The spirit of competition is one of the underlying principles in any sporting event, be it one athlete against another, or team against team. The preconceived notion on the part of spectators as to which individual or team will prevail is the attraction and allure of a sporting event, in other words the degree of uncertainty concerning the outcome. By nature, human beings are curious, inquisitive, competitive and cooperative. The harsh conditions of survival that were a fact of life in the prehistoric era provide evidence of how we are bound together.
Tribes grew as extensions of family units with the strongest individual rising to take charge over hunting and warding off rival family groups in order to secure the territories best suited to the continued survival of the group. As these tribal groups grew larger, either as a result of birth rates or conquest, the size of competitive conflicts grew as well.
Tribal members trained to become better skilled in the use of weapons as well as their individual personal strength in order to prevail in these conflicts. The desire to secure better territories for hunting and survival fuelled further conflicts throughout this age as tribal societies continued to expand and grow.
The Greek state of Sparta provides one of the best examples of society organized under the principles of domination through military means. Young Spartan males were removed from their households at the age of seven for mandatory military training which included instruction in the weapons of the day as well as a rigorous schedule of intense physical athletics.
In essence, the female population of Sparta ran the economy overseeing slaves, managing the harvest of crops, and conducting commerce as Spartan males trained and served in the military with little to nothing to do concerning other affairs. Spartan training included participation in athletic contests such as gymnastics, running, swimming, throwing the discus and javelin to hone their minds and bodies for the military. Historically, athletic games were an inherent part of Greek religious festivals held at temples where the populace gathered to watch competitors as they honoured the gods.
Greek mythology tells us that the Olympic Games started as a funeral feast to honor King Pelops who had prevailed in a chariot race held by KingOenimaus to select a mate for his daughter Hippodamia. The Games started in 776 B.C. and consisted of just a running event which later expanded to include the pentathlon, javelin, boxing, horse and chariot races, wrestling, discus and jumping. Winners of events were hailed as heroes with the commensurate stature and standing in Spartan society accompanying these triumphs. History reveals that the Roman Empire continued this tradition in the Coliseum pitting gladiators against gladiators, along with other spectacles to win the favour of the populace through state sponsored entertainment.
The preceding historical summary has been undertaken to provide perspective on how athletics and then sporting events were an outgrowth of a quest for survival linked through physical terms and then as a part of religious celebration to honour deities. The festive mood of these events provided the opportunity to honour champions and also afforded its participants with a means to elevate their status in society as a result of winning. Spectators were entertained by events that consisted of a limited duration of time whereby the person who would prevail could be determined. The uncertainty as to the outcome provided the intrigue, drama and entertainment value. And therein lies the appeal of sports, not knowing the outcome until the event has run its course.
Present day sporting events still hold the same basic appeals, competition, uncertainty, a specific time of duration and a festive atmosphere with one major distinction, they are big business. Multimillion dollar stadiums, government tax concessions, broadcast revenue agreements, licensing, merchandise marketing, product sponsorships and endorsements are a few of the financial components of this entertainment medium. English Football, like its American Cousin the National Football League (NFL), professional soccer, basketball, Formula 1, golf and all sports share one common trait – ‘The Outcome’.
Fans attend games and events, watch them on television, wager on point spreads and place bets, as the ‘Outcome’ of the match-ups is the source of their interest. The uncertainty of the eventual winner creates acclimate of drama which fuels involvement on the part of fans. The more competitive the match-ups are, meaning the more uncertain the outcome, the more fans become interested in these matches and thus television viewer-ship and stadium attendance rises.
The source of this interest is a result of these events and matches being limited by a defined period of time in which the ‘outcome’ takes place. In the world of business one measures winning and losing or in most cases their progress based to some degree upon what they earn or the promotions they receive. The time period and outcomes are less defined, as well as in most cases blurred in terms of what aspects or inputs resulted in said outcome.
This segment of a person’s life is subject to a large percentage of undefined variables, events, causes, actions, reactions and so on, all of which tend to blur the factors which led to the outcome. And this also carries over to one’s personal life as well where the outcomes to varied events, such as marriage –children – a new home and more, are mostly a product of long periods of time in which discussions, decisions, modifications and changes in thinking are consistently working up to it (the outcome[s]).
