to be assessed under
the break-even rule. All payments due
on transfers, and to employees, will be
assessed by the Panel. So, Mr Dehaene
and his colleagues will have been
watching with interest the summer 2011
transfer window business conducted by
the Premiership Clubs, especially the
big four 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 of clubs attempting to
circumvent the regulations by artificial
means. Provision is made to adjust
income and expenses from related parties

Focus on football finance

The spectre of
the financial fair
play regulations
raises some
key questions.

to reflect the fair value of 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 successfully increased its revenue
from 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 of its kind in sport, is
certainly a huge step towards a return to
profitability for 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 profit, the deal is even
more extraordinary.
City, of course, is owned by Sheikh
Mansour bin Zayed al-Nahyan of Abu
Dhabi and Etihad Airways. The fact
that this deal doubles the previous
record of $300 million (187 million)
for the world-famous Madison Square
Garden, and is way ahead of Arsenals
90 million, 15-year sponsorship deal
with Emirates, has already been noted,
not least by some of Citys competitors
in the Premiership. The club has
apparently already consulted UEFA
over the arrangement, which includes
financial backing for infrastructure and
regeneration projects, both types of
expenditure that do not count in the

break-even calculation for financial

fair play. Arsenal manager, Arsene
Wenger, has already suggested that if
Manchester Citys sponsorship deal is
accepted by UEFA, then the financial
fair play rules will be blown apart.
According to Wenger, The credibility
of Financial Fair Play is at stake. The
sponsorship cannot be doubled, tripled
or quadrupled because that means it is
better if we leave everybody free. But if
they bring the rules in they have to
be respected.
The spectre of the financial fair play
regulations raises some key questions.
What will be their effect if they work?
And will UEFA really expel one or more
big clubs out of European competition if
they do not comply?
With regard to the first question,
France gives a possible indication of the
impact of financial fair play. The DNCG
(Direction Nationale du Controle
de Gestion) is in its third decade of
monitoring that nations strict financial
regulation regime. Clubs expenditure
is tied to income. As a result Lyon is the
only club to have finished in the top four
in Le Championnat more than five times
in the past 10 years. By contrast in the
free-spending English Premiership, four
clubs have achieved that goal. In France,
if a team incurs a loss it has to make
cutbacks, or generate compensating
income by selling a key player. This is
the financial model that Michel Platini
is so keen to impose on the rest of

Europe. In terms of the financial fair

play objectives it will introduce more
discipline and rationality in club football
finances and will encourage clubs
to operate on the basis of their own
revenues. But how will it affect players
denied pay rises, and talented managers
who have worked tirelessly to build a
winning team? Many of them may well
look elsewhere, beyond UEFAs reach.
Any club gambling on winning
a Champions League spot and its
resultant rewards, and failing, may
well find itself caught out by financial
fair play. Will that club be content to
make the cutbacks necessary to ensure
its expenditure falls back to meet the
shortfall in revenue, as required by
fair play?
That then leads us to the question of
whether or not UEFA will act robustly
and seek an expulsion of that club if it
does not do so. UEFA president Michel
Platini is on record as saying We
have worked on the financial fair play

concept hand-in-hand with the clubs,

as our intention is not to punish them
but to protect them. But if it comes
to the crunch and UEFA has to punish
them what will happen? UEFAs record
on enforcement to date has not been
exemplary. For a man who has been
quoted as saying our policy on racism
is one of zero tolerance we have seen
no real effort from Mr Platini or UEFA
to stamp out racism. That issue came to
the fore again in the recent England v
Bulgaria Euro qualifier. Will Mr Platini
take fair play all the way, or will he back
down and allow loss making clubs to
remain in Europe if the trend of losses is
heading in the right direction?
We believe that excluding a major
club from European competition on
grounds of financial fair play will
threaten the continuation of the game as
we know it in Europe. It could threaten
UEFA itself. If the excluded club were
able to persuade other clubs that their
future lay outside UEFA, in some form

We believe
that excluding a major
club from European
competition on grounds
of financial fair play will
threaten the continuation
of the game as we know it
in Europe. It could
threaten UEFA itself.

of elite European League, or even a

World Super League, then would others
follow? Liverpool, as we note elsewhere
in this brochure, is one club apparently
unhappy with its current allocation
of European TV monies. How many
others from Europe and the rest of the
world could be tempted to share in the
inevitable riches that could be generated
from such a league? And where would
that leave the others, and the financial
institutions lending to them?

