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The UEFA Champions League: Time for a new formation The need for reform, not revolution

Oliver & Ohlbaum Associates August 2016 Executive The UEFA Champions League has Contents summary become one of the world’s most Executive summary 01 valuable sports properties. Much of its success has been attributable to Section 1 Introduction 02 its ability to respond to developments in the European football market and Section 2 the changing broadcast landscape The Champions League - 04 throughout its twenty-five year One of the world’s biggest sports properties existence. But pressure is building from Section 3 clubs and broadcasters for further and Pressure for change - 10 potentially more radical reform. Why the need for reform?

There is a growing perception that as the Group stage matches would move to three Section 4 world’s premier club competition, it could mid-week slots. An enlarged Europa League Time to rethink - 18 Without reform, external be more appealing to fans and worth much would continue as a clear complement, with The impact of reform pressure for more radical more to broadcasters. Champions League no involvement from eliminated Champions change may be impossible broadcast fees have not grown as fast as League teams in the latter stages. to withstand – with negative other top sports properties over the last In the longer term, such a revitalised Why UEFA should act now 28 decade. UEFA faces the risk of a breakaway competition featuring multiple guaranteed consequences for the club competition which would not only fixtures between the largest and most European football system. break the current European football successful clubs would become a must- ecosystem but could also undermine the see complement to ’s leading integrity and value of domestic leagues national leagues across the globe. O&O such as the . analysis suggests that in ten years’ time, UEFA has a short term opportunity to the competition could be worth a minimum implement reforms that will address many of 30 to 40% more than a continuation of these concerns and avoid a breakaway. of the current format. Further increases A new round of broadcaster deals (for 2018 in value can be expected for UEFA and bn – 2021 seasons) is due for completion in club commercial revenues as the revised €3.2 2017. Without immediate reform, external structure would have more global sponsor Reforms to the Champions League pressure for more radical change may be appeal and would attract larger audiences. would increase the broadcast value by impossible to withstand – with negative However, it might take two more rights between 15%-20% above underlying consequences for the European football cycles to achieve this uplift, with a more market inflation. system. likely 15 to 20% short term increase in New O&O research has found clear Champions League and Europa League audience appetite for a Champions League annual value to €3.2 billion. with more fixtures involving the biggest Longer term, leading clubs’ guaranteed clubs – and that the current format features income from the Champions League could matches that have limited global appeal. increase by 40 to 50%, but the status and Having examined several earning power of national leagues would be configurations, O&O believes moving to a preserved. The appeal and competitiveness 24-team format, with 20 of them coming of the Europa League could also be from the five largest leagues, the other four enhanced, with stronger clubs involved qualifying as the best of the other leagues and greater revenues as part of a combined – probably in three groups of eight – would rights sale with the Champions League. address many of these issues. It would The new competition would seal Europe’s mean: leading position in global football, ensuring the clubs remain the most recognised • Broadcasters would have more of the About Oliver & Ohlbaum brands in the world, attracting the best content they want Oliver & Ohlbaum is one of Europe’s leading independent policy and players and cementing football as part of • Audiences to these bigger fixtures would strategy advisors to the sports, media and entertainment industry, Europe’s shared cultural heritage. where we have unrivalled knowledge and expertise. be higher • The value that consumers place on these Established in 1995 and based in London, O&O has been an advisor to fixtures would also increase over 200 different clients on many of the major developments in the UK, • As a “must have” sports property, UEFA European and global television, radio, publishing, on-line and sports would be better placed to capitalise on markets. From supporting BT in their move into sport, to helping Discovery the battle between broadcasters, pay TV with their purchase of Olympic rights, we have been at the heart of the platforms and new market entrants. deals that have transformed sport over the last two decades.

AN OLIVER & OHLBAUM REPORT / 1 Introduction This paper has been It has been supported by a detailed, two- produced in response to stage consumer survey conducted across the current debate on the seven international markets. This was designed to evaluate current perceptions future of the UEFA Champions of the Champions League, its position League. It considers the versus other sports, how consumers history and evolution of the perceive the current format and their competition, and how it reaction to potential reforms. can maintain and increase Online surveys were commissioned in the UK, , , , , its value in today’s ultra- USA and Singapore, with a nationally competitive sports market representative sample size of 1,000 We believe that some of the proposals respondents in each market. Respondents for “Super Leagues” that are currently were asked about their interest in the being aired would be detrimental to Champions League, their viewing habits European football. They would require and the influence it has over their choice of a large amount of fixtures and would TV and broadband providers. undermine the current calendar balancing Further surveys, including a choice- league, cup, European and international based conjoint exercise, were carried out football; any large gain in rights values in the UK, Germany, Italy and Spain to would require weekend fixtures, which provide additional, more granular insight would undermine the domestic leagues on the potential impact that changes to the and their existing (and highly successful) competition would have on viewing habits rights models. Importantly, it is not clear and willingness to subscribe. that there is significant fan demand Survey response data was used as for a league-type format which would an input to support Oliver & Ohlbaum’s undermine the importance of the domestic in-house rights valuation model, enabling leagues and cups. a robust forecast of the broadcast rights We believe that reform is possible value of the Champions League under within the current framework, and this various scenarios of potential reform. paper sets out the evidence to prove it. It is an update of O&O’s 1999 report Super Leagues and Super Clubs, which contributed to the debate and helped prevent an earlier breakaway.