In the preceding examples, both business and personal, the eventual outcomes are spread over time periods that can encompass days, weeks, years or even decades. The need for an outcome that fits into a time period that is easily correlated explains why movies, music, videogames and sporting events hold the interest of the general public. The definable time period means that the uncertainty concerning the outcome will be revealed within that time span thus providing satisfaction.
Heightened competition increases fan interest and when this is spread over the majority of teams participating in the sporting event, fan attendance and television viewer ship will increase throughout the season.
The foregoing translates into revenue from gate receipts, increased broadcast contracts as a result of advertising rates, licensing, merchandise sales, endorsements, appearances and other income streams. This paper will examine the ‘effects of broadcasting revenue” on English football clubs as well as how this revenue is distributed, its effect on operations, the reliance on this income in budgetary terms, and alternative methods to distribute these funds on a more equitable basis.
Chapter 1 – Introduction
As is the case with any business enterprise, professional sports exist to derive a profit from operations. And those profits come as a result of the extent which a professional team captures the imagination of its fan base in the belief that said team has the opportunity to advance in the standings and onto to the championship final. While there are all manner and degrees of fans, ranging from the fanatic tithe “I only watch when they are winning”, professional sports organizations are identified with the city they reside, the charisma of its stars, the mystic of its heritage, and its recent public image.
Because all but the most die-hard fans have short memories, the rest consist of those who jump on the bandwagon for a variety of reasons. Winning sports franchise provides national publicity for the city it resides in, generates revenues for the local economy from its fan base and those of the visiting team(s). The foregoing aids the municipality in promoting its own agenda(s), such as convention facilities, tourism, attractions, and the benefits of doing business in their cosmopolitan location.
A sports franchise, more apropos a ‘successful’ sport franchise, provides a locale with publicity it could not otherwise obtain to generate additional business and the corresponding tax revenues from goods and services.
But, a city is more than concrete, glass skyscrapers, taxicabs, buses and municipal services; it exists and prospers as a result of its people. As such a municipality has a vested interest in seeing to the well-being, morale and vitality of its populace by providing them with clean and safe streets, parks, adequate public transportation, progressive government, an excellent educational system, and something to rally their interest.
Championships in British football have garnered world renown and recognition for teams such as Manchester United, Liverpool, Arsenal and Chelsea , providing them with media exposure and coverage these locales could not afford to purchase, including public relations stories they could not manufacture. One of England’s goodwill ambassadors David Beckham , even though he now plays for Real Madrid, is a global icon that fans and non-fans of the sport recognize and identify with and his British background.
However, the lustre of English Football Clubs when considered as group, as lost some of its sheen as a result of second tier teams whom have yet to see championship status, operating deficits and the lack of structure that prompts overall competitiveness. The League is suffering from the same non-competitive problems that has befallen Formula 1 where Michael Schumacher and Ferrari have put the city of Mirabella, as well as Italy, back on the map by winning five Formula 1championships in a row (2000 through 2004), and his setting what most people believe will be an unbreakable record of seven world driver’s championships (two with the Benetton-Ford team).
The success of the Ferrari Formula 1 team has caused the Formula One Administration, the sport’s governing body, to implement a third round of specification modifications to attempt to make the sport more competitive in the face of Ferrari’s dominance over the past five years. This period has seen a drop in viewers as a result of the lack of competitiveness. The same fate has befallen the English Football Clubs.
The allure of sporting events is the uncertainty of the outcome. This creates the atmosphere of suspense, anticipation, drama and excitement as one watches the event unfold during the designated time period that determines the winner. These same ingredients are the backbone of all entertainment venues, be it the movies, music, a ride in an amusement park, or a television show, the elements are built upon these basic foundations (suspense, anticipation, drama and excitement). We are entertained as we are able to keep pace with the developments in a timeframe that does not bore us.
