Leicester City FC (“LCFC”) have been all over the news for more than a week now for their wonderful triumph in the Premier League, but rather than make a Gary Lineker-esque promise to do our jobs minus certain items of clothing, this article takes our own ‘brief’ look at the likely financial impact for LCFC as a result of its win, reflecting on our own experience of Premier League club structures.
There has already been speculation as to the total financial windfall heading in LCFC’s direction over the coming months, but what few sources tend to expand upon is how these sums fall due and why. Winning the Premier League instantly increases LCFC’s brand from a marketing perspective, and is likely to lead to opportunities that would not otherwise have been available to the club, perhaps in the form of new sponsorship opportunities and, certainly, revenues received from participation in the Champions League next season. Equally as interesting however are the financial rewards from LCFC’s existing commercial arrangements, and this article takes a brief look at what LCFC’s current position might typically look like.
Premier League TV money
The Premier League has always been a big draw from a supporter’s perspective. However, whilst historically high, the value of the domestic broadcast rights for the Premier League remained reasonably static between 2001 and 2013 at a total cost to Sky of around £1bn-£1.7bn to broadcast the games in any three-yearly period. Depending on the three year period in question, this translated to a cost per game of between £2.4m and £4.5m.
Rights packages are auctioned by FA Premier League Limited (“FAPL”) in three year tranches, and as is well known, the total value of these rights swelled hugely in the 2012 auction round (in respect of games between 2013 and 2016), with Sky and BT sharing the domestic rights at a total cost of a little over £3bn (at an average cost of around £6.5m per game). Next season sees the start of a new three year tranche of broadcasting rights, which FAPL sold to Sky and BT (domestically) for £5.4bn. An (almost) unbelievable upward trend, although not if one considers the bargaining power of the clubs and FAPL along with the enduring popularity of watching live football on television given the relative scarcity (and the expense) of matchday tickets.
Legally speaking, whilst each Premier League club is a shareholder in FAPL, FAPL also has an agreement in place with each of the Premier League’s 20 clubs, in which (amongst other things) the mechanism for the distribution of broadcast revenue is agreed. To facilitate this arrangement, and in return, the clubs grant FAPL the right to sell the broadcast rights in the live games and negotiate each three-yearly rights auction on behalf of the clubs as a collective. Each club that joins the Premier League is also required to agree to the terms of this agreement. Whilst the live rights originate from the clubs, FAPL acts as the rights holder, and unlike other leagues (e.g. La Liga), all broadcast rights are sold centrally to the highest bidder and not by the clubs individually. This approach is not without its critics amongst the clubs involved (in particular the larger clubs, perhaps more reluctant to cede control to a collective: Manchester United, for example, have reportedly been concerned that FAPL’s approach in the recent rights auction will see them suffer in their European campaigns), and the value of the rights in question and the popularity of the packages available to consumers means that the sale of the rights has come under scrutiny from unsuccessful bidders and other broadcasters (e.g. Virgin’s complaint to Ofcom and the subsequent on-going investigation).
The 2015/2016 season is the last season of the current rights deal, and using last season’s figures published by the Premier League, and on the basis that the sums involved this season will be similar, the sums that are likely to be paid to LCFC from TV revenue become clearer (this season’s financial figures will be published in due course after the season ends). In total, and subject to lower facility fees (more on which below), LCFC stands to receive somewhere in the region of the £98.9m figure received by Chelsea for the 2014/15 season, which would be a significant uplift on the £71m received by LCFC for its 14th place finish last season. Broadly, the mechanism for the distribution of TV monies can be summarised as follows (again using the methodology published by the Premier League, as above):
- 50% of the total UK broadcast revenue is split equally between all of the Premier League clubs. In 2014/2015, this sum was £21,968,793 per club.
- 25% of the total UK broadcast revenue is paid in the form of prize money (or ‘merit’ payments), with the amount paid dependent on final league position. In 2014/2015, Chelsea received £24,897,960, whereas 20th placed QPR received £1,244,898.
- 25% of the total UK broadcast revenue is paid in the form of a facility fee, payable to a club each time its matches are broadcast. In 2014/2015, this fee was approximately £795,000 per live game. Chelsea had 25 of their games televised live last season, so received just under £20m in this regard.
- All foreign broadcast revenues are split equally between the 20 clubs.
Having said this, LCFC’s actual total TV money receipt for 2015/2016 may well be less than the sum received by Chelsea, but this is due to the way that the total Premier League TV monies are distributed – because LCFC was not predicted to fare particularly well this season, the club did not feature prominently in the initially scheduled live games. This position did change as the season progressed (games are generally selected month-by-month once the season is underway), but LCFC still lag significantly behind the number of live games in which Chelsea featured in 2014/2015 (25). At the time of writing, LCFC will have had in the region of 13 games televised live this season, so the sums LCFC can expect to receive under the facility fee component will be less than the sums received by Chelsea in 2014/15, to the tune of around £9m. Of course, LCFC could rightly expect to feature in more live games in the 2016/2017 season (even if the club does not perform as well), so there may well be a legacy payout of sorts well after this season has ended.
