The Magic Touch: Premier League Broadcasting Revenues

An absorbing Premier League season ended this month, with Manchester City lifting the trophy after an undramatic win over Newcastle United. No miracle came for Liverpool, as millions of fans of Reds were left dissapointed. However, they should be delighted to see that in the table of broadcasting payments to clubs this season, Liverpool rank the first, gaining extraordinary £97.5m, even greater than that of Manchester City, which will substantially help them land several quality players this summer for their next season's campaign.

In contrast, at the end of last season, they just obtained £54.8m from braodcasting revenues. This significant surge does not solely happen to top rankers. Surprisingly, even Cardiff, the bottom club this season, earn more TV cash than champions Man Utd did in 2013. Why there is a dramatic increase in broadcasting revenue this season? And how is the TV income split and calculated? We’ll look for these answers soon.

First of all, revenue streams for a professional soccer club fall under three major headings: matchday income, commercial receipts, and broadcasting rights. The money a soccer club takes in on match day is the traditional source of revenue, consisting of money paid before the season by season ticket holders, ticket money from home and away fans, and hospitality packages. The commercial revenue mainly falls into three streams: sponsorship, merchandising, and some ancillary services. Compared to these two streams, broadcasting earnings have become increasingly critical to each club, especially for clubs at bottom of the table. The reason why this part has been also vital now is that Premier League signed new blockbuster contracts to sell broadcasting rights, which have brought unprecedented financial reward for clubs.

In June last year, Premier League owners announced new £3.018bn deal for domestic live rights with Sky and BT for the three seasons from 2013-14, with Sky paying £2.28 billion and BT paying £748 million. Meanwhile, Match of the Day highlights was bought by BBC for £178m. It is estimated that combined with overseas contracts, Premier League, the richest league across the globe, is about to get £5bn broadcasting fee altogether for the next three seasons, an increase from £1.773bn for the previous three-year deal. According to PREMIERLEAGUE.COM , all 20 Premier League clubs were paid around £1.56bn from broadcasting revenue this season, a 60 percent increment compared to the £972million of television revenue the previous season. So how is this large "pie" divided?

In general, £1.56bn income was firstly divided into overseas TV income, domestic TV income and central commercial revenue. As stated by official statistics, after this season, each club equally gained £26.3m for overseas TV income, with a total of £525.9m altogether, and each also equally earned £4.27m for central commercial revenue. Dividing the domestic TV income is a little bit more complicated than overseas one and central commercial earning.

In terms of this model, it takes into consideration three factors. 50% of the sum is shared equally by each club, 25%, the merit payment, is based on finishing position in the league, with £1.2m paid for every place a club finishes in the league, and the remaining 25%, the facility fee, is derived from the numbers of domestic live TV appearance, with £750 thousand paid for every appearance. For example, Manchester City, the champion of this season, got approximately £24m merit payment, as £1.2m for each place times 20 teams. Liverpool were televised 28 times in 2013-14, so they obtained £21m facility fee.

In sum, the Premier League is pursuing a more competitive manner to distribute the broadcasting income. We can tell this trend by the calculation that Liverpool’s broadcasting revenue is 1.57 times more than bottom earners Cardiff, a ratio which is the smallest in all Europe's top leagues. As a result, the gap between each club in the league, which has been funded much more evenly than before, has been much closer, with the Premier League becoming more and more exciting.

The Magic Touch: Premier League Ticket Pricing

This year, more and more professional soccer clubs been accused by their supporters of having ticket prices that are "out of touch". For example, the Arsenal soccer club in Premier League has raised the cost of standard tickets 6.5%. An increasing number of campaigns by fans have been conducted since many of them cannot afford the tickets any more. In order to maintain a high profit while making sure fans can afford the tickets (90% occupancy rate is a standard for most clubs), soccer clubs need to develop the right ticketing strategy.  

