The Economics of Premier League football…By Lewis Walters

From matchday revenue, to sponsorships, to Revenue also comes from concessions during broadcasting and even retailing, the opportunity games. The price of a pie at a PL game varies for Premier League clubs to rake in as much between £2.50 and £4, and the majority aren’t money as possible from fans and elsewhere is as considered great value for money, as the club high as ever before, and it is not showing any is making a profit from the sales of these by signs of stopping either. Problems with this buying them in bulk from local companies. A surely their costs are huge, right? involve fans being unable to afford to watch cup of tea can be between £1 to £2.50—again their favourite team and taking the next giving clubs a huge mark-up as the marginal Probably. But, what is striking is that the generation of football fans with them, as well as cost of producing one cup of tea is arguably vast majority of clubs operate at a loss. being completely ripped off with the price of next to nothing. Manchester United say that food and drink to get them through an their £2.50 cup of tea is expensive due to the Costs encapsulating/boring/forgettable 90 minutes of high demand for them. Again, one would beg It is estimated that 71p in every £1 made football. And this all begs the question on every to think otherwise, and the quality of those by a Premier League club gets spent on football fans lips— Why do they need to charge teas aren’t great either. The price of a players’ wages. That’s primarily the main us so much to watch them, when they make so programme is probably the most reasonably cost involved, but of course there are much money elsewhere? Its time to decipher priced at £3 throughout the vast majority of others. Rewind to 30 years ago and a top the economics behind running a Premier League football clubs in any of the top 5/6 tiers of player was probably earning little over the football club. English football, which is a good source of average working salary in Britain, extra income for lower league teams. So, this Revenues money came from sponsorships and proves the point that there is pretty much winning tournaments, but they still The BBC’s Price of Football Survey for 2014 nothing allocatively efficient about an English earned a lot less in a year than what a top states that ticket increases have outstripped the football club in the top 4/5 tiers. modern day footballer earns in a week. cost of living in little under 3 years. In 2012 it Winning the Premier League is currently Colombian striker Radamel Falcao of was announced that Arsenal made £95.21 worth over £150m, while even finishing Manchester United is reportedly earning million from matchday revenue’s alone. They bottom is worth an astonishing £99m due to £260,000 a week, while Gareth Bale is do, however, charge the highest for both the combined total of prize money and reportedly earning £300,000 a week at standard match tickets and season tickets in the parachute payments for being relegated to Real Madrid, while players like Cristiano Premier League— their cheapest season ticket is the Championship. Entering the UEFA Ronaldo and Lionel Messi are both on currently £1,014, which is more than the most Champions League group stage alone is worth much more money. Is this needed? Think expensive season ticket of 17 Premier League about 8.6m euros, winning it is worth 10.5m of how much Pélé, George Best, Kenny clubs, including Liverpool and both Manchester euros, not including TV money and advertising Dalglish and co all earned during their clubs. Perhaps more startling is that Charlton’s revenue of course. A team from England could time as a footballer. Overall, much less. £150 season ticket is the lowest in England’s top be eliminated in the quarter finals of the CL They could only dream of wages like that 4 divisions, which is still higher than the £103 and still earn more than, say Bayern Munich in their days. There is no way on this Earth price that Barcelona charge for some of their winning the tournament due to the that Liverpool forward Fabio Borini will season tickets. Aside from gate receipts, teams differences in domestic TV markets. ever match up to Kenny Dalglish and his such as Arsenal and Manchester City all have record, so why is Fabio on more money lucrative deals with major international airlines Then comes the ‘biggy’ - TV/broadcasting per week than ‘King Kenny’ was? More regarding the naming rights of their stadiums. deals. Premier League TV rights are the most revenue has given clubs the opportunity Etihad Airways, who own the naming rights to lucrative in the world for any sport, breaking to dramatically try and increase their Manchester City’s Eastlands stadium reportedly the £5bn mark in bidding for the 2015/16 chances of winning major trophies and pay £40m per annum to have their company season onwards. Half of this is distributed attracting the best sponsorship deals. name in the stadium name. Another source of evenly amongst Premier League clubs—so They have done this by investing their revenue is sponsorships. In terms of shirt £125 million for each club. Then, on top of supernormal profits from the revenue sponsorships, Manchester United have recently that the other half is distributed to clubs increases into players’ wages. In doing so, agreed a £75m a year deal with Adidas to depending on how often their games are they have unintentionally gave the very design, manufacture and sell their kits from the broadcast live on TV. Overall, a club could best players the bargaining power in 2015/16 season. US car giant Chevrolet already earn over £100m from winning both the PL terms of dictating their pay. If you’re the has a £53m per year sponsorship deal to have and CL in the same season. However, given best player in the world, you want to be their logo emblazoned on such kits. American that British clubs haven’t done well in Europe paid an awful lot more than the second companies Subway and Dunkin’ Donuts have since Chelsea won the Champions League and best player is. This is because, as we multimillion pound sponsorship deals with Europa League in back to back seasons in know, you need vast amounts of innate Liverpool just to advertise their logo in the 2012 and 2013, that one looks unlikely for the footballing skill to be a top Premier stadium during games, so sponsorships of any time being. League footballer - it isn’t easy. And so the kind are particularly lucrative for the top So, if Premier League clubs raise so much level