Overall, in 2014/2015, the ratio of total monies received by the Chelsea as league champions to that received by QPR in 20th was 1.53:1. The ratio for this season may well be similar between 1st and 20th, however this will change in the 2016/2017 season. It seems unlikely that LCFC will care too much that they are a season too early in their win to benefit from the new broadcast deal in full, but it is currently expected that the winner of the 2016/2017 season will earn approximately £150m from TV rights alone, at a ratio of around or just under 1.70:1 to the team placed in 20th. Worth a successful title defence if nothing else!
TV money is just one component of the financial reward coming LCFC’s way. As with any club in the Premier League, a quick look at the LCFC website shows a healthy list of commercial partnerships between the clubs and a wide range of businesses and undertakings. A club will usually tier its partnership arrangements, with one or two commercial partners occupying principal sponsor status (usually) on an exclusive basis (perhaps a main shirt or stadium sponsor (such as, in LCFC’s case, King Power LCFC’s parent organisation) or a kit manufacturer), with other commercial partners assuming a lower level of partnership, perhaps with a measure of exclusivity over a certain category (e.g. ‘official club pie supplier’).
Each club differs in the detail of how these deals are structured, however one concept that almost all of these types of arrangements (of any significance) have in common is that they contain provisions which allow for additional payments to be made in the event of on-pitch success by the relevant club . For a club of LCFC’s standing prior to this season, these sums are usually relatively modest, simply due to the size of the commercial partner deals themselves (see here for a rough guide to Premier League shirt sponsor deal value in 2014/2015), but when one adds all of these performance-related bonus payments together across a club’s commercial portfolio (LCFC has 29 commercial partners on its website), the total sum starts to become financially significant for the clubs. The added upside for LCFC here too is that for most clubs, commercial partnership deals last for a comparatively short period of time (sometimes only one season), and it is hard to think of a better incentive for a sponsor to renew their deal with a club than for the club to unexpectedly win the biggest prize available (I wonder if LCFC will raise their prices for next season?!).
It isn’t all one-way into the club’s pocket though. With one set of bonus payments to the club come another set of bonus payments from the club to its players. For those unfamiliar with Premier League player contracts, the key detail for each player is found in the financial schedules at the back of the agreement between club and player (the front end of the document is a standard form, see here for Form 26 at page 273 of the Premier League Handbook) and, cheap squad or not, LCFC is likely to be facing a significant uplift in its total wage bill for this season as a result of the performance incentives in its player contracts.
Financial Fair Play (FFP)
Finally, it is worth a comment on LCFC from an FFP standpoint. LCFC regarded 2014/2015 as its most successful financial year to date, and its financial results show a pre-tax profit in the year to 31 May 2015 of £26.4m. This is clearly the right side of the line for FFP purposes, but a closer look would appear to suggest that the club’s finances in 2014/2015 were significantly alleviated through a conversion of shareholder loans into equity – a process which appears not just to have been confined to last season (see here for a local report). Of course, it is acceptable from a FFP perspective for a club to offset its debts by converting shareholder debt into equity (assuming a willing owner-lender), but one expects that LCFC owner Mr Srivaddhanaprabha will be quietly rather pleased that the coffers are now a little deeper in order to service this revised investment (perhaps even pay a dividend!), even if a large chunk of the financial windfall is spent in the next transfer window.
All in all, whilst it remains to be seen how winning the Premier League changes LCFC as a club (if at all), one thing is for certain: the club will have more money available to help them defend their title. LCFC’s story is a marketer’s dream, but from a legal perspective (as ever) on-pitch success translates into commercial bargaining power when it comes to a club’s commercial deals and it will be interesting to witness how this benefits the club over the coming season – Claudio Ranieri has stated that football will continue to be dominated by the very rich clubs, although it is not a huge stretch to suggest that this might include LCFC before too long.
A little about the author: Charles has acted for clubs, teams, unions, sponsors, agencies and player management companies, predominantly in motorsport, football, rugby and golf. Charles also spent a year on secondment to Nike (based in the Netherlands), and he is regularly able to draw on this experience in his advice to clients on a wide range of sports marketing and commercial issues. Legal500 recommends Charles, and observers have described him as ‘impressive’ in relation to his work in the sports industry. Charles regularly contributes articles on a wide range of topics, and his sports law blog can be read at http://www.lawinsport.com/blog/charles-maurice.