Anyone who has followed the English football league for any length of time, by which I mean more than fifteen years, has watched one of the most astonishing transformations of an industry in a short period of time, ever.
This transformation started when the teams of the then old First Division of the Football League, the oldest football association in the world in the country that invented the game, left the Football League and started a new competition called the Premier League.
This move was all about money, though there is nothing wrong with that in business.
The hope was to make more money and in so doing reinvigorate the English game which had fallen behind Spain and Italy. It succeeded, but to an extent and with consequences unforeseen which even now are still changing the game not just in England but the world.
One of those consequences has been a rise in transfer fees, such that the recently purchased Manchester City, awash in oil money from Abu Dubai, has spoken of purchasing Cristiano Ronaldo for $240 Million from Manchester United in the January transfer window this season.
Origins of the Premier League
Despite significant European success during the 1970s, the 1980s were a low period for English football. Stadiums were old and in terrible shape so that supporters endured poor facilities, often standing on terraces built in the 1920’s exposed to the elements. Hooliganism was rife as it is now in Italy. The low was marked by the banning of English clubs from European competition following riot and deaths during the European Cup final between Liverpool, then arguably the best team in the world, and Juventus of Italy. A retaining wall of the Heysel Stadium in Brussels collapsed even before the final had even kicked off. 39 people were killed, mostly Juventus fans, and hundreds more were injured. England clubs at the top lost all the money accruing from participation in the UEFA Cup, European Cup (now Champions League), Intertoto Cup, etc., for five years.
The Football League First Division, which had been the top level of English football since 1888, was well behind leagues such as Italy’s Serie A and Spain’s La Liga in attendances and revenues, and several top English players like Gary Lineker had moved abroad. However, by the beginning of the 1990s these trends were starting to reverse; England had been successful in the 1990 FIFA World Cup, reaching the semi-finals. UEFA, European football’s governing body, lifted the five-year ban on English clubs playing in European competitions in 1990 and the Taylor Report on stadium safety standards, which proposed expensive upgrades to create all-seater stadiums in the aftermath of the Hillsborough disaster, was published in January of that year.
Television money had also become much more important as a percentage of total revenues; the Football League received a now laughable £6.3million for a two-year agreement in 1986, but when that deal was renewed in 1988, the price rose to £44m over four years, still laughable by current standards. The 1988 negotiations were the first signs of a breakaway league; ten clubs threatened to leave and form a “super league”, but were eventually persuaded to stay. As stadiums improved, hooliganism was brought under control, and match attendance and revenues rose, the country’s top teams again considered leaving the Football League in order to capitalize on the growing influx of money flowing into the sport.
At the close of the 1991 season, a proposal for the establishment of a new league was tabled that would bring more money into the game overall. The Founder Members Agreement, signed on 17 July 1991 by the game’s top-flight clubs, established the basic principles for setting up the FA Premier League. The newly formed top division would have commercial independence from the Football Association and the Football League, giving the FA Premier League license to negotiate its own broadcast and sponsorship agreements. This was considered necessary so that English clubs could once again compete with and beat the best of Europe, while attracting the best talent in the world, something which in 1991 seemed practically unthinkable.
In 1992 the First Division clubs resigned from the Football League and formed the FA Premier League. The 104-year-old Football League that had operated until then with four divisions; the Premier League was reduced to three. There was no change in competition format; the same number of teams competed in the top division, the Premier League, and promotion and relegation between the Premier League and the then First Division (now Championship) remained on the same terms as between the old First and Second Divisions.
Today
As of the end of the 2007–08 season, there had been 16 completed seasons of the Premier League. The league held its first season in 1992–93 and was originally comprised 22 clubs. At the insistence of FIFA, the international governing body of football, that domestic leagues reduce the number of games clubs played, the number of clubs was reduced to 20 in 1995 when four teams were relegated from the league and only two promoted. In 2006, FIFA requested that all major European leagues, including Italy’s Serie A and Spain’s La Liga be reduced to 18 teams by the start of the 2007–08 season. The Premier League responded by announcing their intention to resist such a reduction. Money won this argument, to everyone’s surprise, and the 2007–08 season kicked off again with 20 teams.