This is why most entertainment venues, such as sports and movies, are approximately between two to three hours. As sporting events pit competitors directly against one another in a known format of rules and regulations, one simply has to watch and observe the nuances leading to the eventual outcome. The simplicity is the basis for its sophistication.
Education, upbringing, language, social standing, and other factors are lost in the heat of battle. Sports provide a framework where nothing matters except the outcome and thus it is one of the ultimate forms of escape, relaxation and entertainment, hence the popularity of sports in all its forms.
And in order to produce a winning Club, management must have star athletes. Not just the Dave Beckham’s, but also an exceptional supporting cast as well to see them through the many competitive battles that are a part of a season long campaign.
Chapter 2 – The English Football Clubs
Founded as the English Football League in 1888 by Scotsman William McGregor, the ‘League’ actually had been in competing since 1872 as tea Cup encompassed Scottish as well as English Clubs. Mar. McGregor was astute enough to see that the game needed to be formalized in terms of rules and regulations to provide a structure for the nonprofessional comprising the sport at that time.
He also understood that formulating method to generate income for the Clubs that would provide the foundation to compensate the players. Acting in a role that in today’s terms would be equated to being a commissioner, Mar. McGregor’s vision culminated in the League starting with twelve Clubs with Preston North End becoming the first championship team . The League’s popularity resulted in a Second Division being formed in 1892. During the four years from the League’s formation additional teams were added with three different teams winning the FA Cup. The Blackburn Rovers took the championship title in 1890 and 1891.
The League’s popularity with fans was evidenced by its growth from the initial twelve (12) teams to a total of forty-two (42) Clubs and three(3) divisions by 1922. Competitive balance in the League was shown over the twenty-six (26) years from 1893 to 1922 as no Club repeated as a back-to-back League champion during that time span. Aston Villa won the title four times (1895, 1897, 1905 and 1913), Sheffield United prevailed in three (3) championships, and just two (2) other clubs won twice, the Wolverhampton Wanders and Tottenham Hotspur. Fifteen (15)other Clubs from the League’s total of forty-two (42) took the FA Cup once.
The preceding meant that nineteen Clubs out of the total of forty-two (42) won championships or 45%. The preceding parity fueledfurther expansion and the League grew to ninety-two (92) Clubs by1950. The competitiveness within the League was the source of fan popularity as two (2) Clubs, the Bolton Wanderers and Arsenal captured the League title three (3) times, with Newcastle United taking home the crown twice. In the twenty-two (22) years between 1923 and 1950fourteen (14) other Clubs won the FA Cup once again showing parity in the League.
Between 1951 and 1989 fan support and interest in the League continued to grow as competitiveness kept pace with expansion, and the new Clubs as well as those that had been in the League for some time. This thirty-seven (37) year period saw the following multiple championships;
CLUB NUMBER OF FA CUPS
Tottenham Hotspur 5
Manchester United 4
Newcastle United 3
West Ham United 3
Manchester City 2
Fifteen Clubs won singular titles during this period and the League was enjoying unprecedented popularity. One of the key reasons for the appeal of the sport during the periods indicated is “competitive balance”. When there is uncertainty on the part of fans as to which team will prevail during the regular season match-ups, this sparks heightened fan interest in each contest. The outcome from matches in which their teams play is also affected by how key competitors play in their match-ups with other teams which also affect the standings.
This uncertainty means that fans will tune into or attend more regular season matches, and not just those where their particular team is playing a potential contender, but those matches where their team is playing just about anyone. The preceding is true because when there is competitive balance no team is really out of the championship running, and most certainly not out of any match. Parity makes almost each and every game important in terms of the standings and a team’s rankings toward the championship game. The foregoing means increased gate receipts at stadiums and higher advertising rates as well as merchandise and ancillary revenues.
Even with the fairly balanced championship appearances a number of clubs have not been able to compete at the top tier level thus eroding the interest of their fans as these Clubs are seemingly ‘cannon fodder ‘with nothing to play for as the stronger teams keep them relegated tithe mid or bottom tiers. The play-off system, which was introduced at the end of the 1986-87 campaign helped to provide more teams with something to shot for. However, with the twenty (20) of the strongest teams leaving in 1992 and forming the new Premier League this left seventy-two (72) Clubs split evenly in three (3) divisions, but the competitive factor was on a lower level. In the twelve (12) years since the breakaway the Premier League is suffering from dominance by a few teams, rather than the hoped for closer competitive balance.