New O&O research 2 7 7,000 Introduction Stage survey process Markets surveyed Total respondents

2 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 3 The UEFA European club football Despite several reforms over the last 20 has been at the core of years to increase the appeal and earning Champions League - the explosion of the global power of European club competitions, the Champions League and Europa League One of the world’s sports industry over the together account for less broadcast past twenty years revenue than the Premier League, only biggest sports 26% of the combined revenue of all five top European football associations, leagues, leagues and less than the sum of their non- clubs and players attract fans from across properties European media rights revenue. While the the world and are estimated to make Champions League has grown in popularity up 77% of football’s global media rights and value, it still only accounts for 5-20% value. European clubs dominate the global of the income of the average participant game – every one of Forbes’ top 20 most club. In the major leagues, this ranges from valuable clubs in 2016 is European. The 15% for an Italian club to just 7% for a top five major leagues (, Germany, English club. Spain, Italy and ) are by far the most We have moved into a global, hyper- popular and valuable constituent parts connected age where consumer tastes of European club football, accounting for and habits are changing rapidly. Sports, 86% of the combined value of all European especially football, are billion dollar leagues’ media rights, and these five industries in their own right, and find leagues provided exactly half the players at themselves as key properties in a global the last world cup. Outside the NFL (itself battle for consumers. The Champions an overwhelmingly domestic property), League will need to continue to evolve if European football dominates the list of the it is to thrive. world’s most valuable sports properties [Figure 1].

Figure 1: 2016/17 Major sports broadcast rights fees (estimated) - €millions

6000 86 % 5567 The Premier League, , , 5000 and account for 86% of all European leagues’ media value

4000

3044 The UEFA 3000 2374 Champions League - % 2245 66 2000 of UK football fans think the Champions one of the world’s League is the best football competition 1450 1404 in the world 1243 biggest sports properties 1159 1000 732 520 440

0

NFL MLB NBA FIFA SERIE A ONE PREMIER LEAGUE LEAGUE OLYMPICS FORMULA CHAMPIONS BUNDESLIGA SPANISH LIGA WORLD CUP

SOURCE: SPORTCAL, OLIVER & OHLBAUM ANALYSIS

4 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 5 The UEFA Starting in 1955, the The current Champions League match became Europe’s premier football club scheduling is optimised for European Champions League - competition – a knockout tournament audiences and has protected the value between the champions of each of the and integrity of the domestic leagues. One of the world’s league members of UEFA. These successive reforms of the biggest sports The European Cup quickly established Champions League have boosted its itself as an integral part of footballing appeal to fans and value to broadcasters: folklore – from Real winning the properties • Currently, the group stage guarantees first five in a row, through Celtic’s “ each club six matches and provides Lions” of 1967, to the English dominance of broadcasters with regular programming the late 1970s and early 1980s. However, and sufficient content supply to create in its latter years it was criticised for not a -long narrative and marketing responding to the changing landscape asset of European football, the increasing popularity of the top clubs and the options • Matches played over two midweek available to rights holders following the slots give broadcasters the flexibility advent of pay TV. In 1992 the old Cup to show not only multiple matches, format was replaced by the Champions but also to choose more of the most League. appealing matches in any given market, for example showing matches featuring Since its inception, the Champions two domestic clubs. This allows UEFA League has undergone several reforms to maximise rights value through rights in tournament structure, in the packaging and where appropriate have qualification process and in the number more than one broadcast partner per of participating clubs market (often sharing rights between The first Champions League was free-to-air and pay TV). introduced in the 1992/3 season and preserved most of the qualification Maintaining a structure with midweek and knock-out format of the preceding fixtures only (with the exception of the European Cup, but with an eight club group final, now played on a Saturday) has been phase included after a second knock- crucial in preserving the current European out round. football ecosystem and the importance of In 1994/5, the tournament was the individual domestic leagues; not just extended to 16 clubs and switched to an in terms of club involvement, but also by initial round-robin group stage followed by maintaining the leagues’ own media rights knock-out rounds. Qualification was still value, centred around weekend fixtures. primarily for domestic league champions. Weekends provide the flexibility for Three years later, it was expanded further European leagues to extract huge value not European Cup 1970, Schalke 04 vs. Dinamo Zagreb to 24 clubs, and with wider qualification only from large domestic audiences but to non-champions of the major leagues. also from foreign markets where desirable In 1999, the competition grew to 32 clubs kick-off times can be accommodated. By with many more non-champions now focusing on midweek slots, the Champions included. The format also changed – this League has acted as a complement to time to two group stages, plus subsequent domestic leagues, not a substitute. knock-out rounds. The second group phase was removed in 2003 and an extra knock-out round was 19 13 introduced in its place. The structure and different winners of the different winners of the Champions number of clubs (32) has not changed old European Cup from League from 7 different countries since 2003; however, in 2009/10 the 9 different countries qualification format was altered to guarantee at least 17 league champions in the group stage. 16 /16 32/18 First European Cup in 1955 had 2015/16 Champions League had 16 teams from 16 countries 32 teams from 18 countries 29 125 matches played in the first matches played in the 2015/16 European Cup Champions League