Will Mr Platini take fair play all

the way, or will he back down and
allow loss making clubs to remain
in Europe if the trend of losses is
heading in the right direction?

Focus on football finance

Club versus country:

a memorandum of misunderstanding
No wonder clubs,
under pressure to
cut losses, question the
commercial sense in being
forced to allow highly-paid
players to participate in
international games for
little or no payback.

European clubs were told by FIFA

that they must release their players for
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 before the start
of the English Premier League season
a state of affairs that was not exactly
popular with Premier League managers.
In 2013, FIFA has plans for an
unprecedented 15 international dates.
No wonder clubs, under pressure to cut
losses, question the commercial sense
of being forced to allow highly-paid
players to participate in international
games for little or no payback.
Europes leading clubs in England,
Germany, Italy and Spain dream of
the profits they could make from a
European Super League. This, plus
the increasing demands of FIFA
for international games, mean the
current status quo is unsustainable.

The memorandum of understanding

between FIFA and the clubs expires in
July 2014. The memorandum creates a
legal requirement for the top European
clubs to play in UEFAs Champions
League and to release players for
international friendlies, or tournaments,
including the World Cup.
It seems unlikely that it will be
renewed on the same terms. Umberto
Gandini, of AC Milan, and the
European Club Association suggested
in July 2011 that a refusal of cooperation in respect of international
football was a possibility. The
potential riches that a Super League
could generate are best illustrated
by the FIFA World Cup. A total of
$3.7billion of income was generated
from the 2010 World Cup. Yet the
400 clubs providing the players
shared a total of 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 of
the revenues of a world
club competition.
The English Premier League was
formed over 20 years ago when leading
clubs broke away from the Football
League. The commercial success of 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 have
won 36 European Cup and Champions
League titles between them. They
would be the natural choice for any

elite European Super League, and

approaches would surely be made
to other clubs that demonstrate an
ability to generate revenue from their
international fan-bases. These might
include Arsenal, Chelsea, Manchester
City, Juventus, Roma, Ajax, Porto,
Marseille, Celtic, Rangers and others.
And why stop at Europe? Clubs,
after all, are increasingly focusing 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 of American owners, surely
a World Super League is the logical
conclusion for elite clubs seeking to
maximise their revenue potential?

The English Premier

League was formed
over 20 years ago
when leading clubs
broke away from
the Football League.
The commercial
success of the
Premiership sets an
example that could
be replicated by the
top European clubs.

Eastern mystery
It is seven years since the Glazers
took Manchester United private
for a purchase price of 790
million, provoking fury amongst
supporters.
It looks like they are now moving to
offload 25% of their shares at more
than double the purchase price, leaving
themselves with a healthy capital gain
and the fans more outraged than ever.
In June 2010 the Glazer family held
talks with several investment banks
with a view to listing Manchester
United on the Hong Kong stock
exchange. This followed a number of
recent high-profile flotations in Hong
Kong. 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 Offering (IPO)
market for the past two years, raising
$57.4bn (35.6bn) in 2010. Recent
listings include luggage manufacturer
Samsonite, Macau casino operator
MGM China and, in June 2011, Prada.
After four previously unsuccessful
flotation attempts, Prada recognised
the importance of Asia as a consumer
of luxury goods and decided to list in
Hong Kong.
However, it is Singapore, and not
Hong Kong, that is expected to see the
launch of Manchester United shares,
slightly later than planned due to
volatility in the world financial markets.
No explanation has been provided
for the change of venue to Singapore,
but indications are that 25% of the
shares will be offered for sale and the
listing is expected to raise 600 million,

although there are suggestions that

the valuation of the club is too high.
Despite 2010 revenues of 286m, and
an operating profit of 91m (the highest
in the Premiership), the club reported a
79m loss after interest costs). The high
interest costs reflect the fact that the
Glazers financed their 2005 purchase
with 600 million of loans.
The growth in the economic power
of the East and the resultant increase in
disposable incomes have combined to
attract the interest of western brands.
These brands now include some of the
top European football clubs. The places
clubs visit on their pre-season tours give
a clear indication of where they expect
growth to come from. 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 for
the weather, or to raise their profiles
amongst their growing Asian supporter
bases? Manchester United has an
estimated 333 million fans, of whom
190 million live in Asia.
Demand for live Premiership action
led to a fierce bidding war amongst
Asian broadcasters for the 2010-2013
broadcast rights. In Singapore, an island
with a population of 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 significant
increase on the previous arrangement.
The football-hungry younger fans
in Asia are very IT literate, and eager
for the latest computer and telephone
gadgets. This growing market offers
new opportunities for streaming and

The growth in the

economic power of
the East and the resultant
increase in disposable
incomes have combined
to attract the interest
of western brands.

downloading of football matches.