The formation of the Premier League has placed those Clubs in the position of reaping higher revenues as a result of their being in the “class” league representing the best teams. One of the offshoots of its formation was it siphoned off fans from other lesser teams by creating secondary ‘favourite’ team even though a particular Premier League Club might not be located in their city. Fans are known to switch allegiances and adopt teams when their city or favourite is continually “out of the running”.
Banking on a heightened percentage of close and meaningful games to induce increased fan interest in these matches to generate higher revenues per match was one of the underlying strategies to enrich the ‘class’ Clubs of the Premier League. And finally, simple mathematics in that fewer Clubs negotiating for advertising contracts means more revenue per Club. In Chapter Three we will examine the ramifications of broadcast revenue sharing, the timing of the Premier League breakaway in relationship to new technologies in television broadcasting (cable / satellite) along with subsequent developments.
The breakaway strategy made sense, unfortunately the Clubs did not cooperate in bring this to further heighten fan interest by competitive balance. By cooperation, it is meant that certain teams have emerged as consistent winners, with two (2) teams dominating and another two (2)breaking in to win championships when the powerhouses faltered. Since the 1992 breakaway season the following Clubs have taken the Premier League crown:
CLUB NUMBER OF FA CUPS
Manchester United 4
The foregoing means that five (5) Clubs out of twenty (20), or 25% have owned the title in the twelve (12) years the League has been inexistence.
Not exactly parity!
One of the main contributing factors to the preceding is revenue. The top Clubs since 1987 have enjoyed a disproportionate increase in income as a result of their success in championship matches thus enabling them to garner sponsorships, additional revenues from merchandise sales and thus the funds to lure top-flight athletes and a supporting cast. The dominance shown by Clubs in both the Premier League and English Football League Division One has manifested itself in financial clout due as a result of the foregoing and thus the gap continues to widen. The success of the Premier League can be seen in economic terms and the explosive growth.
Parity has a direct correlation with attendance and fan interest. The domination of the Premier League by Manchester United and Arsenal, along with the multiple championships by Tottenham Hotspur (5),Newcastle United (3), West Ham (3) and Liverpool (3) has left more than sixty present (60%) of all clubs without a title in its 116 years of existence. From 1888 through 1987 the English Football League enjoyed explosive growth that started to tail off due to the breakaway of the Premier League Clubs and their rising national and international successes, as well as domination in the English Football League by relatively small cadre of teams.
Today’s media realities have aided to further widen the competitive gapes a result of cable television deals and lucrative title matches that reward the dominant Clubs with additional revenues. The revenue gap the Premier League enjoys has enabled it to garner top players to strengthen their competitive advantages and perform exceptionally well in international matches. The English Football League’s current day format of “First – Second – Third and Fourth Divisions” (introduced in1958) has helped to bring Divisional Championships to a wider spectrum of Clubs however, the top Clubs maintain a stranglehold on the FA Cup.
The system does promote those Clubs from the lower divisional levels through a system of points based upon standings and finish. This format has aided in fan interest to a degree as the seventy-two (72) Club league Playoff format encompasses a large contingent of Clubs and provides multiple Divisional championships.
Club and League management, cognizant of parity and attendance issues(as well as revenue, costs and wages which will be discussed in latter sections), have taken varied actions to maintain and boost attendance. One measure has been the investment in new stadium facilities.