6 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 7 There has been strong media rights The current qualification model For the 2015/16 competition, each club UEFA redistributes Champions League broadcast and sponsorship fees The UEFA inflation but this may be slowing ensures a broad representation was guaranteed a fixed fee of €12 million, to participating clubs along the following lines: Champions League - of European leagues plus group stage bonuses of €1 million for The various competition reforms, together every win and €500k for every match they with the revolution in sport broadcasting Clubs qualify for the Champions League One of the world’s drew. Knock-out stage bonuses ranged 30% values, have helped UEFA secure strong based on a mix of domestic league from €5.5 million for clubs reaching the shared equally biggest sports growth in Champions League television performance and UEFA coefficients; this round of 16, up to €33.5 million for the rights fees, making the competition one of gives a guaranteed participation to 17 of 40% amongst all clubs tournament winner. shared on a market properties the most valuable global sports properties. UEFA’s national league members. The other The size of the market pool is correlated pool basis From 2000 to 2015, the Champions League 15 slots are allocated to the associations to broadcast fee payments from each rights fees increased at an annual growth with the leading performance coefficients market, with clubs from bigger markets rate of 5.4%. and to clubs participating in qualification eligible to receive more revenue. In the Much of the growth in media rights [Figure 3]. Whilst this increases 2014/15 season, APOEL received 30% has come from the globalisation of sport. audience reach across European markets, €2.5 million from the market allocated to clubs’ However, UEFA’s rights fees from markets it does not necessarily result in the pool, whilst Paris-Saint-Germain were performances outside Europe [Figure 2] make up a inclusion of all the most popular clubs awarded €35.6 million from the French smaller proportion of the total than in and all the best players market pool. However, the market pool other top tier sports properties, such as The current distribution of broadcast is shared between all the clubs from the the Premier League and Formula One. This revenues to participating clubs has relevant league – so for leagues with more is mostly attributable to the time zone significant impact participating clubs the final allocation can impact of European midweek evening kick- be less. This can raise certain issues and off slots. At present Champions League UEFA redistributes Champions League potential tensions between participating matches occur in the middle of the working broadcast and sponsorship fees to clubs, and is one of the main factors day in the Americas and in the middle participating clubs along the following cited by many pushing for a breakaway % % of the night in Asian Pacific territories, lines: competition. 5 16 neither of which is optimal to achieve high annual growth rate for Champions League annual growth rate for Premier League • 30% shared equally amongst all clubs television audiences or for significant media rights fees from 2000-2015 media rights fees from 2000-2015 interest from subscription services. • 30% allocated to clubs’ performances • the remaining 40% shared on a market pool basis

Figure 2: Total UEFA TV rights fees by area (per annum) Broadcast fees by region Figure 3: Average number of domestic teams participating in Champions League over the past 5 seasons (2011/12 to 2015/16)

2000 5.0

1800 30% 4.5 611 Major ROW Rest of the Champions League world fees 1600 4.0 70% 1400 European market fees 3.5

239 Other Euro 1200 3.0

148 Germany 1000 36% 2.5 173 France Rest of the Formula One world fees 800 2.0 192 Spain 64%

€ MILLION Another 13 markets 600 European 1135 Big 5 Euro market fees 1.5 had average of less than 1 club 263 Italy

400 1.0

200 359 UK 37% 0.5 Rest of the world fees Premier League 0 0.0 63% UK SPAIN ITALY European FRANCE GERMANY BIG 5 EURO GLOBAL UCL/ MARKETS market fees UEL RIGHTS NETHERLANDS

SOURCE: SPORTCAL, OLIVER & OHLBAUM ANALYSIS SOURCE: UEFA, OLIVER & OHLBAUM ANALYSIS

8 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 9 Pressure Towards the end of the Interest in the Champions League is 1990s, the Champions driven by the leading clubs for change - League came under pressure Fan interest in the Champions League tends to skew heavily towards the biggest Why the need to enact significant reform and most followed clubs. Our recent or face a breakaway of the surveys showed that fans from the major for reform? larger clubs. This resulted in European markets tend to be interested in the format changes outlined matches involving both the leading clubs in the previous chapter. from their domestic market, as well as those they considered to be top clubs from A number of similar issues other markets. Fans in “emerging” markets are once again emerging (for example Singapore and the US) display and the spectre of a an even stronger tendency to prefer breakaway of the biggest matches involving the top clubs. clubs looms. When asked which ten clubs they would ideally like to see in a European There is a view that the current format competition, respondents from the seven does not maximise the value, particularly markets in our study had a consistent view to the biggest clubs in the largest leagues, of the clubs they would be. Of the top ten and these clubs could be vulnerable to which were chosen most often, five are approaches from an alternative, private from the Premier League, two from the competition. Spanish Liga, one from Serie A, one from the Bundesliga and one from the French Ligue 1 [Figure 4].

Figure 4: O&O Survey – Top 20 ranked clubs to compete in a European tournament

THE TOP TEN THE NEXT TEN

BARCELONA AC

REAL MADRID ATLETICO MADRID

MANCHESTER UNITED

BAYERN AJAX AMSTERDAM

BORUSSIA FC Pressure for change - why the need for reform? ARSENAL AS ROMA CITY CELTIC