With UK fans 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 for Manchester
United should similarly occasion no
surprise. United, after all, does have a
number of advantages over its rivals.
On the playing field, United is the
most successful team in the history of
English football, although, of course,
Liverpool has won a greater number of
European trophies, making it the most
successful English team in Europe.
The Manchester United brand was
rated second most valuable in 2010 by
Forbes magazine behind the New York
Yankees, and the club is one of the best
supported in the world.
We believe that if its IPO does
succeed, Manchester United will
progress to another level that very
few others will be able to replicate.
Yes, others may be tempted to follow
Uniteds example. But, while Asia has a
real and increasing hunger for football,
appetite can be quickly sated. The most
successful clubs are likely to be those
first to market with attractive offerings.
9

Focus on football finance

Where does the money go?

Premier
League

million
subscribers paying

clubs

million

The economics of the mad house

According to the
Office of National
Statistics, the
average UK worker
earns 24,076 per
year, and 10.26
million of them
subscribe to Sky,
paying an average
of 535 each year.
Approximately half
of these subscribers
take some
sport content.

10

Premiership Football Clubs ought to be

among the most profitable businesses
in Britain. They have a quality product
for which there is a seemingly insatiable
demand. Ticket prices increase year
on year, and the Premier League has
delivered significant and incremental
increases in TV monies with every
new deal. Our football clubs should
be awash with cash. But in 2009/10
only three Premiership clubs reported
profits, and one of those (Arsenal)
would have incurred a significant loss
had it not been the for one-off sales of
156 million worth of apartments in
its Highbury residential development.
Premiership winners, Manchester
United posted losses before taxation
of 79 million. The combined net debt
of 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 focus on the
TV monies.
According to the Office of National
Statistics figures, the average UK
worker earns 24,076 per year, and
10.26 million people in the UK
subscribe to Sky, paying an average of
535 each year. Approximately half
of 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 for nonSky subscribers).
Sky and ESPN are paying circa 1.7
billion over 3 years to the Premiership
for TV rights, equating to 567million
each year.
The Premier League distributed
at least 19.6 million from domestic
broadcast rights (13.8 million equal
share plus a minimum of 5.8 million
facility fees) to each of the 20 Premier
League Clubs in 2010-2011. Additional
appearance monies were paid to the
clubs, depending on the number of
times they featured on TV. And, of
course, the Premier League does make
parachute payments to relegated clubs
and solidarity payments to the Football
League for distribution to its clubs, as
well as financing youth development
programmes and making various
charitable donations.
So the clubs collect the TV monies,
along with their other incomes from
ticket sales, merchandising, sponsorship
and overseas broadcasting rights and
use them to defray their expenses, the
biggest of which is the players wage

players,
managerial, coaching
and support staff

costs. Each club has a squad of 25 first

team players, earning an average basic
salary of 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 staff. Manchester
Citys wage bill in 2010-11 was 174
million, 21 million more than its total
income of 153 million!
In effect then, the hard-earned
money of the estimated 5 million Sky
sports fans ends up helping to line
the pockets of circa 800 players and

What is surprising is that despite the

massive increase in players wages,
it still isnt enough for some players
to avoid financial problems. In 199293, the first year of the Premiership,
the average Premiership basic annual
pay was 77,000, over four 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 for the
average worker.

support staff. Rather than using the

increasing TV monies to repay debt, it
seems that the clubs have preferred to
pay higher wages to their players and
staff. In 1992-93, the first year of the
Premiership, the average Premiership
basic annual pay was 77,000, over four
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 for the average worker.

The gulf between the Premier League

and the rest of football has also widened
significantly. 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
figures were 1.9 and 4.6 respectively.
Why has the gap widened so much?
Look no further than the level of TV
monies in the lower leagues.
What is more, this cash does not stay
in the Premiership footballers pockets
for long. Despite the massive increase
in players wages, in some cases it is

1992-93

2002-03

2009-10

11

Focus on football finance

We call upon the

clubs to demonstrate a
greater sense of morality
and show some understanding
to their supporters, who are
under increasing
financial pressures.