Our modern day exposure to all manner of outside stimuli and influences through television, the movies, magazines and other media has spoiled us with regard to expectations. We are consistently being provided with images of new this and new that. From residences to office buildings, furnishings, clothes, and other manifestations, we love new things! Regardless that this is an outgrowth of marketing and commerce, people have always gravitated to what is new. League Clubs, in an effort to maintain as well as renew interest in their current fan base, also recognize the need to cultivate and attract new fans to fuel growth. New stadium facilities provide a sense of excitement and assist in:
1. Pre-Stadium Public Relations
The idea for a new stadium creates ‘public buzz’ when the Club announces it is either considering or planning a new facility. The media coverage concerning all manner of stadium questions and concerns over the need for a new structure, its location, how it will impact upon the local economy and environment, how it will be financed, the design, cost and associated aspects creates months of media coverage. In the back rooms management creates strategies and plans to garner support and financing, and this enweaves like a long movie in the press.
2. On-going Media Coverage
Regardless of whether the new stadium is truly needed or not, opposition voices help to provide additional media articles, other sides to the issue and comment. The Hollywood adage that there is no such thing as bad publicity still holds true. The Club is in front of its public!
3. Fan Interest
It is difficult to conceive of a fan that does not secretly long to attend a match in a new stadium. Advances in today’s building techniques, materials, technological innovations such as giant screens, computer enhancements and designs all serve to fuel inner fires. Attending a match is entertainment, and who among us does not like to visit the newest movie theatre, test drive a new car, look at new homes, and window shop for clothes! Whether for or against, the proposal of a new stadium excites imaginations.
New facilities create attraction for fans and non-fans to visit the new stadium to examine and enjoy is accoutrements, even if it is only to drive by and experience it first-hand. New concessions, seats, viewing angles, scoreboards and big screen replays, help to induce fans to attend and come back to enjoy the facility, as well as to see and be seen.
5. Player Inducement
Like it or not, soccer players tend to be spoiled prima donnas! In their defines, it does take a special type of personality as well as mindset to be a professional athlete and face the accolades along with public criticisms that accompany the glory. Identifying raw new talent for the League is a science of hit and miss, so most Clubs stock their teams by obtaining proven performers at the commensurate cost. The size of the contract offer is of course the primary inducement, but the type and newness of facilities does not hurt negotiations. The factors that aid in securing talent are as varied as the players themselves, thus those Clubs that are successful try to account for as many of these variables as possible.
6. External Media Influence
The prospect of, as well as newly built facilities receive extensive media coverage in rival cities, sparking the question “why not us”, along with promoting the Club’s name. Fans from opposing teams tend to visit the stadium when their teams match up where in the past this might not have been a consideration.
The allure of new stadium has been manifest by the number of Clubs that have completed or are starting new facilities and/or upgrading existing ones to address the appeal of this area. Interestingly this is being done in spite of the financial difficulties faced by most teams. The2001 / 2002 season saw a 12 million GBP increase in stadium investment over 2000 / 2001 (GBP 47 million and GBP 35 million respectively)
Over the course of the previous ten (10) years this figure is in excess fob 400 million. The popularity of both Leagues are reflected in attendance figures, aided by cable television sparking match interest which approximated 27.8 million representing the highest level in thirty (30) years.
More importantly English League figures have showman 8.5% increase over the 2000 / 20001 season and has increased 35%since the 1992 Premier League formation. The Premier League is still setting records, with attendance increases for the sixth consecutive campaign, and an average of 34,324 fans coming to matches, a rise of1,500 over 2000 / 20001.
As one would imagine the First Division of the English Football League lead other Divisions in average stadium capacity recording 68% as compared against 47% for the Second Division and 42% for the Third Division. In spite of this 12 million seats remained empty. Cup attendance continued its upward trend by 12.2%.
C. Operating Costs
Increased attendance and additional television revenues are League bright spots (both the English and Premier), even in the face of a lack of parity. The costs of competing, however is another matter. To remain competitive or become competitive is the number one objective, and whenever too much demand chases after a limited number of players, the laws of supply and demand escalate. The major expense item negating operating profits is player salaries. During the 2000 / 2001 season twenty-seven (27) Clubs recorded Balance Sheets showing a negative.
Seventeen (17) Clubs filed reports showing operating insolvency during2003 / 2003 as a result of escalating wage costs. The competition for star players to create match day impacts and bolster attendance has proven to be a defeating proposition that the League has addressed by new regulations which limits Clubs to spend no more than 75% of their total revenues in this area.