GLASGOW CHELSEA FC RANGERS

JUVENTUS FC PORTO

PARIS SAINT TOTTENHAM GERMAIN HOTSPUR

AVERAGE SCORE ACROSS 7 MARKETS AVERAGE SCORE ACROSS 7 MARKETS

SOURCE: OLIVER & OHLBAUM ANALYSIS

10 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 11 TV audiences reflect the importance of The current structure of the Champions Figure 5: Indexed UCL matches average free TV audiences, 2012/13 DOMESTIC NON-DOMESTIC Pressure fixtures between the leading clubs League leads to a large number of TV audience figures also show the clear matches between smaller clubs for change - INDEX 1 = AVERAGE AUDIENCE OF TOP TIER & DOMESTIC MATCHES PER MARKET preference of fans to watch matches with Although the Champions League has been the biggest clubs. restructured several times to increase Why the need 1.2 Oliver & Ohlbaum has classified clubs appeal for broadcasters and fans, the for reform? which have participated in any of the last current structure could be further 1.0 six years of the Champions League into improved. Despite a clear indication that

five tiers, based on recent and long term fan interest is heavily skewed towards 0.8 performance, popularity, resources and the bigger clubs, under the current

to broadcast value each brings to the competition structure, they do not feature 0.6 competition. Our analysis shows matches in the majority of fixtures. involving two clubs in the top two tiers Across the past six Champions League 0.4 on average attract audiences 20-30% seasons, only around 8% of group stage higher than matches involving only one matches were between two top tier clubs, 0.2 top tier club, and a further minimum 10% with more than 40% of group matches higher than matches between two lower between two lower tier clubs [Figure 6]. 0.0 tier clubs. The pattern is the same for Across the whole competition, top tier TOP MID LOW TOP MID LOW TOP MID LOW TOP MID LOW matches broadcast on either free-to-air matches have only accounted for 15% channels or pay TV; however, with fewer fixtures, despite the top club dominance of matches broadcast on free channels, the knock-out stages. these tend mostly to feature only top tier Of all the Champions League matches SOURCE: SPORTCAL, OLIVER & OHLBAUM ANALYSIS NOTE: DEPENDING ON THE MARKET, NOT EVERY TIER OF MATCH WAS SHOWN IN 2012/13 and domestic clubs. broadcast on Sky in the UK from 2012 to Top tier matches where a domestic 2015 , there were fewer than an average club is involved have the greatest appeal of eight matches per year between the Figure 6 : 2009/10 – 2014/15 Champions League games split by tier TOP TIER MID-TIER LOWER TIER in the biggest European markets such as English clubs and other top tier European UK, Spain, and Italy. In smaller markets, clubs. There were around 40 low tier GROUP STAGE MATCHES IN EXISTING FORMAT ALL MATCHES IN EXISTING FORMAT such as Greece or , domestic fixtures broadcast each season, but

clubs are more likely to be in the lower tier, on average these attracted less than a CLUB A B C D E CLUB A B C D E so tend to drive higher viewing to those quarter of the number of viewers who TIER TIER matches than top tier fixtures [Figure 5]. would watch a top tier match [Figure 7]. A A 8% 25% 16% 25%

B B

C C

D 25% 42% D 25% 35%

E E

SOURCE: OLIVER & OHLBAUM ANALYSIS

Figure 7: Consolidated average pay TV audiences, past 3 seasons (2012/13 to 2014/15)

We have segmented participating Champions League Clubs are given 1-5 points in each category and subsequently 160 clubs from the past six seasons into five tiers based allocated a tier (split in even quintiles) based on their total on a number of criteria: score. The top tiers (A,B) feature the richest and most 1. There are lots of 140 group matches but supported clubs, who regularly play in the Champions League. with small audiences The lower tiers (D,E) feature clubs typically from smaller 120

RECENT RECORD – Champions League pedigree leagues who do not have much of a track record in 2. Top tier matches the Champions League. 100 LOW TIER have larger audiences HISTORICAL STANDING – Longer term European Cup record MATCHES but are less frequent For Example TV MARKET – Value brought to the rights fees pot 80 Tier A contains clubs with the largest supporter bases, GLOBAL FANBASE – Current support, domestic and greatest wealth and a strong record in European cup football 60 TOP TIER MATCHES 3. Big matches with international such as , Bayern Munich and Manchester United. home market interest NUMBER OF MATCHES 40 have bigger audiences UEFA COEFFICIENT – Recent European competition track Tier E is mostly made up of clubs from the smallest markets

record and which do not always feature e.g. BATE Borisov, Debrecen 20 and Genk. WEALTH – Position in Deloitte’s Money League TOP TIER MATCHES 0 (WITH DOMESTIC CLUBS)