When setting the ticket price, managers need to considerate many aspects. Some are often unique to the circumstances of a particular football team like the quality of the stadium, location and accessibility, and even demand for tickets determined by the team’s place in the rankings. With the purpose of solving all of these practical problems most soccer clubs use a “market-oriented pricing”scheme among a wide range of pricing strategies.

Market-oriented pricing involves setting a price based upon analysis and research compiled from the target market. Marketers will set prices depending on the results from research into a wide variety of factors. For instance if the competitors are pricing their products at a lower price, then it's up to them to either price their goods at an above price or below, depending on demand and the value that the club can deliver.

 

A major benefit of this strategy is that a club can match its prices to the needs of the fans. Because the conditions of each fan differ from those of each another, such as income, preferences on the match day, and frequency going to the stadium, it is important to understand the needs of the average fan through surveys and research.

 

For example, different earnings of fans result in differing abilities to afford the tickets. In London, where workers get a higher salary than those from other areas in Britain, ticket prices are higher than those of other zones. In fact, among the six clubs with the most expensive matchday tickets, the clubs from London account for five of them.

Among the six clubs with the most expensive matchday ticket, the clubs from London account for five of them.

 

Moreover, taking into account the various needs of fans, clubs can launch different ticket packages and policies to satisfy them and meet their needs as much as possible. If a large percentage of fans would like to come as families, the club can offer more family ticket packages, or designate family areas in the stands. If most fans purchase food and beverages during the match, the club can add discounts or coupons for concessions during the tickets selling.

By meeting the needs of as many fans as possible, it is easier for the club to achieve its target: to increase and maintain the average occupancy rates of matches above 90% and create a winning atmosphere for the team.
 

Another benefit of doing surveys and research during a season is that clubs can make adjustments to optimize revenue. To guarantee profitability, it is much more convenient for clubs to change the ticket pricing according to various conditions, such as the strength of the rival, the changing rank of the club and projected occupancy rates.

For instance, if the upcoming rival is one of the giants of the Premier League, such as Manchester United or Liverpool, and through surveys, managers recognize the great enthusiasm of fans, the club can flexibly change ticket prices from game to game.

Aston Villa sets the ticket prices approximately five pounds higher for the match with Tottenham than with Cardiff because of different strength of the rivals and desirability to fans.

 

This approach also helps to guarantee long term profitability. Through the analysis of tickets prices and corresponding attendance from the past matches, managers can create a business model that takes into account the price that fans are willing to pay, and find the optimal price, which will  maximize revenue while maintaining the 90% or higher occupancy rate.

If the capacity of certain stadium is 24,500 and 22,050 is 90% of the maximum capacity, when the area of the rectangle in which the attendance is the length and the match-day ticket price is the width is the maximum, the revenue is maximized.

A limitation of this strategy is the potential problems with the design of questionnaires and incomprehensive sampling. The club may obtain inaccurate or biased raw data from the survey, which would result in incorrect conclusion. Additionally, the factors considered in the business model may not always be well-rounded. Focusing on the statistics from the past matches and from fans, managers may ignore the macroeconomic conditions and changes in customers’ situations that may effect their ability to afford tickets.

 

To counteract this, professional clubs cooperate with experienced and reputed companies, such as Gallup, to design better questionnaires and survey fans in various ways to obtain comprehensive raw data. When creating the business model, clubs always employ economists or statisticians to consider more factors which are otherwise easily ignored, hence putting more parameters in the model to increase its accuracy.

The clubs often use other subtle pricing techniques to increase sales, including setting prices that have a positive psychological impact on customers. For example, selling tickets at 69.95 or 69.99 pounds rather than 70.00 pounds. A minor distinction in pricing can make a big difference is sales. Another option is to price tickets slightly higher than those of other football clubs, but through offers, advertisements, and different discounts, also make lower prices available. The lower promotional prices are designed to bring customers to buy a ticket (or more) for a particular match, while the standard (slightly higher) tickets are also available to those buyers who are not price constrained and will not spend the extra effort to seek lower prices.