Spiralling wage costs received a huge dose of sanity when the League’s TV Digital deal failed. These revenues were providing the Clubs with the needed extra budgetary room to close the gap between the League and the Premier Clubs. This development along with insolvency issues helped to bring about the wage cap (75%) modification to enable Clubs to get a grip on fiscal matters. With no new deals of the same financial magnitude to replace this lost revenue, the League consensus is that broadcast funds will remain flat, for now. And the damage, in terms of this lost revenue affects the lower ranked Clubs more as a result of their limited gate, merchandising and sponsorship opportunities, and Isa huge blow to financial stability.
In addition, the lower ranking Divisions will have difficulties in appealing to advertisers thus further widening the revenue disparity.
The pressure on the League and its Clubs to generate additional revenues is further exacerbated by the continued success of the Premier League in generating increased revenues, as well as the ability of its Clubs to obtain additional talent. And with the high wage costs for players in the Premier League, the added revenues from their cable deals a boon in aiding costs.
Chapter 3 – Revenues
Individual Club revenue is primarily generated from broadcasting, gate receipts and sponsorship / merchandising agreements. The differences in incomes as negotiated by the top level Clubs in relationship to lower level teams, even in the face of the new wage cap arrangement, will essentially not do anything to change the huge revenue gaps. The English Football League Division 1 Clubs in order to compete with the clout and financial muscle of the Premier League need to significantly increase their revenue streams on a League and Club basis in order to make some inroads on their dominance. The financial gulf between the Second, Third and Fourth Divisions is considerably larger concerning their respective abilities to improve upon this situation in view of their less marketable product.
Marketability in this sense means the image the Clubs have cultivated and have with the general public in terms of viewer interest in seeing them perform. This translates into higher gate receipts and audience interest in televised games. Demand for stadium seats permits a Club to charge higher ticket prices as well as obtain in stadium banner advertising. The overall heightened public awareness, interest and television audiences also mean higher name recognition and thus puts an additional premium on merchandise sales and licensing deals. And while the general public rarely thinks about the commercial side of the product, the Leagues, Clubs, advertisers, sponsors, broadcast networks and financial backers do! Television is a mass medium that provides tremendous opportunities to reach the public and influence their thinking, as well as loyalties. The marketing of a Club goes beyond short term thinking, it follows the same pattern as all other marketing.
Advertisers, which in a sense is what a Club does every match it plays, seek to influence the loyalty, behaviour and interest of all age groups. This includes those that are future customers – children and teenagers. How many times have you seen the latest craze among these groups wear the gear of losing teams! Certainly there are those that do, but, historically, these age groups are more concerned with associating with winners. The family tradition of supporting the hometown team is a product of past eras. The winning teams of today are marketing to the customers of tomorrow, as well as those of the present through winning, exposure, merchandising, television broadcast time, media buzz and appeal of star players along with the overall success of its operations. Just like in any other industry, be it vehicles, clothes, airlines, or a restaurant, the reputation for consistent quality over the long haul wins future customers. Not everyone can afford a Rolls but almost everyone would like one.
A survey conducted by Silverman concerning ticket prices reveals that just 18% of the Clubs in Division 1 believe ticket revenue will increase to any appreciable degree over the coming two seasons. The optimism of Division 2 and 3 Clubs is more subdued as only 15% and 8%,respectively, take this view concerning gate prices. On average, attendance has run lower than Club projections with the continued success and dominance of the Premier League not contributing to help this area. Ticket sales in ‘that other League’ have continued to rise six seasons in a row even in the face of higher prices and reduced competitiveness. The lower level teams in the Premier League have also increased prices, but in their cases this strategy has resulted in either stagnant or lower attendance numbers.
A. Broadcast Revenue
The origin of the English Football League’s formation in 1888 was based upon organizing amateur Clubs that had been formed by voluntary associations, and local neighbourhood organizations as well as churches and companies, so that matches could be arranged. The rules varied and the sport was in the ‘rough and tumble’ mode whereby violent play was commonplace. Clubs such as Manchester United, West Ham and a few ot