12

still not enough and the number of

ex-Premiership players experiencing
insolvency continues to rise.
The pressure of paying such
unsustainably high wages has resulted
in many clubs likewise succumbing to
insolvency. The ranks of the Football
League include a long list of clubs that
have entered Administration - some
of them shortly after having been
relegated from the Premiership. (These
include Leeds, Ipswich, Leicester and
Wimbledon.) Portsmouth became the
first club to enter Administration whilst
actually in the Premier League.
HM Revenue and Customs
(HMRC) is often blamed for forcing
clubs into insolvency. But clubs
deducting income tax and national
insurance contributions from the
unsustainable wages paid to their
players can hardly expect HMRC (and
the taxpayer) to foot the bill. Any club
that has spent the tax it has deducted
from its employees on higher wages
and transfer fees deserves no sympathy
from the hard-pressed taxpayer.
There will always be football.
The present model, however, is
not sustainable. The paying public
who subscribe to satellite TV are
encountering real financial pressures,
and those in work find themselves
obliged to make sacrifices, faced with a

reduction in disposable income as wages

fail to keep pace with inflationary price
rises. Can the football industry expect
the public to continue paying more and
more each year to finance the increased
wage demands of such a limited number
of individuals? Clubs cannot afford
to continue to operate the same way,
relying on the ongoing support of their
fans digging ever deeper into
their pockets.
We call upon the clubs to
demonstrate a greater sense of morality
and show some empathy with their
supporters, who are under increasing
financial pressures. We call upon all the
directors of our football clubs to live
up to the fair 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 football authorities to show
the leadership required to ensure that
clubs do attain the breakeven financial
fair play standards demanded by
UEFA. That will require the clubs to
be brave enough to deny the increased
wage demands from players, to resist
the inevitable pressure of the fans
however hard-up they themselves might
be - to spend those extra millions in the
transfer windows, and use their income
to reduce debts. We say: so what if the
clubs dont sign the expensive players
that their fans want? Many of the clubs
that did gamble on spending their way
to footballing success have entered
insolvency and fallen out of sight of
the upper leagues. Spending does not
guarantee footballing success. We
urge the clubs to look realistically, and

modestly, at their ambitions, and follow

the fair play protocols. Operating
within their means will allow clubs to
find their true economic level in the
league. That may well be less glamorous
than living the dream, but club directors
and supporters must decide what they
want from their teams: one gigantic
gamble that is more than likely to fail
and risk the very existence of the club
they love so dearly, or a long-term
sustainable future.

So we say the
economic model
has to change.
It represents the
economics of the
madhouse, and
cannot continue.
Surely everyone can
see why UEFA is so
keen on financial
fair play.

Key financials for Premier League clubs at June 2010

Turnover

Wages as
Profit/
% of
(loss)
Wages turnover before tax

million

million

382

110

Aston Villa

91

Birmingham

Net debt

million

million

29

56

136

80

88

(38)

110

56

38

68

16

Blackburn

58

47

81

(2)

21

Blackpool

13

144

(7)

4.3

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)

150

Stoke

59

45

76

(5)

Sunderland

65

54

83

(28)

66

Tottenham

119

67

56

(7)

65

West Brom

28

23

82

10

West Ham

72

54

75

(21)

34

Wigan

43

39

91

(4)

73

Wolves

61

30

49

Arsenal

Bolton

Total Net Debt at June 2010 = 2.5 billion

13

Focus on football finance

Is the Sky falling in?

It could be argued that Premier
League footballers and BSkyB are
the only players in the football
market who have fared well in the
recession up to this point.
Even though the credit crisis has forced
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 of 535 each year,
quite an increase from the average of
452 they were paying three years ago.
Increased take-up of high definition
services and broadband and fixed line
telephones have been the main reasons
for the uplift. Despite an increase of
10% in revenue over last year, the
recession does finally seem to be
catching up with Sky. Estimates indicate
that the number of new subscribers in
the September quarter is down over
80% on the same period last year.
Meanwhile, footballers wage
demands seem to go forever onwards
and upwards. One wonders how much
more Sky customers, some of whom
are unemployed, will be asked to pay to
keep Premiership footballers living
in the manner to which they have
become accustomed.
There may be trouble ahead for the
pay-TV broadcaster, however. And
trouble for Sky could mean difficulties
for football clubs that depend so heavily
on their share of the seemingly everincreasing bonanza that TV rights have
turned out to be.
BSkyB is considering carefully the
decision of the European Court of
Justice (ECJ), Europes highest court,

14

in the Karen Murphy case. Ms Murphy

is the Portsmouth pub landlady who
appealed against her conviction for
broadcasting illegally live Premiership
matches by using a Greek TV signal
decoder. The Football Association
Premier League Limited (the private
company which represents the
broadcasting interests of 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 for commercial premises in
the UK, which can be over 1,000 per

month, were too high and opted for

a much cheaper Greek service until
stopped by the English courts. Having
paid nearly 8,000 in fines 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 fully the value of
its rights.
The Premier League and Sky were
given a strong indication as to what
the decision of the ECJ would be in

Despi
te
10% i an increase
n
o
year, revenue ov f
the re
e
cessio r last
finally
nd
s
catch eem to be oes
ing up
with S
ky.

