Leagues

Leagues

How big is the Premier League economy?

Professor Simon Chadwick

Posted: August 20, 2014

Tagged: economy / impact / leagues / revenues

This posting is an extended version of the Hard Evidence article that appeared on The Conversation website.

Many British people reading this column will no doubt be aware of one of the most significant social dilemmas facing their country: Marmite – do people love it or hate it? There is no middle ground in this debate, one group of people simply cannot survive their daily lives without a regular “fix” of Marmite; the other group of people abhor it and are repulsed at the thought of having any association with Marmite.

And so it is too with one of Britain’s other great social dilemmas – the Premier League: do people love it or do people hate it?

As we rapidly head towards the new football season, this perpetual social dilemma will surge again, filling countless newspaper columns, social media outlets and pub conversations with endless analyses, debates and speculation about the League, its teams, its players and the latest results.

For the next nine months, countless people will marvel at the array of talent that Manchester City has put together, or else berate Jose Mourinho’s latest controversial monologue, without ever really grasping how powerful and all pervasive the Premier League has become. And not just in their lives, but also in the lives of billions of fans across the world (and indeed broadcasters, sponsors and commercial partners).

While 21st century Brits routinely struggle to understand what it is that we do well as a nation, one example of power and dominance stares us directly in the face: the Premier League. Whether diehard fans and cynics accept it or not, Premier League football is something we do well. It is a cultural asset, a competitive advantage, a point of strategic differentiation in a world that is fast becoming obsessed by nation branding.

So just how big is the Premier League?

It is not entirely clear what the total size of the Premier League economy is, but its tax contribution (from income tax and national insurance) alone is thought to be worth more than £1.3 billion per year to the British government. Some of the revenues flowing into the game come from places like Abu Dhabi (Sheikh Mansour has reportedly spent upwards of £1 billion on Manchester City) and Russia (Roman Abramovich may have spent as much as £1 billion on Chelsea) – important injections into the British economy over the 22 years since the Premier League’s inception.

Yet it is television revenues that have had the most profound effect on the Premier League’s contribution to British economic life. So much so, that in 2010 the Premier League was given the Queen’s Award for Enterprise in International Trade. And no wonder; lightning-fast growth has seen domestic broadcast revenues grow thus:

1992-1997: BSkyB, 60 games of the season, £190 million or £633,000 per game

1997-2001: BSkyB, 60 games, £670 million or £2.79 million per game

2001-2004: BSkyB, 110 games, £1.2 billion or £3.64 million per game

2004-2007: BSkyB, 138 games, £1.024 billion or £2.47 million per game

2007-2010: BSkyB/Setanta, 138 games, £1.706 billion or £4.12 million per game

2010-2013: BSkyB/ESPN 138 games, £1.782 billion or £4.3 million per game

2013-2016: BSkyB/BT 154 games, £3.018 billion or £6.53 million per game

On top of this, overseas broadcasting rights sales bring in vast revenues too. For instance, in 2013 NBC in the United States paid $250 million for the right to show Premier League games for three years.

As a result, the Premier League is now broadcast in 212 countries around the world, with a cumulative audience of almost 5 billion people per season watching it on television. This means that around 70% of the total population of the world’s televised sport market watches Premier League games, while nearly one third of all Premier League viewers are now thought to be in Asia.

Each live Premier League game is thought to have a global audience of more than 12 million people, which greatly exceeds viewership of Italy’s Serie A (4.5 million), Spain’s La Liga (2.2 million), and Germany’s Bundesliga (2 million). This popularity is reflected in the sums paid for domestic television contracts, the Premie League’s £3.018 billion deal again dwarfing the Serie A (£721 million), La Liga (£511 million) and Bundesliga (£417.4 million) deals.

For Premier League clubs, the financial health of the league has brought a revenue bonanza. For example, in the 2013/2014 season, champions Manchester United received payments totaling nearly £98 million from the League. Even Cardiff City, who were relegated that season, said “goodbye” to top-flight football with almost £64 million.

TEAMS MERIT MONEY TV MONEY SHARE LIVE MATCH FEE TOTAL
1 Manchester City £24.0m £55m £18.7m £97.7m
2 Liverpool £22.8m £55m £21.0m £98.8m
3 Chelsea £21.6m £55m £18.0m £94.6m
4 Arsenal £20.4m £55m £18.7m £93.4m
5 Everton £19.2m £55m £12.0m £86.2m
6 Tottenham £18.0m £55m £17.3m £90.3m
7 Manchester United £16.8m £55m £18.7m £90.5m
8 Southampton £15.6m £55m £7.5m £78.5m
9 Newcastle United £14.4m £55m £10.5m £79.5m
10 Stoke City £13.2m £55m £7.5m £75.7m
11 Crystal Palace £12.0m £55m £7.5m £74.5m
12 West Ham United £10.8m £55m £11.3m £77.1m
13 Swansea City £9.6m £55m £9.7m £74.3m
14 Sunderland £8.4m £55m £9.7m £73.1m
15 Aston Villa £7.2m £55m £11.3m £73.5m
16 Hull City £6.0m £55m £7.5m £68.5m
17 West Brom £4.8m £55m £7.5m £67.3m
18 Norwich City £3.6m £55m £7.5m £66.1m
19 Fulham £2.4m £55m £7.5m £64.9m
20 Cardiff City £1.2m £55m £7.5m £63.7m

