One of the major markers surrounding the financial crisis of 2007 was how few people saw it coming. Ask any Bear Stearns or Merrill Lynch trader about mortgage-backed securities the day before the collapse and they'd have told you they were a safe investment. The trouble was, everyone had become so blindsided by the big numbers banded around at the top of the ivory tower that they forgot to look at what was happening underneath.
I bet we all know for sure that the Premier League is safe as houses from a financial standpoint. It pays the biggest wages in the world, pulls in the biggest crowds and attracts the best talent on and off the field. But take what we know about the American mortgage sector in the run-up to the financial collapse and apply it to the way football is being financed in the top tier and you'll unearth some worrying similarities.
As Jose Mourinho made his one billionth pound transfer on the back of newfound TV wealth, financially squeezed people at the bottom of the pyramid are struggling to pay their subscriptions. Or, more worryingly, turning off their box altogether.
Television money has been a great leveller for Premier League clubs. Bournemouth sunk over £35 million into the transfer market this summer despite playing their home games at an 11,464 capacity stadium; Watford parted with £57 million despite the fact they rely on just 21,438 match day receipts; and Crystal Palace were able to pay almost £50 million for just three players despite the fact they can accommodate just 25,456 at Selhurst Park. Gate revenues no longer matter to EPL clubs; even rich oligarchs don't count for as much. Football is being financed by two companies: Sky and BT. And if they go down, the league goes down too.
The latest Premier League TV deal funding these sums is worth an eye watering £8.3 billion over three seasons, with BT also shelling out almost £1 billion for European fixtures over the same period. Yet with the ink still to dry on the contracts, early season figures reveal that ratings for live Premier League matches on Sky Sports are down by a fifth and that on one particular Tuesday BT Sport's Champions League figures were down by 40 percent. Worryingly, there are similar trends across other sports. In the US, where broadcasters and cable carriers have collectively shelled out more than $50 billion for NFL rights into the early 2020s, a double-digit decline in viewers has been seen this season.
So what's causing the decline? The simple answer is that there's a mix of short-term blips and long-term trends damaging viewer figures. For companies the size of Sky and BT, the former can be absorbed, but the latter is cause for concern.
Guy Anker, Managing Editor at Money Saving Expert, says that although it's hard to find one starting point of causality, "the clever money is on the fact that streaming services are becoming more prevalent. You just look at general social trends among younger people and a lot of under 25-year-olds don't have televisions. The internet is king."
Cord cutters – dubbed this because of the transition from TV subscriptions to streaming services – are shaking up the market, with "centennials", i.e. anyone born after 1997, now spending more time online than watching television. Streams are readily available and often as high quality as regular TV, and in most cases they're free, which is a big factor in a country where some 5 million British adults have less than £10 a month left over once they have paid their essential bills. The travesty of the Sky and BT rivalry, as Anker points out, is that increased competition has led to higher prices for the consumer, and as we saw with the real estate bubble, when monthly bills become too costly people simply stop paying them.
So the big question is: if these trends continue, does that spell re-think or catastrophe for the Premier League? Rob Wilson, football finance expert at Sheffield Hallam University, says "the current reliance on TV income would, for some, be a concern. It's not too distant a memory when ITV Digital collapsed and a number of clubs in the lower league went into – or nearly entered – administration. The reason for this financial collapse was because clubs had budgeted on the basis of the TV income. When it didn't arrive, clubs were found to have insufficient income to meet their financial obligations."
The ITV Digital collapse may seem a distant memory for most of us, but it's worth keeping in mind that many major financial crises have been preceded by smaller tremors. The Dotcom bubble was preceded by a bull rush into one sector; the European sovereign debt crisis was preceded by the financial crisis; and an EPL crash could be on our hands if we fail to learn from the lessons of a lucrative financial strategy that is weighted too heavily on a single revenue source. Many people thought Leeds United were too big to go under after they budgeted on a Champions League spot. Their fate needs little amplification.
The collapse at Elland Road also demonstrated that there are no knights in shining armour when it comes to collapse. Peter Ridsdale left the club behind, and so will our overseas oligarchs. The £1 billion Roman Abramovich pumped into Chelsea isn't a gift – it's a loan. Sheikh Mansour has backed Man City for hundreds of millions of pounds, but also seen the value of the company soar by as much if not more. If it no longer makes business sense, they'll no longer back it.
The potential lifesaver, as Wilson points out, is international rights, which will match or potentially exceed the domestic rights package in the short-term. But if other leagues become more competitive, or domestic leagues start punching, the Premier League could go bust just as fast as it boomed.
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