This decision could

potentially revolutionise the way
media rights are sold across
Europe, and not only in the sports
sector: the film industry has also
sold rights to its products on a
country-by-country basis.

February 2011 when the court was

advised by one of its Advocate
Generals, Professor Dr Juliane Kokott,
to rule that EU law does not prohibit
pubs showing live Premier League
matches from foreign broadcasters.
Advocate General Kokott s opinion
was that the idea of selling on a
territorial exclusivity basis was
tantamount to profiting from the
elimination of the internal market
and that there is ... no specific right to
charge different prices for a work in
each member state.
When the judgement was delivered
on 4 October the ECJ, as expected,
followed the guidance of its Advocate
General, deciding that the TV rights
deal breached EU competition law. Any
ban on the use of overseas decoders,
said the ECJ, could not be justified
either in light of the objective of
protecting intellectual property rights
or by the objective of encouraging the
public to attend football stadiums.
The decision of the ECJ must now
be considered by the High Court in
London, which had sought guidance
from the ECJ. It is rare for a national
court to take a different view from
the ECJ.
It appears from the ECJ decision
that individuals will be able to watch
live TV matches using a decoder
card from anywhere in the European

Union. The situation for viewers in

pubs and clubs is less clear. The ECJ
found that the Premier League could
not claim copyright over live football
matches as they are not an authors
own intellectual creation, and hence
works as defined in EU copyright
law. Works do, however, include
logos, the Premier League anthem and
recorded highlights, transmission of
which would need the permission of the
Premier League, as they are protected
by copyright. So, whilst pubs and clubs
seem to be free to purchase a decoder
from 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 film industry has also
sold rights to its products on a countryby-country basis.
Sky has around 44,000 pub, club
and office subscribers in the UK and
revenues from such subscriptions are
thought to be about 200m a year.
Exactly how much of this will be at risk
is unclear.
So what are the potential
implications if the High Court follows
the ECJ decision?

Sky may lose customers and revenue

to foreign broadcasters of Premier
League football if UK fans are
prepared to accept foreign language
commentaries. Fewer subscribers
would probably mean Sky offering
less when the Premier League
auctions its TV rights this year.
Loss of exclusivity would almost
certainly mean that bidders would
not be prepared to offer as much for
UK rights as they have in the past.
Less money for the Premier League
would mean a smaller payout for the
football clubs.
Foreign broadcasters do not face
the same restrictions on showing
live football that have been imposed
on BskyB by the Premier League.
Matches kicking off on Saturday
at 3pm would be widely available
to watch on TV. How many empty
seats will we see in the stands as fans
are tempted to watch their team on
high-definition TV from the comfort
of their armchairs? More armchair
fans would mean less money through
the turnstiles for the clubs. Would
clubs seek to raise the cost of tickets
in these economically difficult times?
Or would they reduce their budgets
for salaries to players?

Is the sky about to fall in

on footballs spiralling TV
rights valuations? Watch
this space

15

Focus on football finance

Investment in youth is changing

On 20 October 2011 the 72
Football League clubs voted
in favour of plans for radical
reform of the structure of youth
development in England.
One aspect of the Elite Player
Performance Plan (EPPP) will be a
significant change in the mechanism by
which clubs are compensated for the
transfer of 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 form of grants in the coming
years. This theoretically incentivises
clubs to develop their youth operations.
However, the EPPP will also bring an
end to the tribunal system for valuing
the transfer of young players. Some fear
that this could reduce substantially a
potentially lucrative income stream for
many clubs: the sale of young players to
bigger clubs.
EPPP sets out a formulaic approach
to value young players based upon the
time the selling club has invested in
their development. It does not factor
in their potential. This could put an
end to any prospect of major windfalls
from the sale of the next potential star
player. It is important to note, however,
that, should the player go on to play
for the acquiring clubs first team,
the EPPP rules would trigger further
compensation payments. These could
possibly be in excess of 1 million.
Not surprisingly, given that a
recent ballot produced only a 46-22
vote in favour of reform, the financial
implications of EPPP have already
triggered much debate. Will the changes

16

be good for the game? This is likely

to depend upon the structure within
individual clubs. At present there are
significant variations between clubs in
terms of the time and money they invest
in their youth development initiatives.
Consequently, the importance of
developing players for promotion into
the first team or resale to other teams
tends to differ from club to club.
Investment in young talent

What one can say based on the

monitoring of transfer activity in
English footballs top three divisions
by Grant Thorntons Sports Advisory
Group over recent transfer windows
is that the reform comes at a time
when Premier League clubs have been
raising the proportion of their transfer
expenditure spent on young players
very substantially.

