Barclays Premier League: Business 101

As part of a new series, Business of Soccer will break down each of the major football leagues from all over the globe through a business lens to help the every day, casual fan gain a basic understanding of the organizations and how they operate. This week’s subject is the Barclays Premier League, based in the United Kingdom. Arguably the world’s most popular football league, the Premier League is now 3 weeks into the 2013/14 campaign, and already it has seen some of the most exciting business deals in football history.

Corporate Governance

Founded in 1992, the Premier League is the top-tier of British Football. Underneath the Premier League sits the Football League Championship, Football League 1, and Football League 2. The Premier League is a private company owned by the 20 member clubs that make up the league at any given time. Each club operates independently of the Premier League, on its own, in accordance with all rules set forth by FIFA, UEFA, the FA, English and European law, and of course the Premier League. Each club is a Shareholder  of the Premier League and has voting rights to any major league changes, which are decided at regularly held meetings throughout the course of the season. All major commercial deals and policy changes require a two-thirds vote, or 14 clubs to agree, in order to be passed.

The 20 member clubs vote on a Chairman, Chief Executive, as well as  a Board of Directors which oversee the day-to-day operations of the Premier League. The current Chairman is Anthony Fry, who was elected earlier this summer prior to the start of the 2013/14 season, and serves as the voice of the Premier League on the FA Board. The Chief Executive presently is Richard Scudamore, who has held the post since his appointment in 1999. More information about the league’s corporate governance, rules and regulations can be found in the official league Handbook.

Player Wages and Transfers

Unlike many sports leagues in the United States, there is no salary cap in the Premier league. Teams may pay their players as much as they like, so long as they adhere to the financial guidelines set forth by the Premier League (explained below). Clubs may also sell and buy players from other member clubs or abroad for a mutually agreed upon “transfer fee”, which is essentially the player’s price tag. This fee is above and beyond any annual salary paid to the player, and is often haggled over between clubs behind the scenes. This was very evident in the recent record-breaking transfer of Gareth Bale to Real Madrid from Tottenham Hotspur for +$131 million (for more on Bale’s record transfer deal click here).

Because there is no salary cap, very wealthy foreign investors have taken an interest in the Premier League as a major opportunity.With no salary limitations, they could offer players as much as they wanted to, as long as they could afford it, in order to entice them to play for their respective clubs. Chelsea and Manchester City are prime examples of this latest fad. However, clubs can’t just spend, spend, spend in order to get players that will win them championships, due to the recently instituted financial fair play regulations, both from the Premier League and UEFA as well.

Financial Fair Play

Established to help mitigate the level of debt that the Premier League seemed to have fallen into, the Barclays Premier League Financial Fair Play rules in essence are designed to keep clubs from spending beyond their means. Basically, starting with the 2013/14 season, Premier League clubs may not exceed a loss of -£105 million (-$164 million) over a rolling 3 year period. These efficiencies are supposed to help reduce the number of clubs reporting such detrimental losses to their finance departments at year-close. Big spend must be met and offset with big earn, in other words. Failure to meet these regulations can result in penalties such as fines, points deductions in the league standings, or even expulsion from competition in the more severe cases.

Source of Revenue

According to Deloitte, the following is a break down of the source of revenue for the Barclays Premier League during the 2011/12 season:

 

Barclays Premier League Source of Revenue. Courtesy Deloitte, via bbc.co.uk

Barclays Premier League Source of Revenue. Courtesy of Deloitte.

Matchday revenues refer to ticket sales as well as concessions purchased by fans at the stadiums during the matches. Commercial revenues refer to club merchandise sold either online or via any of the various club retail outlets throughout the world, as well as corporate sponsorships. And the largest chunk of revenue, broadcast, of course refers to the dollars associated with the deals that the Premier League works out with television networks to buy the “media rights” to show the league’s matches. This is a groundbreaking year for the Premier League in the United States, as they signed a record $250 million deal with NBC Universal, who outbid incumbent FoxSoccer, for the Premier League media rights, which makes all 380 matches available to the public (for more on the NBC deal click here).

According to Forbes Sports Money, the Premier League claims 5 of the top 10 spots on the world’s richest football clubs list: Manchester United (2), Arsenal (4), Chelsea (7), Manchester City (9), Liverpool (10). Due to stricter financial regulations (mentioned earlier) and the latest broadcasting deal with NBC Universal, Deloitte expects Premier League revenues to exceed £3 billion ($4.7 billion) for the first time in the league’s history, which will be a 25% increase over the 2012/13 season.

Currency conversions via Google Finance on 9/6/2013 ($1.56 = £1.00)

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Reporting on the business side of the world's game.