0 200 400 600 800 1000 1200 1400 SIZE OF AUDIENCE

SOURCE: OLIVER & OHLBAUM

12 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 13 Many fans are put off by the lack of top less per club when compared to the Figure 10: Share of clubs revenue coming from UEFA (UCL group stage only) out of total club revenues, 2006 vs 2014 2006 2014 Pressure tier matches in the group stages and payments their domestic broadcasters for change - consider the competition only truly comes make to UEFA for media rights. Despite alive when the knock-out phase starts, English clubs having a bigger pot available Why the need six months after the first group stage to them, once it is split between four 30 28% matches. Fans in the US and Singapore participating clubs, it can equate to for reform? were the most likely to be ambivalent the same amount as a club which is its 25 towards the group stage matches, mostly league’s only participant (such as Greece’s 21% 21% 21% due to the perception of the lack of top Olympiacos in recent seasons). 20 tier fixtures [Figure 8]. In the last season of the previous rights 16% 16% 15 14% cycle (2014/15), Premier League clubs 12% 11% Clubs from larger markets can often 10% 10% in the Champions League and Europa 9% 9% receive less Champions League money 10 8% 8% League received roughly the same amount 7% 7% 7% 7% 7% than those from smaller markets SHARE OF TOTAL REVENUE 6% 6% 6% in prize money as that paid by Sky and ITV 5% Although the TV market pool provides 5 for the UK broadcast rights [Figure 9]. This a reflection of the contribution made represents a lower return on the domestic 0 by broadcasters in the larger markets, rights fee than clubs from other major this does not always translate into more European leagues (Spanish, German, AJAX CHELSEA ARSENAL BENFICA income for individual clubs. The more UNITED JUVENTUS AC MILAN FC PORTO Italian) and was much lower than clubs BARCELONA REAL MADRID MANCHESTER ANDERLECHT clubs in the competition from the same AMSTERDAM from the next tier of broadcast markets BAYERN MUNICH market, the smaller the proportional e.g. Swiss, Dutch and Portuguese clubs. SOURCE: UEFA, DELOITTE’S MONEY LEAGUE REPORTS, COMPANIES ACCOUNTS, OLIVER & OHLBAUM share-out they receive from the market pool. These clubs, such as Basel, PSV When these market pool effects and Porto received between 3-6 times the are added to the current split of equal sums paid for rights by broadcasters in revenue distribution, clubs from the bigger their home markets. broadcast markets, such as England, Germany and Spain, receive proportionally

Figure 8: Share of respondents who agree with ‘The competition Figure 9: Estimated flows of funds from domestic broadcasters to UEFA UEFA revenues are becoming Some markets may be approaching the doesn't excite me until the knock-out stage’ club payments, 2014/15 less important to clubs from the limits of growth biggest leagues Whilst the Champions League is widely 6.0 60% 6 Portuguese clubs The five richest leagues in Europe have considered to be one of the biggest got 4x the amount 53% seen their rights payments increase global sports properties, its recent rights 5.1 paid by Sport TV significantly faster than those for UEFA inflation has been lower than other major 50% 5 % 44% competitions. To clubs from the five top competitions. In many European markets, 4 UEFA revenues only accounted for 4% of 4.0 leagues, UEFA competition prize money Champions League rights fees may be 40% 39% 4 37% is becoming an increasingly smaller reaching their maximum commercial all Premier League club revenues in 2014. contribution to their overall revenues. value; any further fee inflation will be 30% 3 EPL clubs got the 26% 26% same level paid in UEFA revenues only accounted for 4% of driven by general market forces alone. by BT for rights all Premier League club revenues in 2014; For example, BT’s £900 million purchase 20% 19% UEFA MONEY TO CLUBS 2 this proportion was the third lowest of of the current Champions League and

SHARE OF RESPONDENTS 1.4 1.3 1.1 1.1 UEFA’s top 20 richest leagues. In 2016/17, Europa League rights was more than 10% RATIO BROADCAST RIGHTS PAYMENTS: 1 0.9 0.8 with Sky and BT’s new domestic rights deal double the amount previously paid by Sky in place, the proportion of UEFA money is and ITV. In order to monetise the rights, BT 0 0 likely to reduce to around 3%. The pattern altered its ‘free’ sports channels business < % US is similar in each of Europe’s largest model and introduced a £5 a month 10 SPAIN ITALY SPAIN UEFA revenues accounted for less than FRANCE markets. subscription channel, BT Sport Europe. PORTUGAL GERMANY ENGLAND ENGLAND GERMANY SINGAPORE 10%of revenues for many of the richest SWITZERLANDNETHERLANDS The polarisation in importance of Oliver & Ohlbaum analysis suggests that NETHERLANDS UEFA income is also evident at individual the willingness of the UK consumer to pay clubs in 2014. SOURCE: OLIVER & OHLBAUM ANALYSIS SOURCE: UEFA, OLIVER & OHLBAUM ANALYSIS participant club level. It accounted for to access exclusive Champions League less than 10% of revenues for many of the matches has a commercial value close to richest clubs in 2014, while for clubs from that which BT is currently paying. For Sky smaller markets it made up a quarter of or BT to justify paying a lot more for rights, their revenue [Figure 10]. beyond market inflation levels, would require more customers to consider joining than currently, or customers to value the Champions League enough to pay more; neither of which is evident.

Fans in the US and Singapore tend to be ambivalent towards Champions League group stage matches, mostly due to the perception of the lack of top tier fixtures.

14 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 15 Pressure There are four principal ways to for change - increase the value of sports rights: Why the need for reform 01 02

Growth in commercial An increase in new airtime value subscribers to a pay Incremental advertising revenues can be TV channel carrying driven from two sources: exclusive content a) larger audiences – i.e. the matches have Pay TV networks would be prepared to greater appeal pay more for rights fees if they believed b) an increase in supply – i.e. the number that securing the exclusive content would of matches or the capability to watch more directly result in either attracting more matches (usually through more kick-off subscribers or dissuading subscribers slots or more attractive timing). from leaving if the rights were lost to a rival. 03 04 Advances in technology offer new options for rights holders The adoption of high speed fixed and An increase in the An increase in the strategic mobile broadband services in developed markets has been hugely transformative, price subscribers are value a platform attributes both in terms of how people consume willing to pay to key assets media and in opening up the market to In addition to attracting new In a world of triple and quad play new entrants and business models. Direct subscribers, changes in the format communications bundles, the value of a to consumer models or different models can persuade existing consumers to new consumer can approach €1,000 per of content bundling are opening up the pay more. In the UK, BT has already shown year. The small number of sports assets market for new entrants, such as mobile a price increase is possible - following its that have the ability to get consumers to networks, or the global giants like Netflix acquisition of Champions League rights, switch between providers have seen the and Amazon. with the addition of BT Sport Europe, highest levels of inflation in recent years. Sports rights are becoming increasingly a premium channel costing £5 per Making a sports property a “must have” or valuable to pay TV networks and platform month as a departure from its model increasing the number of consumers who owners who, in this growing world of on- of “free” sports content for its TV and would churn to a new provider helps secure demand access to content, are looking broadband subscribers. this bundle value. for exclusive content for differentiation and competitive advantage. Sport’s ability to drive customer switching between platforms is becoming the principal driving force behind a global rights market which Oliver & Ohlbaum forecasts to grow at an annual rate of 6.5% over the next four years.