In the summer 2011 transfer window

this increasing investment in young
players would appear to be influenced,
as suggested in our Football Transfer
Tracker, by the Premier Leagues squad
composition rules, which provide an
incentive for investment in youth. With
players such as Jordan Henderson, Phil
Jones, Romelu Lukaku and David de
Gea costing upwards of 15 million
each, the prospect of being able to sign
the best prospects from around the
country for, say, 150,000 under EPPP
might be very attractive for the financial
powerhouses of the Premier League.
Indeed, at such levels, big clubs may be
happy to speculate on a few promising
teenagers, in expectation that one or
two of them will appreciate in value
very considerably.

This trend is detailed in the

table below

Summer transfer window

Age at transfer

2009 2010 2011

m

Under 21 years
Proportion of total spend

21.2
5%

59.7
17%

130.0
27%

21 years and above

Proportion of total spend

428.2
95%

296.5
83%

344.8
73%

Premier League to lower leagues

2010 2011
m m
Championship 24.6 72.0
League 1
2.8
3.1
League 2 and below
0.3
0.0

27.7 75.1

Championship to lower leagues

2010 2011
m m
League 1
League 2 and below

4.4
2.1

6.3
0.9

6.5 7.2

What may be the financial impact on

the lower league clubs?

What has happened in practice in

recent transfer windows? Our Football
Transfer Tracker also looks at the
cascading funds from the Premier
League to the lower divisions. (It must
be noted that the data is an estimate
based upon available information.
Transfer fees are less widely reported
the further down the football pyramid
one examines.)
As shown by the table, summer 2011
saw some exceptional expenditure by
Premier League clubs acquiring players
from clubs in the Championship.
However, despite receiving large sums
for players such as Alex OxladeChamberlain, Connor Wickham and

Charlie Adam, Championship clubs

reinvested only one-tenth of these
monies with lower league clubs. Unless
this situation changes, the impact of
EPPP on League 1 and League 2 clubs
may be relatively slight, simply because
little money has been flowing down
to them under the old system. For
Championship clubs, the impact of the
new rules will bear careful scrutiny.
No doubt there will be examples of
players whose transfer fees 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 windfall. This will
cause problems for clubs which rely on
transfer income to balance the books.
Then again, it could be argued that it

would be no bad thing if clubs were

deterred from engaging in this risky
practice.
Under EPPP it will be easier for
clubs to work out how much income
might be generated from the sale of
youth team players. Initially, the level
of such income is not great. But the
formulaic methodology will allow
more accurate prediction of the cash
set to be generated each year. And if a
clubs former player becomes a Premier
League regular, it will receive a bonus of
additional monies in years to come.

17

Focus on football finance

TV rights

With the next round of Premiership

TV rights to be presented to the market
in 2012, (for the years 2013-2015), and
clubs looking to break even to meet
financial fair play rules, what levels
of broadcasting income can the clubs
expect to factor into their forecasts
and budgets?
The current SKY/ESPN three-year
deal netted 1.782 billion and overseas
deals produced a further 1.4 billion for
the Premier League. The resultant TV

18

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 60
million and the lowest 39 million. Each
round of bidding for 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 after steady
increases is currently 4.3 million per

game. Will the increase continue?

The trend in the Football League,
embracing the three divisions of English
football below the Premier League,
gives a possible indication of the future
direction of Premiership TV monies.
The bad news is that its new threeyear 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 for the rights to screen
75 matches from the Npower Football
League, the play-offs, the Carling Cup
and the Johnstones Paint Trophy. The
2009 2011 joint deal with Sky and the
BBC yielded 264 million for the TV
rights. This time around, however, the
BBC decided it was unable to make a
competitive bid following its strategic
review of budgets. Whilst the new deal
does show a significant reduction for
the Football League, Skys bid is still
well ahead of the 109.5m it paid for the
2006-2009 rights.
In the most recent bids for the
English Premiership TV rights, EU
competition law prevented Sky from
securing all six of the packages, and
Setanta beat rival ESPN to win the
sixth package. Setanta of course,
subsequently failed 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 of Americas
biggest networks and operates in
dozens of countries - out-sizes News
Corporation, which effectively
controls BSkyB.

