A simple but fair redistribution of football revenues

A look at a possible solution to the massive imbalances that exist in the professional football game in England and a simple solution

Paul The Esk 29/10/2020 15comments  |  Jump to last

From time to time, I like to dip into the words (and thoughts) of the legendary investor, Warren Buffett. One of his favourite thought processes is about keeping things simple. In a world full of people, usually highly paid consultants, who want to create complex solutions for failing businesses and industries, it is often the case that there is a simple underlying problem which has yet to be addressed. In the words of Buffett, “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

And so it is with football, particularly the English Football League and its current unworkable business model. Incidentally, this was unworkable even before Covid-19 accelerated the inevitable consequences of businesses continually spending more than they earn. Simply, in its current form, there is not enough revenue to meet the costs of running most of the 72 English Football League clubs.

Therefore, in the interests of maintaining simplicity, what needs to be done? The simple answer is to increase revenue whilst putting a cap on those clubs that spend too much. How can that be achieved? Let me offer one simple idea.

The Premier League, whilst facing challenges of its own in the near term, generates sufficient cash to meet the needs of its 20 members and provide funding which, if distributed sensibly, would create the strongest league structure or pyramid in world football.

Why would it (the Premier League) want to do that?

Simply, by distributing revenue more fairly, it would provide funds to develop and improve the standards across the three leagues below. It would provide funding to invest in academies (not give the option of closing them down as suggested in the Big Picture proposal). As a result, over time it would provide a pool of talent which the Premier League clubs might wish to recruit from (in doing so, providing further resources to the lower league clubs).

Additionally, it would create a market for many of the players in the current Premier League academies and U-23 teams who perhaps are never going to make the grade in Premier League football but who nevertheless are sufficiently talented to remain in the professional game. Not only would the lower leagues produce better players but, again over time, provide a greater pool of management and coaching talent who might one day manage and coach in the Premier League.

Raising standards of competition in the lower leagues in the long term is a wise investment by the Premier League clubs. It is not, as is so often portrayed, giving a hand up to competition; it is a wise investment in their own industry. Reducing the gap by providing sustainable revenue, thereby improving standards in the lower leagues, makes huge strategic sense.

How can this be achieved?

I don’t want this article to be a lengthy financial presentation but clearly we have to examine the existing arrangements before offering a solution. I should also express a caveat that – to the best of my knowledge – the figures below are accurate, having been drawn from public sources. I am happy to correct them if the sources are inaccurate. The underlying principles, however, stand regardless.

Currently, the Premier League “supports” the English Football League in two ways – parachute payments for those clubs relegated from the Premier League, and “solidarity” payments across all divisions to clubs not in receipt of parachute payments.

In addition to the above, the EFL clubs receive revenues from the broadcasting deal with Sky, matchday receipts plus sponsorship, commercial (including ifollow) and merchandising.

Parachute & solidarity payments

Clubs relegated from the Premier League receive a percentage of the broadcasting funds equally distributed among the Premier League clubs. In year 1, it is 55%, Year 2, 45% and Year 3, 20% – if the relegated club has only been in the Premier League one year, they receive the parachute payments for just two years.

Unfortunately, these arrangements dramatically skew revenues towards those clubs coming back down from the Premier League. In 2017-18, 8 clubs received £242 million; 2018-19: £265 million (8 clubs); and estimated 2019-20: £248 million (7 clubs).

The remaining Championship clubs receive solidarity payments equal to 30% of the 3rd year parachute payment. Keeping it simple, that is approximately £4.5 million each.

League One clubs receive 4.5% of the 30% of year 3 parachute payments, and League Two clubs 3%. Per club, that amounts to £675,000 for League One and £450,000 for League 2. There are parachute payments in the lower leagues but I am leaving them to one side in this article.

£ milllionsCurrent revenue from Premier League
Championship324.5
League 116.1
League 211.2
Total351.8

EFL Broadcasting deal

The EFL currently have a 5-year deal which runs until May 2024 worth £195 million a year which is split as follows: Championship – £91.2 million; League One – £16 million; League Two – £11.3 million. All clubs in each division receive £3.8 million, £667,000 and £472,000 respectively.

A better way?

I estimate that Premier League clubs will have received £2,641 million in broadcasting payment (minus any Covid-19 related payment) for season 2019-20.

I’d propose the following:

  • The merging of the Premier League and the EFL organisations
  • The abolition of parachute and solidarity payments in their current form
  • The Premier League to take control of the current and future EFL Sky broadcast agreement
  • The existing Premier League payments (parachute and solidarity) plus the EFL Sky broadcast agreement be made available to the three divisions below, plus
  • In addition, the Premier League would make annual payments of £200 million (£10 million per Premier League club) from their own broadcasting agreements/commercial revenue

The result of such a redistribution is quite startling:

The 3 divisions of the former EFL would receive £670 million per annum (based on existing figures).

If the funds were distributed to each division on a 66:22:11 ratio, the Championship would receive £442 million, League 1 £147.4 million and League 2 £73.7 million. The key difference though is that each club in each division including the Championship receives equal amounts.