20% Top sports properties will see around 15-20% annual inflation in rights fees from underlying market factors.

16 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 17 Time to rethink - In the coming months, at 20 clubs. Even if there were no knock- UEFA is due to begin the out stages, in a true league where each The impact market-by-market sales club played every other twice, this would require clubs to play 38 matches a season of reform process of broadcast rights for (excluding any potential end of season the next cycle, spanning the play-offs or finals). Clubs would be unlikely seasons 2018/19 to 2020/21. to be either capable (with even significant increases in playing squads) or willing to Competition reform could draw more accommodate this number of matches in fan interest and drive increased value the current calendar. for broadcasters A league of this scale would therefore Without any major reform, the level of require a true breakaway from the current competition in the sports market means European structure. Moreover, to obtain that UEFA can expect a reasonable degree some of the valuations that have been of increase in rights value. However, we discussed would require matches to be believe there is potential for an additional played at weekends, undermining the significant increase in value if changes successful model of the domestic leagues. to make the Champions League a more We have attempted to provide a attractive broadcast property are solution which provides scope for implemented. substantial rights increases, satisfies the In recent months, there have been a demands of the leading European clubs as number of proposals for a reformatted they become global brands, yet deters any Champions League, mostly involving breakaway, retains the existing European some degree of breakaway “” structure and maintains the integrity of the structure. The number of participants domestic leagues. in these proposals varies, but most start

Time to rethink - the impact of reform

36% 50% 70% of Spanish fans think too many small of fans across the seven markets of German fans would be interested in teams participate in the Champions want to see a Champions League decreasing the number of teams in the League group stage. with more fixtures. Champions League.

18 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 19 Time to rethink - The impact of reform

The opportunity for reform – the time is now There is considerable evidence to suggest change to the Champions League is needed. A number of factors mean there is currently a window for that reform. Upcoming rights cycle The current Champions League and Europa League rights deals expire in June 2018. UEFA would normally begin the rights process 18-24 months before this, which means that renewal is likely to be in early 2017 at the latest. If changes to the format are to be introduced, they need to be done in time to give broadcasters a chance to assess and to evaluate – or the format will be locked until 2021, the opportunity will be lost and voices of dissent will only grow louder. New UEFA presidency term UEFA leadership and governance are in a period of transition, a new president is due to be elected in the coming months. This provides a good opportunity to debate and introduce any potential reforms to its club competitions and receive a mandate from national leagues and associations for any proposed changes.

A larger uplift in fees would require changes to the Champions League 40% to create a more valuable 01 02 of UK football fans wish the UEFA broadcast property. Change the Change the Champions League was on every week. competition format broadcast schedule There are two principal to provide more fixtures to provide more kick-off slots avenues open to UEFA between top tier and thus more opportunities which would increase the broadcast value of the clubs and thus more for broadcasters. Champions League: consumer interest. 77% of US football fans think it’s the best football competition in the world.

20 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 21 Time to rethink - Change the competition format Our research also reveals there is fan Results from our surveys indicate that the appetite for more matches [Figure 11]. O&O research also reveals there is fan appetite The impact current format has too many fixtures of The Champions League could be limited interest in many markets. To ensure restructured with more guaranteed for more matches. The Champions League could of reform a more compelling competition with matches for each club – this would result be restructured with more guaranteed matches greater interest in each fixture, we suggest in more top tier matches and a more for each club – this would result in more top tier it is limited to 24 clubs – and that these 24 appealing competition for fans. This places include a much bigger proportion could be achieved by switching to three matches and a more appealing competition of Europe’s top tier clubs. To maximise groups of eight clubs or four groups of six for fans. broadcast rights value, these clubs should clubs; both would provide more matches be the ones that consumers want to watch than the current format. (and pay for). This would ensure high A first stage featuring three groups competition for rights in UEFA’s of eight clubs would create 168 fixtures, major European markets as well as the a significant increase on the 96 fixtures lucrative and growing markets in Asia in the current structure of the group and the Americas. stage (Each club would play 14 matches Such a structure is likely to have rather than the current six). We consider around 80% of the clubs from the leading this to be the limit that clubs could five leagues, with the remaining places reasonably accommodate given their other allocated through a system similar to the competition commitments. The current current qualifying rounds. As there would round of 16 could be removed to create be no group stage, there would be no mid- more space in the calendar, progressing competition entry into the Europa League. straight to the quarter final stage. The corollary is that it will reduce On average, the number of top tier some interest in the secondary European fixtures in the group stage would increase Figure 11: Share of respondents who agree with ‘I’d like to see more fixtures in the Champions League’ markets where domestic participation is from around eight in the current structure 0.8 limited to a single club, often through the to potentially 60 matches - over a third of qualification process. However, a more all group matches. With the competition 0.7 consistent Europa League format is likely limited to 24 clubs, lower tier matches 64% 63% 0.6 to prolong interest in this competition. would only make up around 10% of group 55% Moreover, in these smaller markets most stage matches, down from over 40% 0.5 46% of the value is in the bigger fixtures and currently [Figure 12]. 44% the knockout stages – which often have no 0.4