If ESPN decides to expand further with more Premiership

games, the competition may force Sky to increase its offer
to maintain its market position. On the other hand, if ESPN is
content with its current presence, it may simply submit a low
offer for one of the six packages, and rely on Sky again being
prevented by the EU from winning all six packages.
ESPN depended heavily on Sky
when it launched its UK business, as
it had neither the infrastructure nor
the expertise to create its own UK
subscription business. It has now
established itself, and has a UK football
offering that includes:
Premier League - 23 live games
Scottish Premier League - 30 live
games, covering all 12 teams
FA Cup - 25 live matches including
one exclusively live FA Cup SemiFinal and live coverage of the FA
Cup Final from Wembley
The question now, is whether this taste
of UK football has given ESPN the
appetite to mount a challenge to Sky
in the next round of Premier League
bidding. Having just acquired rights
for Europa League games from 2012-13
to 2014-15 in conjunction with ITV,
ESPN has increased its football line-up.
If ESPN decides to expand further
with more Premiership games, the
competition may force Sky to increase
its offer to maintain its market position.
On the other hand, if ESPN is
content with its current presence, it
may simply submit a low offer for one
of the six packages, and rely on Sky
again being prevented by the EU from
winning all six packages. Last time,
Setanta secured Package D, (comprising
mainly Saturday games at 5.15pm),
for just 159 million, beating ESPN
in the process. This equated to 2.3
million per game, which was less than
half of the Sky bid. Obviously, ESPN
as the under-bidder offered less than
Setanta. If ESPN is not prepared to

bid significantly more than it did last

time, Sky would be able to retain its
TV offering by submitting a similar, or
possibly a lower bid. That could mean
no increase, or even a decrease, in TV
income for football clubs.
There is certainly profit to be earned
from broadcasting TV matches. BskyB
has founded its business on football.
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 of the Karen
Murphy case, considered elsewhere in
this brochure, in which the European
Court of 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 its
judgement on the Karen Murphy
case. It remains to be seen, therefore,
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 family, is one overseas broadcaster
which could pose a challenge to
Sky. Qatars interest in football has
increased since it won the right to
stage the 2022 World Cup finals. Qatar
is the Barcelona shirt sponsor, and a
Qatari investment firm acquired Paris
St Germain, a leading French club.
Al Jazeera has already demonstrated
its interest in televised sports by
purchasing some of the domestic rights
to screen matches from Frances top
division, Ligue 1, as well as regional TV

The trend in the

Football League, embracing the
three divisions of English football
below the Premier League, gives
a possible indication of the future
direction of Premiership
TV monies.

19

Focus on football finance

rights for the next three World Cups

and the Champions League, with Gary
Lineker fronting such coverage.
Because of all this, it is difficult to
assess whether the price for Premier
League rights will be driven down
by the lack of exclusivity, or up by
increased competition.
It is also possible there may be a
change in the allocation of 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 Madrid
and Barcelona, Spains Big Two, earned
12.5 times more than the smallest La
Liga clubs. The discrepancy is explained
by the fact that, while TV monies in
the Premiership are distributed partly
on League performance, the bulk is
distributed equally amongst the clubs.
Liverpool managing director, Ian
Ayre, has recently been voicing his
dissatisfaction that, in his view, clubs
such as Real Madrid and Barcelona have
an advantage over Liverpool because
they are able to negotiate their own TV
rights deals separately from their rivals
in the Spanish league. The Premiership
clubs share international TV monies
equally, as the Premiership negotiates
a collective deal on behalf of 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 change
the arrangement would require the
approval of 14 of the 20 Premiership
clubs. It seems unlikely that those clubs