and elasticity of supply of top Premier League clubs. money but can’t keep ticket prices down then footballers is quite low. So, they turned to Newcastle United for their The positive multiplier effect will have striker Andy Carroll. He had scored 11 goals in taken care of the wages for the builders the league in half a season already so he was one who built the complex and for the of the leagues top scorers (he had only played company who built it too. Liverpool are top flight football for 5 months as Newcastle also currently redeveloping their stadium, were promoted from the Championship only the extending one side of their stadium in the season prior). Newcastle would have had no process and using a local contraction time to get any replacement for Carroll, so asked company to build it for them. This will Fabio will never be known as ‘King’ unlike for a massive £35 million to part with him. boost Liverpool’s matchday revenue as Kenny here now will he? Reluctantly, and with £50 million in their back more seats will be installed, and boost The result of excessive wage bargaining has pocket, Liverpool agreed. Fast forward 3 years the city of Liverpool’s economy from the meant that many top European clubs as well as and Liverpool sold him to West Ham for £15 workers who are working on the stadium. million (£20m loss) and is now amongst one of British clubs are operating at a loss. Although, The Premier League and near enough all the worst signings Liverpool have ever made, he Manchester City don’t have to worry—their Abu 20 clubs have their own charitable is also still the most expensive Englishman ever. Dhabi based owners are worth £260bn, I would foundation. These tend to be to improve imagine they have some spare change. So, my rant about my beloved Liverpool’s the lives of adults and children through Nowadays though, Financial Fair play rules transfer policy is over, for now. Two teams have their love of football as well as funding dictate clubs expenditure (sometimes). actually benefitted from an unlikely source, but overseas projects. from the same football team. So how have they Financial Fair Play (FFP) are rules brought in by Manchester United, Chelsea and benefitted? By a rather odd route to say the UEFA (European footballs governing body) to Liverpool all play overseas in Asian and least—the European Central Bank (ECB). It is combat excessive loss making by the top elite American countries during the pre-season beyond the scope of this article to look at the clubs in Europe in order to make it fair for clubs due to the high number of foreign fans in finances of Real Madrid apart from to point out trying to work their way up the football ladder those areas, particularly Asia. For that Real has provided around £80 million twice without having the financial infrastructure example, both Liverpool and Manchester via the transfers of Cristiano Ronaldo from available to them. Since then, Manchester City United sold out 100,000 capacity Manchester United and now Gareth Bale from and French giants Paris-Saint Germain have stadiums in Australia and the USA Tottenham Hotspur. It borrowed the money for been fined an astronomical (if you’re Barnsley) respectively, boosting the local Cristiano from the nice friendly (ahem.. £49m just for breaking FFP rules. Practically a economies around the stadiums due to insolvent) Bankia which deposits the loans at the drop in the ocean for two clubs owned by the huge volume of fans. Middle-Eastern royal families. Although they ECB for freshly minted liquidity, and there are both had their Champions League player suspicions that some of the money for Gareth So, although Premier League clubs like allowance cut to 21 players throughout the Bale came from the same route. Liverpool have a strong local monopoly over me and hundreds of thousands of 2014/15 tournament—City have since been eliminated. This an example of how internal others who are willing to pay regulation has been used to control the finances astronomical amounts of money to watch them play (although I have gone off on a of clubs in Europe, to help attempt to combat inequality and to make European football more tangent to watch Rugby League which is equitable for smaller teams to compete. considerably cheaper and just as entertaining), it really does benefit the

Rather than player wages, don’t forget the British economy massively. After all, it is money needed to buy the players in the first the ‘beautiful game’. place, unless of course you bring local players Thanks ECB! into your team—which was the case for Steven Other aspects of economics to note: Gerrard and John Terry. At different points in a So, is the Premier League good for the economy? - Price discrimination occurs as PL clubs season a players transfer value differs, so a Those who hate football would say no. Those charge different prices for adults, children player would be more expensive in a January who follow football but are disillusioned with and the elderly for the same seats. transfer window IF he is a key player and has prices would also say no. An economist, and played regularly for his team and IF his current - Demand for Premier League tickets is mostly people with even a basic sense of team cannot get a suitable replacement for him surprisingly price inelastic. economics would say yes. The tourism revenue which could have a severe impact on the rest of - Only two PL clubs (Chelsea and Leicester that the Premier League brings in each year is their season, irrespective of the money the team City) pay their staff the Living Wage. incredible. There is no official figure, but it is cashed in on him. An example of this is Andy estimated that the Premier League is worth in - Due to the Euro falling in value against Carroll. On transfer deadline day, January 2011, excess of £2bn to Britain’s GDP. Don’t forget the Pound, Arsenal saved £700,000 from Liverpool striker Fernando Torres decided he investment opportunities from the richer clubs the cost of Gabriel Paulista from Spanish wanted to leave for Chelsea, so he did for £50m. like Manchester City who have recently opened club Villarreal as they agreed a fee in This left little time to find a replacement with a £200m training and sports complex for their January 2015 but he only moved 3 weeks just hours of the window left. Liverpool needed first team to train in, as well as to develop local later, enough time for his value in Pounds to sign a player based in England—there was no talent for future generations. to fall. time to swoop a player in from abroad.