That same season saw a discussion over Game 39, a showpiece match played overseas to capitalize on one of the unintended consequences of the deal with BSkyB, the growth of the Premier League and English football as a global brand. This in the end lead to the purchase of Manchester City by Thaksin Shinawatra, the deposted Prime Minister of Thailand, which in turn would lead to the club’s purchase by Abu Dhubai United Group (ABUG). Which explains how this history lesson relates to Cristiano Ronaldo, which is what this blog is supposed to be about. Apropos of nothing it should be noted that Mr. Shinawatra purchased Manchester City Football Club for $148 Million, and sold 90% of it at a price valuing the club at $360 Million. An increase in his investment of $212 Million in just more than one year.
Money Is the Root
In the 2006/2007 season, Premier League clubs generated the highest revenue (£1.5 billion) of any league in Europe, followed by Germany (£0.9 billion), Spain (£0.9 billion), Italy (£0.8 billion) and France (£0.7 billion). The influx of money and the distance between the Premier League and its nearest competitor, the Bundeslegia, has lead to changes.
First things changed in obvious, predictable ways. The increase in income from television bid up wages and transfer fees, and quickened the pace at which players from all over the world were were bought until today British (English, Welsh, Scots and Irish) players form a minority of players playing in England.
It has also resulted in global interest, and in the end investment in, the Premier League. Promoted as “The Greatest Show On Earth”, the Premier League is the world’s most popular and most watched sporting league, followed worldwide by over half a billion people in 202 countries, generally on networks owned and/or controlled by NewsCorp, which owns a large portion of BSkyB and thus the televsion rights.
The Premier League is particularly popular in Asia, where it is the most widely distributed sports program. For example, in the People’s Republic of China, matches draw television audiences of from 100 million to 360 million people, or up to approximately one third of the population, more than any other foreign sport. More in fact than the population of the United States. Due to this popularity, the league regularly holds pre-season tournaments in Asia, the only place in the world it does so.
In 2003, the FA Premier League Asia Cup was held in Malaysia, featuring three Premier League clubs, Chelsea, Newcastle United and Birmingham City, and the Malaysia national team. In 2005 the Asia Trophy featured a similar format, held in Thailand (home to our hero the then Prime Minister) and featuring the Thailand national team competing against three English clubs—Everton, Manchester City (the club our hero later purchased) and Bolton Wanderers, the last of which won the trophy (and whom I have supported since I was eleven). In 2007, the Barclays Asia Trophy was held in Hong Kong and featured Liverpool, Portsmouth, Fulham and the Hong Kong FA Cup winning team, South China, with Portsmouth winning the competition.
Widening gap with the lower leagues
In 2004/2005 the financial prize for promotion to the Premiership was around EUR88m, this number represents the increase in TV revenues and micellaneous increases in income that accrue from playing in the Premier League. Premiership football provided Birmingham City, Sunderland and Derby with at least EUR51.4m of additional revenue for the 2007/08 season. In addition, even th0ugh Derby were relegated after one year in the top flight, parachute payments worth over EUR14.7m per season will be received for two more seasons.
One of the main criticisms leveled at the Premier League is the increasing financial, and consequently quality, gulf between the Premier League and the lower divisions Since its split with the Football League, many established clubs in the Premier League have managed to distance themselves from their counterparts in lower leagues. The wages of Robinho the Brazilian superstar poached from under Chelsea’s nose by Manchester City on the last day of the transfer window this year is reported to have received $5 Million for signing and wages of $500,000 per week. Owing in large part to the disparity in revenue from television rights between the leagues, but also to particpation in the European cup competitions but the top four clubs, many newly promoted teams have found it difficult to avoid relegation in their first season in the Premier League. In every season except 2001–02 (Blackburn Rovers, Bolton Wanderers and Fulham) at least one Premier League newcomer has been relegated back to the Football League. In 1997–98 all three promoted clubs were relegated at the end of the season.
The Premier League distributes a small portion of its television revenue to clubs that are relegated from the league in the form of “parachute payments”. Starting with the 2006–07 season, these payments are in the amount of £6.5 million over the club’s first two seasons in lower leagues, although this is set to rise to £11.2 million per year for clubs relegated in 2007–2008. Designed to help teams adjust to the loss of television revenues (the average Premier League team receives £45 million while the average Football League Championship club receives £1 million), critics maintain that the payments actually widen the gap between teams that have reached the Premier League and those that have not, leading to the common occurrence of teams “bouncing back” soon after their relegation. The strategy arround promotion is even speculated to include taking this into account. By not splashing out on players or wages but instead banking the increased income teams can accumulate enough money and talent to be repromoted and to give staying up a decent shot after doing it one or two times.
