Saturday, 12 August 2017

The Premier League and Corporate Scandals: How Corporate Scandals May Stem the Premier League’s Unrelenting Growth

Today’s post covers a topic that will be of interest to a lot of people all across the world. According to figures from the last couple of years, the Premier League – the highest football league in the U.K. – is massively popular, and its rates of growth in terms of expansion, income, and transmission across the globe grows year on year. The Premier League, which sells the ability to televise its games to multimedia companies like Sky or BT, is preparing to auction off the rights to televise its product at the end of the year, with the expectation that this round of auction will produce new record amounts of revenue. Whilst that is likely, there are external factors that may affect this incessant growth, and those factors are the focus of today’s post.

Simply put, the ‘Premier League’ has been an incredible success since its inception in 1992. Figures taken from the last few years confirm this, with the Premier League being broadcasted to 156 countries with 4.2 billion fans watching every week. Since the league’s inception in 1992, its development has been synonymous with television rights, and the modern era is no different. In this post we will focus on the British rights mainly, because the dominance of the British marketplace in the business model of the League is demonstrated when we consider the prices that are being paid to broadcast the matches. In 2015, the Premier League auctioned off the rights to broadcast its product, and the traditional frontrunner in the auction was Rupert Murdoch’s Sky brand, one which has been synonymous with the Premier League since it began. The auction of rights are divided into ‘packages’ i.e. certain packages have different classifications of matches, with which the broadcaster can broadcast at peak times etc. (one may notice a slight similarity with the securitisation process!) and in 2015 Sky paid £4.2 billion for five of the seven available TV packages for a period of 3 years, with BT paying £960 million for the other two packages. BT stands as Sky’s only competition within the U.K. in a marketplace which Sky has thoroughly dominated and seen off every competitor so far (Setanta Sports, ESPN), but in difference to their predecessors BT has developed quite an extensive, albeit expensive approach to challenging Sky in this particular market – BT recently acquired the rights from Sky to air the UEFA Champions League and UEFA Europa League for a record price of £1.2 billion (almost £300 million more than what Sky had paid previously). This inclusion of heavy-hitting competition is causing particular problems for Sky – the theory goes that it helps consumers, but there is no evidence for that in reality – as BT continues to bid way over the odds for packages that Sky cannot even contractually bid on; a former Sky executive claims that BT’s strategy is costing them hundreds of millions of pounds and can easily be rectified. This understanding has led to analysts predicting that the next auctions rights will see Sky pay an extra £1.8 billion on top of the £4.2 billion it paid in 2015 just to retain its standing, which of course has the Premier League bosses purring – it is likely that the recent increase in transfer fees witnessed in the Premier League in the past two seasons alone (Paul Pogba for £89 million and Romelu Lukaku for £75 million) will be dwarfed by clubs spending the increased revenues. However, the threat of incoming competition from tech heavyweights Apple and Amazon has seen fears of an explosion in bids during the auctioning phase become palpable within Sky and BT recently, with the fear being that the companies will have to have their influence reduced – Sky are already making noises that they will pull out of some packages and instead focus on their other offerings (Drama offerings like Game of Thrones and Riviera), whilst BT Executives are also downplaying the notion of BT attempting to challenge Sky’s dominance. Whilst it may be that the explosion in costs, particularly in line with waning viewing figures (despite the recent ban on illegal streaming) is proving simply unsustainable, it may be the case that the wider world of business provides a clearer reason for the companies’ hesitance to engage each other.

Starting with BT, we have looked before here in Financial Regulation Matters at the accounting scandal that began in Italy but spread to affect a large part of BT’s business. As a result of the accounting scandal in Italy which saw the company write off more than £530 million, it also paid Deutsche Telekom and Orange £225 million to avert litigation resulting from the fraud, which in turn has led to 42% drop in their profits; simply put, now is not the time for BT executives to wage war with Sky over broadcasting rights to football matches. Sky, on the other hand, are having problems of their own. Rupert Murdoch, whose 21st Century Fox Company owns 39% of Sky now, is in a battle with British politicians and regulators with regards to his attempted takeover of the Sky Company – the claim is that the merger will afford Murdoch too much influence over media in the U.K. owing to his ownership of Fox, Sky, and a number of newspapers. Murdoch’s proposed £11.7 billion takeover demonstrates the willingness for the deal to happen, but also the state of flux that Sky is currently in; it can also not afford to engage in a battle with BT or any of the tech giants. How these corporate issues will develop will determine the future of the Premier League.

In short, the individual business concerns of both Sky and BT mean that whilst this next auction at the end of the year will see the price rise again, the next auction may see that rate of growth decrease. The noises coming from both camps indicate a potential shift in sentiment – the cost of broadcasting the Premier League is, potentially, getting to the point where it no longer makes commercial sense to win the auction for the rights. However, the squabbling between the two companies, which plays right into the narrative of pro-market thinkers who proclaim that competitive forces are better for the end users, is in fact producing absurd results. At the same time the Premier League is recording record rates of income, the end users – the fans of the game – are seeing the prices they pay to watch just some of the matches (not all matches are televised) rise exponentially, the price of match-day tickets rise, the price of associated merchandise rise, and also there is evidence that there is only a very small percentage of that profit being reinvested in the game at grassroots level. When we consider that all this coincides with the public experiencing a recession, it is little wonder that the past few years have seen a number of fan protests against the growing costs. There is an old saying that ‘you can fleece a sheep many times but you can only skin it once’, and it appears the leaders of the Premier League have not heard it – the incessant abuse of the public’s affection for the game of football has lured the Premier League bosses into a belief that that adoration is unconditional – only time will tell if this is the case, but the noises coming from Sky and BT suggest that they are reaching a point of saturation. Then, one of two things will likely happen; both prices and demand will begin to plateau, or competitive forces will encourage a bigger player to enter the marketplace and continue the ever-present rate of growth – the potential inclusion of Amazon and Apple to the marketplace does not sound good for football fans.

Keywords – Sky, BT, Premier League, Football, TV, Accounting, Fraud, Amazon, Apple, #finregmatters

No comments:

Post a Comment