 

It used to be the case that for Premier League clubs ticket sales were their principle source of revenues, now it is money from broadcasting. Even so, the global exposure and, therefore, popularity of the Premier League football has brought about a commercial bonanza for clubs. So much so, that it Deloitte’s global football money league there are four Premier League clubs in the top-10. This is compared with two from Spain, two from Italy and one from Germany. In Forbes magazine’s list of most valuable sports clubs in the world, Manchester United comes in at Number 3 with a value of $2.81 billion.

Inevitably, players who make their way into the Premier League benefit too. Although not entirely a result of the Premier League, the record transfer fee paid for a player by a British club prior to the start of the League was £1.5 million (when Bryan Robson moved from West Bromwich Albion to Manchester United in 1981); now, the record transfer fee paid by an English club is £32.5 million (for Robinho, signed by Manchester City from Real Madrid in 2008). Even assuming a standard 10% cut of the transfer fee, this is big money for a player. Moreover, salaries have spiraled upwards and become the stuff of legend and tabloid gossip. Last season’s top-5 earners were reportedly:

1. Wayne Rooney, Manchester United – £250,000;

2. Robin van Persie, Manchester United – £250,000;

3. Yaya Toure, Manchester City – £240,000;

4. Sergio Aguero, Manchester City – £225,000;

5. Luis Suarez, Liverpool – £225,000.

Such salaries buy a lot of Jaguar sports cars and restaurant meals in Merseyside and Manchester, important injections into the local economies of the towns and cities where Premier League clubs are located.

Yet it is not just the Premier League, its clubs and their players who benefit; in 2012, Visit Britain claimed that around 900,000 tourists had attended a football game during visits to Britain in the previous year, 40% of them coming simply to watch football. While here, it is estimated that they spent £706 million, or the equivalent of £785 per fan – which is £200 more than an average visitor to Britain normally spends.

This is not just a national-level phenomenon either, it has a tangible impact upon the towns and cities where Premier League clubs are located. It has been identified that in Manchester, home to two of the League’s biggest clubs, football contributes upwards of £330 million in gross value added (GVA) to the Greater Manchester conurbation’s economy. Such is the profound effect of Premier League football that it is thought to have equivalent advertising value for Manchester of £100 million a year (and has therefore been worth more than £1 billion in total since the Premier League’s inception in 1992).

Even in smaller cities where more modestly performing clubs are located, there is a ‘Premier League Effect’. For instance, Swansea City’s first season in the League is estimated to have been worth nearly £59 million to the Welsh economy. Of this, £50.6 million of the economic benefit was generated by City, thus either safeguarding or creating an estimated 125 jobs. The economic impact on the city of Swansea itself was calculated as being £55.3 million. Non-football club activity is believed to have generated £7.9 million, thus either creating or safeguarding an estimated 295 jobs.

And there is a societal benefit too; the Premier League’s Creating Chances initiative has worked with organisations including Primary Care Trusts, the British Council, Sport England, Sport Relief, The Prince’s Trust and the National Literacy Trust. The initiative has invested £157m into community activities, which are believed to have benefitted 18.5 million people. In 2011, £45 million of the total investment was made by the Premier League. This engaging 4.5 million people in the process, 32% of which were female, with 28% coming from black or ethnic minority backgrounds. The initiative is believed to employ 1,600 full-time staff and 1,874 volunteers.

By any standards, surely the Premier League is a roaring success?

The mind-boggling sums of money associated with the League would tend to suggest so. But, just as Marmite is a thick, glutinous mass that repels some of us, so many people have the same reaction when the glamour-filled, pre-packed, over-hyped world of the Premier League is mentioned. The Premier League is criticised and derided for perpetuating greed, sanitising a once proud social institution, destroying the heart and soul of English football, and creating a football elite that has excluded and alienated too many people.

Providing you have the stomach to look, a good starting point for anyone keen to survey the harsh reality of English football are the Sporting Intelligence website (run by Nick Harris) and Guardian journalist David Conn’s blog. For many people neither will make for pleasant reading, each providing a litany of excess and exclusion. “Highlights” would seem to an inappropriate word to use when trying to summarise the views of people like Conn and Harris, but like the Match of Day highlights programme on a grim Saturday night one still needs to try.