local club participation. 31% 30% 0.3

0.2

0 .1

0

US SPAIN

ENGLAND GERMANY SCOTLAND SINGAPORE NETHERLANDS

SOURCE: OLIVER & OHLBAUM ANALYSIS

Figure 12: Champions League games split by tier TOP TIER MID-TIER LOWER TIER

GROUP STAGE MATCHES IN EXISTING FORMAT GROUP STAGE MATCHES IN REFORMED 3 GROUPS OF 8

CLUB A B C D E CLUB A B C D E TIER TIER

A A 8% 25% 36% 27%

B B

C C % D 25% 42% D 27% 10% 36 72 E E of group fixtures in a reformed Champions There would be an additional 72 matches League would be between in a reformed Champions League. two top clubs. SOURCE: OLIVER & OHLBAUM ANALYSIS

22 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 23 What effect could these reforms have? Time to rethink - Figure 14: Importance of domestic league matches vs Champions League TOP CHAMPIONS LEAGUE MATCH TOP DOMESTIC LEAGUE MATCH The impact of reform 55 UK Change the broadcast schedule 01 47 Reforms to guarantee more fixtures with large audience appeal would only be fully Could you obtain larger audiences? effective in securing more broadcast value In the current structure, most free-to-air TV partners already have if more kick-off slots were also introduced the ability to choose the most attractive fixture on one of the two to enable broadcasters to show them. midweek evenings – usually a match featuring either a domestic 52 Showing more fixtures simultaneously club or a foreign top tier club. Reforms to increase the number of GERMANY tends to fragment audiences rather than top tier fixtures would therefore be unlikely to have any significant 55 increase them. Unlike many other TV impact on audience levels in a single broadcast slot. To increase programmes genres, sports are still mostly the airtime value, more broadcast slots would need to be created watched live. When multiple matches are to give the opportunity for viewers to watch several matches per week. played at the same time, football fans will 59 A reformed Champions League structure with six kick-off tend to focus on the one they consider SPAIN slots per match week would be more attractive to free-to-air the most important to them rather than 63 recording the other for later viewing. Only broadcasters in the European markets, giving them the ability to by giving broadcasters the ability to show show at least two top matches per week. The increase in kick- more matches in individual kick-off slots off slots would also appeal to pay TV operators, who currently can you unlock substantially more value. find themselves having to simulcast matches. There would be additional airtime value for non-European broadcasters too, 60 The two clearest options to create more however with matches taking place in the morning or during the ITALY kick-off slots are: night in many markets, any incremental gain would be limited. 57 • Two separate kick-off slots rather than Oliver & Ohlbaum analysis indicates if both reforms were one on both Tuesday and Wednesday implemented, each of the current 100 Champions League fixtures (i.e. like the current Europa League per season, that are currently non-top tier fixtures, could benefit 0 10 20 30 40 50 60 70 from a 50% uplift in audiences. Likewise, we estimate slots for programme on Thursdays), and LEVEL OF IMPORTANCE current mid-tier fixtures featuring a domestic club would see a • Arrange Champions League and Europa 25% increase in audiences if those fixtures were guaranteed to League matches over three days i.e. be between top tier clubs. SOURCE: OLIVER & OHLBAUM ANALYSIS Tuesday, Wednesday and Thursday – this would give broadcasters more fixtures to choose from each night.

Figure 13: Consumer willingness to pay for a reformed Champions League 02 03 04 Would more fans subscribe to pay TV? Would fans be prepared to pay more? Would pay TV platforms value a reformed New Champions League Uplift on current pricing The Champions League is a relatively mature sports property and In the vast majority of cases, the pay TV broadcast partners of the Champions League more? format (with 24 teams) has pay TV partners in the vast majority of major markets. The Champions League offer the competition alongside other sports A reformed Champions League with more guaranteed top tier Value placed by current subscribers to the new format (uplift in price per subscriber current format has sufficient involvement of the biggest clubs content on premium networks, such as BT Sport, Sky Deutschland fixtures has the potential to develop into a top-tier ‘must have’ per month) to appeal to fans worldwide. Changing the format is unlikely to and beIN Sport. These networks usually have a single monthly property for football fans in every market. The resulting increased convert casual viewers to subscribers. subscription fee and are often exclusive to individual platform strategic importance to broadcast platforms would be reflected 24 Results from our consumer research in the UK, Germany, providers. Whilst there has been a strong level of inflation in teams +0.38€ +2.25€ in an increased willingness to pay – to reflect the role it has on Spain and Italy supports this - only 1-2% of football fans who sports rights fees over the past twenty years, pay TV subscription attracting new (or keeping existing) subscribers. 3 do not currently subscribe to pay TV sport would be likely to join fees have not increased at the same rate. Rights spend has been Over time in some markets the competition may even supplant match days per week to access a reformed Champions League. This is unlikely to be justified by subscriber acquisition growth rather than increases the domestic league as the most important single property; in sufficient to persuade pay TV broadcasters to pay significantly to package prices. some markets it is already on a par for some consumers. If a 3 more for the rights. However, O&O research has found that fans in four of UEFA’s revised Champions League could achieve this number one status, groups of It may be that a reformed competition, marketed correctly – biggest markets would be prepared to pay more for a reformed it would lead to a step change in value in these markets. where the biggest clubs play each other every week – could in the Champions League with more guaranteed top tier fixtures. Pay Our analysis revealed that in Spain and Germany top fixtures 8 UK GERMANY clubs long term broaden its appeal and attract the more casual viewer. TV providers would be able to extract this value if their premium in the Champions League are considered to be more important This is likely to be seen in the second and third rights cycles rather channels were appropriately priced. than top domestic league fixtures (the volume of domestic Games on Pay TV only +3.60€ +2.00€ than in the immediate term. Fans across the UK, Germany, Spain and Italy all showed a league means that it retains its top status). In the UK and Italy, (UK) but willingness to pay a higher monthly price than the value they the domestic leagues’ top fixtures (Premier League and Serie A) 1 currently place on the competition. Fans indicated, on average, scored higher than those in the Champions League, but even here FTA game per week in the they would be prepared to pay an additional €0.40 - €3.60 per the margin was small [Figure 14]. other countries month when given the choice of a reformed Champions League, played over three match days per week, in a three eight-club groups stage format [Figure 13]. This is a substantial premium over the current position (it is likely that the smaller potential SPAIN ITALY uplift in the UK was due to BT already explicitly charging £5 per month for access to European football).