20

which would benefit from individual

negotiation of TV monies will be able
to persuade enough of the others to
abandon the collective principle. Those
opposing 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 of TV monies will
only widen that gap, and jeopardise the
unpredictability and competitiveness of
the Premiership, that is at the root of
its popularity.
One final point to consider
is whether UEFAs financial fair
play regulations will force clubs to
consider for the first time allowing live
broadcasts of matches kicking off at 3
oclock on Saturday afternoons the
traditional start-time of all UK football
matches before the age of pay-TV.
The Premier League has fought shy of
allowing 3pm live broadcasts for fear
of the damage that might be caused to
attendances in the lower leagues. Given
the option, many fans might indeed
prefer to sit at home in front of their
HD TV watching a top-flight match,
rather than travel to sit in a draughty
stand with a distant view of the game.
For clubs desperate to increase revenue,
the chance to earn additional income
from broadcasting 3pm kick-offs on
Sky, their own TV channels or the
internet, may just be too tempting.
So the stage is set for the next round
of bidding for Premiership TV rights.
Karen Murphy and the ECJ have
moved the goalposts. The impact of
the recession is further distorting the
picture. When the whistle is blown

to start the contest, will we see the

same players participating, following
the same game-plan? Or are the
broadcasters tactics about to change?
And for the clubs, concerned about
the financial fair play regulations,
will they receive more or less from
broadcasting rights for their games?
Time will tell. Its football, it could go
either way!

About Grant Thornton

Football focus

Recovery & Reorganisation

Grant Thornton is a leading business

and financial adviser to football clubs
and recognises the priorities of key
stakeholders in the sector including
club management, bankers, sports
agents, management companies and
regulatory bodies.
We also have extensive experience
working with distressed football clubs
and their lenders. This means that
we are well placed to find the right
restructuring solution for clubs facing
financial difficulties. Our football
sector team is committed to the delivery
of first-class advice encompassing
restructuring, corporate finance,
taxation and forensic investigation
services. Our geographic spread and
network of offices across the UK allows
us to deliver the strength of a national
practice through local contacts with the
expertise as required by our clients.

Grant Thornton Recovery &

Reorganisation is one of the UKs top
five advisers for corporate recovery,
turnaround and restructuring
assignments to mid-size, large and
global businesses and their financial
stakeholders. Grant Thornton Recovery
& Reorganisation comprises over 50
partners and directors and over 600
professional staff.
We supply a wide range of services
to underperforming businesses and
their stakeholders. This is focused
on identifying and resolving issues
affecting profitability, protecting
enterprise value and, where necessary,
recovering value for 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
for our UK team include some of the
largest retail, care home and hotel group
restructurings. Our last 14 international
and complex assignments alone involve
Grant Thornton handling debts of over
US$25 billion.

21

Focus on football finance

The international reach of our Recovery & Reorganisation practice

Grant Thornton is an organisation of
independently owned and managed
accounting and consulting firms.
Combined, these firms have over 2,500
partners and 28,000 personnel based in
more than 500 offices in 112 countries.
Member firms in 52 countries are
authorised by Grant Thornton
International to undertake Recovery
& Reorganisation assignments. These
firms have 113 specialist Recovery &
Reorganisation partners and over 1,500
dedicated personnel.

We have invested heavily in training,

systems and infrastructure designed
to deliver consistent methodology
and processes across this network.
This means that our teams are closely
aligned and, where legally possible,
follow the same processes and
methodologies allowing us to avoid the
legal and regulatory pitfalls of complex
international restructurings.

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

22

Identifying and resolving

issues affecting profitability,
protecting enterprise value and,
where necessary, recovering
value for stakeholders.

23

Contact us

Joe McLean
Partner
Advisory Services
T 0113 200 1506
E joe.mclean@uk.gt.com

Geoff Mesher
Partner
Forensic and Investigation Services
T 029 2034 7547
E geoffrey.l.mesher@uk.gt.com

Grant Thornton offices:

Belfast
Birmingham
Bristol
Cambridge
Cardiff
Edinburgh
Gatwick
Glasgow
Ipswich
Kettering
Leeds
Leicester
Liverpool
London
Manchester
Milton Keynes
Newcastle
Northampton
Norwich
Oxford
Reading
Sheffield
Southampton

2012 Grant Thornton UK LLP. All rights reserved.

Grant Thornton means Grant Thornton UK LLP,
a limited liability partnership.
Grant Thornton UK LLP is a member firm within
Grant Thornton International Ltd (Grant Thornton International).
Grant Thornton International and the member firms are not
a worldwide partnership. Services are delivered by the member
firms independently.
This publication has been prepared only as a guide.
No responsibility can be accepted by us for loss occassioned
to any person acting or refraining from acting as a result of
any material in this publication.

www.grant-thornton.co.uk
V21411

Mark Byers
Partner
Restructuring
T 020 7728 2522
E mark.r.byers@uk.gt.com

Matt Dunham
Partner
Advisory Services
T 0161 953 6495
E matt.dunham@uk.gt.com

David Paton
Chief Sports Advisory Officer
T 020 7728 2757
E david.paton@uk.gt.com