As a result Championship clubs receive £18.4 million each, League 1, £6.1 million and League 2, £3.1 million per season. Compare that to the grossly unequal distribution in the Championship, £1.3 million League One clubs receive and £902,000 received by League Two clubs (based on calculations above).

Governance

Clearly conditions would have to be attached to the new financial structure to ensure (i) clubs do not spend more than their new income on playing staff; (ii) automatic relegation clauses in player contracts across all divisions; and (iii) that the interests of the three divisions would be represented in future negotiations or structural changes to the Leagues.

In terms of ensuring clubs do not overspend on players, a simple rule of spending a maximum percentage of total revenue with an additional fixed monetary cap (in the case of one or two clubs having substantially higher revenues than usual) seems most sensible. As mentioned above, mandatory relegation clauses in player contracts would also be required.

In terms of ensuring future fair representation, this is perhaps where an independent panel comes into play (possibly as per the Beautiful Game proposal). Such a panel would determine in the wider interests of the game whether future proposals were fair or appropriate.

Many will readily find reasons as to why the above proposals would not work. Usually those objections are driven by vested interests.

The proposals above would need refinement of course, but the principle of equal payments across clubs within the same division, Premier League clubs investing in the future of the league pyramid out of revenue annually, and strict cost controls on the back of increases in revenue for almost all non-Premier League clubs is, in my opinion, fundamentally sound, and – as Warren Buffett prefers – simple.

Thoughts and comments very welcome.

This article was originally published at theesk.org and is reproduced here by kind permission of the author.

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Reader Comments (15)

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Barry Rathbone
1 Posted 29/10/2020 at 19:58:55
I think the fly in the ointment is not the maths but the notion of healthier lower leagues benefitting those above.

It really is a double-edged sword any owner of a Prem club will juggle the jam tomorrow scenario with the possibility of "healthier" lower tiers producing another Liverpool of the late 50s or attracting a Mansoor or Abramovich type that nicks their place at the top table.

There has been nothing to stop broader protection of the game by the elite since professional footy existed but the underlying ethos is based on infantile "king of the castle" rules so seeing your opponent writhe in agony far and away trumps giving them a helping hand.

Tony I’Anson
2 Posted 29/10/2020 at 23:33:22
Like (TW version of a like button)
Chris Davies
3 Posted 30/10/2020 at 06:39:25
That was a lovely read, Paul.

I can't help but notice it's a very communist idea in an extremely capitalist world. The theory's great, and I truly am a fan, but sharing the wealth is a risk not many would take. Everton, maybe. Liverpool and Man Utd, doubt it.

Paul [The Esk]
4 Posted 30/10/2020 at 08:52:27
Thanks Chris. It is my belief that the Premier League would benefit over the long term through a stronger pyramid of lower leagues below it, especially in increasing the talent pool and providing a market for their younger players.

It's somewhat similar to a major manufacturer investing into its supply chain. But more than anything else it creates fairness which can only improve the professional game in England.

Alan J Thompson
5 Posted 30/10/2020 at 09:22:13
One of your points asks for 10M per club, 200M in total, but not all clubs receive the same amount. Could you show that figure in some sort of percentage and if it covers only payments for broadcasting EPL games. Is the next step a continental style "B" team attached to a Premier League team or should all clubs individuality be maintained and their outgoings be controlled by their income in some sort of FFP system.
Paul [The Esk]
6 Posted 30/10/2020 at 10:25:43
I'm not an advocate of B teams Alan, I think the pyramid has to be clubs independent of influence from individual PL clubs but supported collectively by the PL. The model could be tweaked to reflect the difference in payments PL clubs receive - that wouldn't be a problem for me, but might be for the larger clubs
Brian Harrison
7 Posted 30/10/2020 at 10:52:56
Paul

As always your posts are a joy to read and also well researched, and your proposals to try and support the pyramid below the Premier league is well thought out. But I have believed for a long time that there isn't enough money to support leagues 1 and 2 being fully professional. Most are loss making and this was before Covid struck, so with no supporters being allowed into grounds it just makes it impossible for these clubs to survive.

I would like to see leagues 1 and 2 being semi professional at best, and I would split these 2 divisions into regional divisions. This would greatly reduce their travel costs, and eliminate any overnight stays in hotels. I also think with Premier league teams having a 25 man registered group, it again gives the money clubs a bigger advantage, also maybe if that could be lowered to a 20 man group. This would also free up places for the Under 23 players to make up the group when injuries occur which will reduce the 20 man limit.

I would also like to go back to clubs not being able to have boys on their books under 15, as I don't see any advantage having boys as young as 7 being taken on by Premier league clubs. Since we have moved from a time when only boys about to leave school could sign to this new era of young children being coached by Premier clubs, I have seen no overall improvement in player advancement.

Tony Everan
8 Posted 30/10/2020 at 11:01:37
Paul, I started reading and was thinking, what about the policing of it. then came to your Governance paragraph.

