UK meddles with a $10 billion export winner

By Matthew Brooker

Football teams with a commanding lead don’t usually change their formation in the middle of the game, let alone replace the manager. The English Premier League is an unmatched global success, attracting more viewers than any other domestic competition in the world and generating almost twice the revenue of Europe’s next biggest league. Yet its overseers are about to impose an epochal change in governance. The aims are laudable; the risks of disrupting a major cultural export that adds more than $10 billion to UK economic output aren’t negligible.

The government introduced legislation Tuesday to set up an independent regulator that will have powers to redistribute revenue between the Premier League and lower tiers of the English game. The bill, which follows a fan-led review published in 2021, promises supporters a stronger voice in the running of clubs. It also aims to bolster the financial sustainability of teams, block closed-shop competitions such as the aborted European Super League and impose more stringent suitability tests on owners and directors.

Whether the sport’s existing governance structure is fit for purpose is a question of perspective. Clearly, it has been a financial success. The global dominance of English football wasn’t preordained. The Premier League is itself a breakaway competition, formed in the early 1990s by leading clubs keen to hog the rewards of expanded live-TV broadcasting. (The European Super League, derailed by mass outrage in 2021, was in effect more of the same: only this time reducing England’s participating elite to a mere six teams.) Greed, as Gordon Gekko would say, has been good for football — at least in terms of growing the market.

Credit: Bloomberg

The influx of money from broadcasting rights and commercial sponsorship has led to better stadiums and attracted many of the world’s best players. It has also driven up ticket prices and helped to gentrify the crowds. More importantly, the influx of billionaire investors and nation-state owners set off a spending arms race that has rippled through the game. The returns from being in the Premier League are so great that lower-level clubs may be tempted to gamble on joining the big boys. The wage costs of clubs in the Championship, the second tier of English football, were 108 per cent of revenue in 2021-22, according to Deloitte — the fifth consecutive year that they exceeded 100 per cent. The financial structure is dangerously unbalanced.

Why does this matter? If clubs exceed their means and have no alternative source of finance, then they will go under. That’s business: to the victor the spoils. This is the paradox of football as an industry. Clubs aren’t merely companies or economic units, even though they may add to gross domestic product and be listed on the stock market. They are community assets, almost quasi-religious institutions in the eyes of some. “Some people believe football is a matter of life and death,” the former Liverpool FC manager Bill Shankly famously said. “I am very disappointed with that attitude. I can assure you it is much, much more important than that.”

That means bankruptcy — a fate suffered by lower-league clubs Bury and Macclesfield Town in recent years — is an unacceptable outcome. Supporting a football club is a lifelong commitment. Fans won’t simply switch to another team, the way customers may move from one company to another in a typical industry. This also makes them vulnerable to mistreatment by clubs and owners. The government acknowledged the special status of the football business in its 2022 response to the review:

“The free market will not rectify the problems - Much of the value of clubs to their fans and communities is not properly captured in the market. These non-market externalities mean actors within the market, such as club owners, do not fully account for the potential social and cultural costs and benefits of their actions. Quite simply, they do not have the incentives to behave in a way that delivers socially optimal outcomes.”

All this argues for a stronger fan presence in football governance. The trouble, from a business perspective, is that the interests of supporters and investors may be diametrically opposed. Many English fans gaze longingly at Germany’s Bundesliga, where supporters are guaranteed control through a so-called 50+1 rule. One result is that ticket prices have been held down and average attendances are the highest in the world. But Bundesliga revenue is barely half of the Premier League’s, having been more than two-thirds as much in 2012-13. Last month, Germany’s football league canceled a potential $1.1 billion media rights deal with private equity firm CVC Capital Partners after fan protests that interrupted matches.

The government says the new regulator won’t be “overly interventionist.” That should offer some reassurance. The UK has made a habit of unforced errors and own goals in its economic management recently. Keeping both investors and fans happy, and the Premier League bandwagon rolling, may require some skillful defense.