While the world marvels at the globally televised spectacle the Premier League has become, critics refer to the ‘Prune Juice Effect’: as the TV money flows in, so it flows out again, most notably on transfer fees and salaries. While the likes of van Persie and Aguero no doubt make an economic contribution to the Greater Manchester conurbation – buying fast cars and luxury branded products in local retail outlets – it is questionable what the lasting economic benefits for either Manchester or Britain actually are. Just how much money leaks-out of Britain to other countries is a serious question that has yet to be answered.

As if further proof was needed, former Chelsea and Netherlands player Winston Bogarde still serves as the poster boy for Premier League waste and excess. Reputedly paid £2 million a season by the London club, he did not play once in four years “playing” for the Blues and quickly disappeared back to the Netherlands at the end of his contract.

Back in 2000, some commentators warned that “wage inflation threatened the future of football”, yet salaries have still continued to rise. When the Premier League began in 1992, the average weekly salary of a player in England was £1,755. By the time Bogarde signed for Chelsea in 2000, this figure had risen to £11,184. Now, the average Premier League salary is £31,000 per week. Indeed, total wage costs for the league as a whole topping £1.78 million. Worryingly, during last season wage costs rose above 70% of club turnover for the first time.

This level of expenditure has not only fuelled wage and transfer inflation in English footballs top-flight but also further down the country’s league structure. This “Trickle-Down Effect” has caused severe problems for many of English football’s clubs. Indeed, work carried-out by John Beech shows there has been 168 club “insolvency events” since the start of the Premier League in 1992. If the Premier League is the pinnacle of English football, then there is a very long, unstable and precariously positioned tail.

It is also bitterly ironic that, while Wayne Rooney pulls-in £250K per week, Citizens UK has identified that it would take a cleaner 13 years to earn what some Premier League footballers earn each week. Moreover, the average salary for a Premier League CEO is around £216,000. According to Citizens UK, this is 43% higher than the average salary for a director of a similar sized company outside the Premier League. The players aside, Premier League clubs have therefore been accused of failing to pay their employees a living wage.

Furthermore, there is an additional body of evidence that indicates some Premier League clubs are abusing internship programmes. In one case, a Premier League club advertised for a year’s, full-time post – no salary, no expenses, long and unsociable hours, with a need for the successful candidate to use their own car for work purposes.

In spite of the ongoing torrent of broadcast revenues, fans of the Premier League continue to suffer. Ahead of the new season, some clubs have dramatically increased ticket prices. Some examples include:

-Burnley – 47% increase in lowest priced season ticket;

-Queens Park Rangers – 38% increase in highest priced season ticket;

-Burnley – 37% increase in highest priced season ticket;

-Hull City – 27% increase in highest priced season ticket;

-Hull City – 25% increase in lowest priced season ticket.

Overall, ticket price inflation between the 2013/2014 and 2014/2015 seasons is running at almost 7%. Meanwhile, the British rate of inflation is currently running at close to 2%; increases in household income are increasing by around 2.5%; and, last season, player salaries increased by 8%.

Further compounding Premier Legue fans’ ticket pricing woes, the BBC’s Price of Football survey also notes how expensive refreshments, merchandise and so forth have become. Indeed, so expensive has Premier League become that some have observed Premier League fans are gentrifying and greying. That is, fans need to be more affluent and are therefore likely to be middle-class and older than football fans used to be. It is widely argued that the Premier League football has lost contact with its roots.

At one time, fans could simply avoid the costs of attending matches by watching on television. Back in 1991, watching football was free at the point of consumption; for the price of a TV licence (£77 then, £144 at current prices) whatever games were being televised (on either the BBC or ITV), fans could watch for nothing. Now live Premier League games are only shown on satellite television, BskyB dominating coverage. For a basic bundle, fans pay at least £40 per month (or £460 per year). This has led some critics to claim, from both an economic and social perspective, that “the rising price of TV football is bad for [everyone]”.

And it is not just the fans who are suffering; England’s national team is now starting to struggle too. In 1992, there were just 11 foreign players in the Premier league; now, only 30% of the Premier League’s players are English. Following England World Cup debacle, the team has fallen to 20th place in FIFA’s World Ranking. This is the country’s lowest position since 1995, when England was 21st in the table.

So, what’s the Premier League worth? In the same way as consumers and critics might struggle to determine an appropriate measure of value for Marmite, so too will many people struggle to decide whether the Premier League is actually worth it or not. As you look around when you are next at a Premier League game, the millionaires in front of you and the lesser mortals sat next to you have helped make the league a commercial and global phenomenon. The problem is, those on the field may well be spending their cash in Bogota and Brasilia rather than Birmingham and Bristol. While those sat behind you may be really struggling to justify how much they pay to continue being fans.

 

 

About Professor Simon Chadwick

Professor Simon Chadwick set-up and edits The Scorecard. He is Director of CIBS (Centre for the International Business of Sport) at Coventry University, where he works as Professor of Sport Business Strategy and Marketing.  Simon tweets via Prof_Chadwick