Soccer Fees Soar
Dartmouth Business Journal
The four most historically expensive soccer players’ transfer fees have all come in the past two years. Paul Pogba was sold to Manchester United for £105 million, mirroring the amount FC Barcelona coughed up to send Ousmane Dembélé to its club. While both are talented young players, they have yet to fully prove their potential, and £105 million is a shockingly similar amount to a previous record set in 2010, when legendary player Cristiano Ronaldo was transferred to Real Madrid with a then-historical £94 million deal.
Even more mind-boggling are the more recent signings of Neymar to Paris Saint-Germain F.C. for £222 million and Phillipe Coutinho’s transfer to FC Barcelona for £163 million. More than double Ronaldo’s transfer fee, Neymar’s transfer fee has revolutionized the transfer market today as Ronaldo’s did in 2010.
With these gargantuan transfer fees, hyperinflation of soccer player transfers and signings has become the norm. The question then becomes, how can these soccer clubs afford these tremendous rates?
The short answer: cash from broadcasting rights.
There are many financial factors contributing to the increasing amount of income soccer clubs can spend on players. These include increased ticket prices, merchandising, ownership change, prize money, transfers and sponsorship. While most of these factors have limited room for growth, the dominant driving force behind the purchasing power lies in the sale of broadcasting rights over the past 25 years.
The astronomical change in broadcasting finance for the Premier League serves as a relevant example. According to Motez Bishara of CNN, Liverpool FC sold Welsh player Ian Rush for £3.2 million to Juventus 30 years ago, which had made him the most expensive English player in history at the time. Interestingly enough, the Premier League sold its annual broadcasting rights to the BBC and ITV for less than £3.2 million, according to the Guardian. These relatively miniscule figures made sense at the time, as media coverage of soccer back then was much different; there were a total of only 14 live league games broadcasted on television per season, 12 times less than the amount of games screened today.
From 1986 to 1988, the annual broadcasting rights agreement plateaued at £3.1 million. Today, Sky TV and BT Group have already come to terms with the Premier League for the upcoming three seasons, hammering out a deal that constitutes a combined fee of £1.7 billion per season, according to David Hellier of Bloomberg. The considerable surge in broadcasting rights cash is a testament to the heightened marketability of the league. In the Premier League, seasons now constitute 380 matches. With technological advancement, most matches are viewable on television or online, and exorbitant ad revenue means broadcasters can afford to dole out large amounts of cash to the Premier League. Given the increased global demand and coverage capabilities, the 168 games screened per season today will each cost more than £10 million.
Additionally, foreign countries are becoming increasingly involved in buying the rights to broadcast live games from the Premier League. In 2016, the Premier League agreed on a new deal for its television rights in China: a three-year contract worth approximately £560 million, per BBC. Compared to the levels of the late-1980s, broadcasting rights revenue to the Premier League has increased exponentially and helps explain the record-breaking transfer fees of the last few years.
The norm throughout soccer’s history has been that clubs spend around 30 percent of their revenue on transfers. Thus, transfer spending by clubs follows the amount of revenue that different clubs possess. As broadcasting rights are a significant source of income for clubs, spending will likely only increase across the board if these rights continue to surge.
Skeptics question what the outlook of soccer broadcasting rights revenue will look like past 2018. They wonder whether sponsorship can make a push in increasing revenue for soccer clubs, or whether or not it will plateau.
To answer these questions, it helps to consider how broadcasting rights are sold. To limit the likelihood of collusion amongst competitors, a first-price sealed-bid auction is used, forcing bidders to bid as high as possible to guarantee success. As a result, overbidding can take place. With a wider net of bidders entering into the picture for the 2019-2022 broadcasting rights agreement, it seems likely that the Premier League’s annual rights will exceed £2 billion per season. Consequently, clubs will receive more money and purchasing power in the transfer market.
In terms of sponsorships, large corporations pay clubs to sponsor their companies. Depending on the deal, clubs will place a company’s logo on the jerseys or give them appearances in advertisements and billboards. For example, Forbes reported that in 2014, Adidas agreed to a 10-year, £130 million per year deal with Manchester United, the second largest sponsorship agreement in the soccer world at the time. In the same year, Chevrolet and Manchester United came to a 7-year agreement worth £53 million per year.
However, while sponsorships are a significant source of revenue for clubs, these deals last for considerably longer periods of time. It is difficult for sponsorships to generate an immediate and exponential surge in club revenue as changes in broadcasting rights cash does. While it is important to note that sponsorship revenue has been a steady source of income, increasing over the years at a respectable rate, the crux of soccer teams’ increased spending power in the player transfer market will continue to largely depend on changes in broadcasting rights.
With the likely continuation of exponential growth in broadcasting rights cash, the soccer world may be looking at its first £400-million player transfer in the near future. The first £300-million player will likely be sold and purchased as early as the 2019-2022 timeframe, when the new broadcasting rights agreement will take effect. Elsewhere in the world of professional sports, NBA basketball shares the same trend as European soccer’s biggest leagues in terms of player cost. The NBA’s recent $24 billion TV deal, which expires in 2024-2025, has meant gargantuan contracts for even average basketball players. The tremendous inflow of broadcasting rights cash in the basketball points to similar success for soccer, which arguably has an even more impressive international reach and higher financial ceiling.