SOURCE: SPORTCAL, OLIVER & OHLBAUM ANALYSIS

24 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 25 How big an impact would reforms have on to take a risk on an unproven format in Time to rethink - the value of the Champions League? the short term. We thus expect the short The impact Oliver & Ohlbaum analysis indicates term uplift to be in the order of 10-15% competition reform would bring significant (on top of market inflation), with the of reform uplift in the value to both free-to-air and combined rights worth an estimated pay TV broadcasters, beyond what UEFA €2.6 billion per year. % bn m could reasonably expect from underlying Further increases in value can be 25-30 €3.2 +€20 Oliver & Ohlbaum analysis estimates Combined with the Europa League, the As a result, participating clubs could each market inflation for rights. expected for UEFA and club commercial A reformed structure would go further revenues as the revised structure has rights fees would be worth up to an media rights value of the Champions see an increase of at least €20 million in increasing the rights value across most more global sponsor appeal and attracts additional 30% over and above the growth League would be worth an estimated per season of guaranteed income on of UEFA’s biggest markets. Our analysis larger audiences. The Europa League already factored from market inflation. €3.2 billion by 2021. the current distribution levels. estimates rights fees would be worth up to would also benefit from greater revenues, an additional 25-30% over and above the if its rights were sold in a combined tender growth due to market inflation. Combined with the Champions League and a higher with the Europa League, the media rights revenue share was implemented. The value of the Champions League would be Europa League rights value could grow worth an estimated by up to 20% on top of underlying inflation €3.2 billion by 2021 [Figure 15]. in a first cycle. However, this is a long term effect – some of the value from additional subscribers and much of the strategic platform value will only be evident in the second and subsequent rights cycles as the competition has established itself as a must have property that consumers are willing to pay for. Broadcasters are unlikely

Figure 15: Estimated uplift in UEFA competition media value, 2018 & 2021 Figure 16: 2021 value split by source

5% Other markets 3500

+25% 3,232 3000 GROWTH

+29% 2500 GROWTH 2,568

2000 1,985 27% 57% 1500 Major rest of the Big 5 European markets world markets

1000

500

0

CURRENT BROADCAST FEES SHORT TERM 2018 VALUE POST REFORMS LONGER TERM 2021 VALUE POST REFORMS 12% other European markets

SOURCE: OLIVER & OHLBAUM ANALYSIS SOURCE: OLIVER & OHLBAUM ANALYSIS

26 / AN OLIVER & OHLBAUM REPORT AN OLIVER & OHLBAUM REPORT / 27 Why UEFA should act now

O&O estimates these reforms to the For more information Champions League could bring in an 346 Kensington High Street, London, W14 8NS additional €500-€600 million per year in the first rights cycle and a further €600-€700 +44 (0)20 7313 5900 million in the next. Coupled with a decrease oando.co.uk in the number of participants, competing clubs in the 2018/19 season could see @OliverOhlbaum an increase of at least €20-€25 million of guaranteed income (before any additional success-based fees) under the current distribution levels. Some breakaway “Super League” proposals have claimed there is a higher potential total value than these estimates. Obtaining greater increases in value would require more significant changes in format with all the attendant ramifications to the domestic league and European football structures. There would likely need to be a move to weekend fixtures and more frequent matches in a league structure. Both of these reforms would cause substantial disruption to the running and value of domestic leagues and cups and would have significant impact on fans of clubs both involved and excluded from such a competition. The reforms proposed in this report would maintain the general structure and hierarchy of European club football, as well as secure UEFA’s position as the governing body and its role in running and promoting club competitions. The Champions League has had to evolve constantly over the past 25 years, reacting to both the changing landscape of European club football and technological advances. This report highlights there is a new opportunity for reform of the Champions League, which if it is taken, will maintain and improve its position as one of the biggest, most successful and most followed global sports properties.

28 / AN OLIVER & OHLBAUM REPORT Oliver & Ohlbaum Associates Limited oando.co.uk © 2016 Oliver & Ohlbaum Associates Limited Design: columns.co.uk