It isn't often that sporting journalists are genuinely shocked, but the new Premier League TV rights auction surprised many. The rights to broadcast the Premier League matches from 2013 to 2016 within the UK were up-for-grabs and had been expected to be sold for a similar sum to last time. Owing to the aggressive bidding from BT and the desire by Sky to hold onto most of the matches, the bidding closed at £3.018bn (a huge increase of £1.2bn from the last auction). For an excellent in-depth piece on the new deal, read this piece from www.sportingintelligence.com .
The increase is so large (around 70%), that the FFP test covering years 2013/14, 2014/15 and 2015/16 should be significantly eased for all Premier League clubs. However, this assumes the clubs spend the proceeds wisely and that the new funds don't trigger a new period of wage-escalation. Alan Sugar (Spurs Chairman at the time of the first Sky deal in 1992) talked of the 'prune juice effect' in football - whatever funds come in at the top are allowed to run out at the bottom (mainly on player wages). Despite clubs sharing over £1.1bn last season in TV revenue, most clubs fail to break-even. The new deal is more than 10-times the size of the 1992 deal - during this time player salaries have increased from an average £117k a year to a current average of over £2m a year (a 17-fold increase).
Analysts at Citi estimate that BT will need at least 2.5m subscribers to break-even - whether they can achieve this high figure remains to be seen. Clubs need to be mindful of the possibility that the next auction may not be as competitive and that revenue may decrease after 2015/16. With the current potential for wage escalation and with club tying players into 4 and 5 year contracts, it is important that clubs don't over-rely on the new deal's level of income.
One other area of risk will be at the middle to bottom end of the Premier League. There is no escaping the fact that three clubs will be dumped off the gravy-train each season. Losing a guaranteed income of over £60m a season would be a disaster for a club that had written player contracts assuming this level of income (even allowing for parachute payments).
Regarding FFP, it is important to remember that the increased revenue commences in 2013/14 - i.e. after the first two-year FFP Monitoring Period. Clubs will need to ensure that the promise of the new revenue does not get in the way of their need to meet the first Monitoring Period target.
However with up-to £120m available for the top Premier Clubs, perhaps the prospect of an additional £30m in Champions League revenue (or £6m for the Europa League) could potentially become less financially relevant.
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