There’s so many shysters around who would be like piranha fish to use this money in selfish or reckless ways. The policing of it would have to be draconian.

I like the idea and it is an equitable solution to a problem that is not going away.

The biggest hurdle is that the likes of Man Utd and Liverpool don’t want equitable solutions without unchallengeable control and payback. They want a bigger share of tv rights and increased revenues. They have professionals spending night and day figuring out how they can do it.

Christine Foster
9 Posted 30/10/2020 at 11:46:03
Paul, I think Tony has made a few valid observations, as far as the RS either end of the East Lanc road is concerned, what's in it for them? Where is the trade-off? The grab for power dressed up as support for the lower leagues was distasteful and clearly transparent for what it was.
Given if a Euro Premier league does eventuate, where does that leave the EPL, never mind the EFL.. strangely if the "Big six" leave the EPL, then the time would be right to redistribute/restructure the leagues and that may well benefit all. Balanced against that would be the reduced (?) TV rights value for any EPL post-departure of the high-value tickets (6)
Distribution to the lower divisions brings with it concerns for good management of the money at a club level, one has to remember most lower league clubs are run almost like an amateur / semi-professional club with well-meaning but limited administrations. High revenues attract opportunists so the management would have to be rigorously controlled.
But I think it would be a prime opportunity to secure the game in the UK (add in a few Scottish clubs perhaps?)
One thing is certain, its all going to change.
Paul [The Esk]
10 Posted 30/10/2020 at 13:23:21
Thanks for your comments - almost all of which I agree with. It is impossible to cover every angle in a 1200 or so word article but initially the principle of sustainable PL funding for the lower divisions, the removal of parachute payments, and equal financial support for all clubs in a division must be something that few can object to if they genuinely have the interests of the football pyramid at heart.

I genuinely would like to challenge all the PL clubs as to why such a principle would not be in the interests of the wider game and ultimately in the PL clubs interests as well long term.

It is an enormous shame that none of the media are prepared to offer such challenges to the current structure and recently proposed alternatives.

Governance would be an issue I accept that, but it is not insurmountable with independent leadership, monitoring, regulation & the power to sanction future offenders

Patrick McFarlane
11 Posted 30/10/2020 at 14:07:43
Perhaps, slightly off-topic, but some interesting observations by 'wallicus'?. which includes a Twitter remark, “No one hates Everton quite like Evertonians.”

Everton Cringe?

Dale Self
12 Posted 30/10/2020 at 18:34:57
Hello Paul,
I am still digesting the situation and this is of substantial help. Thank you for your thoughtful analysis. I'll weigh in more as I educate myself on this.
John Pendleton
13 Posted 30/10/2020 at 21:03:58
Paul - Having asked myself how many years can this go on my appetite for a sustainable solution is greater than ever. And yours is as good as any I’ve heard - but as others have pointed out - it’s the eliciting support from and governance of those with less egalitarian vested interests that make your solution unlikely to ever see the light of day.

The pandemic has only accelerated the inequality of the pyramid. What will it take to disrupt the model? We’ve accepted without a fuss the onset of empty stadia, promotion/relegation decided by modelling, huge town clubs disappearing from the league and the Big Picture Trojan horse - as long as the model’s income is mainly reliant on support via a replica kit and Sky subscriptions following the big 4/5/6 - there is seemingly no harm done if they lose the odd Bolton or Bury.

Debating how to settle the incomplete 19/20 season there was concern from some about the ‘integrity’ of the EFL fixtures. Seems a quaint concept now as we now know operation power grab was in development at the same time.

Quite how we take money away from those most rich and powerful hustling for more is the conundrum.

Adam McCulloch
14 Posted 31/10/2020 at 08:00:35
As always Paul an interesting and well-researched read. As you allude to, I think the biggest opposition to this plan is not simply the utterly shameless likes of the RS and Manure. It’s also the perennial Premier League survivors like Burnley who may be concerned about strengthening traditionally bigger (and thus more attractive) clubs below them.

The idea of an independent panel is another which is interesting...the problem is I can just imagine it looking a bit like the commentary line-up for a BT game, where we all end up incredulous at the RS bias.

Whatever the outcome, something needs to change soon because it’s surely a matter of months before another lower-league club goes bust.

Nicholas Ryan
15 Posted 07/11/2020 at 11:32:56
Paul, to take up one of your points: the creation of a 'pyramid' below the Prem. to supply talent upwards. I had some involvement in a similar process in cricket. The ECB created a 'Premier League' in each county, which would hoover up amateur players from below and then 'hone' them for the fully professional game in the County Championship.

For many years the only Premier League in Lancashire was the Liverpool Competition. It's now about 20 years since the ECB changes, so there is some evidence to go on.

How many players from the 'Comp' Premier League, have come through and had a significant career with Lancashire [say 5 years or more]? I'm only aware of one [Paul Horton]; there are a couple of others who've played for other counties.

So, if the cricket 'pyramid' has produced one player for Lancashire in 20 years, what makes you think the soccer pyramid will be any more successful?


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