“Big Four” dominance
Another major criticism is the development of the so-called “Big Four” clubs. Since Blackburn Rovers lifted the trophy in 1994–95, only three clubs have won the Premier League title—Manchester United (eight of the club’s ten titles), Arsenal (three times) and Chelsea (twice). In addition, Manchester United have not finished outside the top three since the formation of the Premier League, with Arsenal finishing inside the top five in all but two seasons, while Liverpool, without an English league title since the pre-Premier League era, have not finished lower than fifth since 1999. In recent years, the success of these clubs has led to these four teams being increasingly referred to as the “Big Four”. The Big Four clubs have finished in the first four positions for the last three seasons, therefore they have all qualified for the last three seasons of the Champions League and receive the financial benefits of such qualification. The benefits, especially increased revenue, is believed to have widened the gap between the Big Four clubs and the rest of the Premier League. In 2008, Newcastle United manager Kevin Keegan said the Big Four’s dominance threatened the division, saying, “This league is in danger of becoming one of the most boring but great leagues in the world.” Following Keegan’s comments, Premier League chief executive Richard Scudamore defended the league, saying, “There are a lot of different tussles that go on in the Premier League depending on whether you’re at the top, in the middle or at the bottom that make it interesting.” But everyone knows that Keegan spoke the truth
Having agreed with King Kev I have to say though that the dominance of the big four probably has more to do with the size of their fan base, stadia and participation in the European leagues than with the formation of the Premier League.
Affect on national team
The recent poor performance of the national team is often blaimed on the low proportion of English players in the Premier League. In recent years the proportion of players actually playing in Premier League games has fallen to around 40%, if memory serves. Arsenal were the first team to ever field a side without any English, Irish, Scots or Welsh players in just the last year or two.
Contrast this with Seria A or La Liga in Italy and Spain, and with the large numbers of Spanish and Italian players playing in the Premier League, and one can see that fewer English football players, particularly at the top level, are playing regular football.
The manager of England, currently Fabio Capello (himself Italian) is often lacking in decent choices for the national team. Goal keeper has been a particular issue recently with very few quality choices with enough experience to select from.
I am not sure I buy this particular argument either. If there were good players they would be playing. I think the lack of a structured approach to developing talent is more to blame. France for instance instituted a system of national academies and programs that delivered the 1998 World Cup. England has nothing like the level of commitment to the sport of football at the grass roots level as France or other European countries. This is the cause for the lack of good English players and the struggles of the national team.
Influence on the global game
Nigerian football officials have claimed the increase in popularity of the Premier League and subsequent world wide media coverage is having a damaging effect on the national leagues of other footballing countries, with Nigeria being a recent example, citing lower domestic attendances when games clash with Premier League fixtures, and the drain of young talent being lured to the Premier League by wage offers no local club can hope to match.
On the other hand, people cite the money that comes into these clubs paid for these footballing exports, which in the 2003/2004 season amounted to a then record €392m paid to overseas clubs according to Deloitte & Touche.
The inspirational effect of watching the Premier League on local desire for playing football, is also cited as a local benefit.
In an extreme case of worldwide influence, after the 2008 UEFA Champions League Final, seven people died in Nigeria after clashes between rival supporters of Chelsea and Manchester United.
Financial Champions of Europe
While the Premier League is often accused of distorting transfer fees and wages in Europe it can afford to do so. One has to wonder of the perspective of those accusing it of doing so given the Premier League’s profitability. If they can sustainably afford to buy and pay for the best talent that surely is part and parcel of the competition. After all this was the basis for Real Madrid’s success in the 20th Century.
English football contributed around one quarter of the total revenue of the European football market of £9.2 billion in 2006/07.
Premiership clubs also recorded significantly higher operating profitability than their continental European counterparts. The Premiership clubs returned record operating profits of €222m (or €11.1m per club). Within the other ‘big five’ leagues only German clubs recorded operating profits. So if any distortion is occurring in the rest of Europe
England continues to boast the best stadia in Europe. This year saw Arsenal’s 60,000 capacity Emirates Stadium open on schedule for the 2006/07 season. The cumulative total investment by the Premier League since its inception in stadia and facilities exceeded €3 billion at the end of summer 2006.
It is the television revenue sharing deal that distinguishes the Premier League from the other European football leagues. One can see this in the fact that Real Madrid and Barcelona are actually the two biggest clubs, financially, in the world as of the summer of 2008. This is entirely due to the fact that Spanish teams negotiate separate television deals on a club by club basis. Revenues are not shared. This actually makes the Spanish league even more dominated by a couple of big clubs than the Premiership where revenues are shared with shares going to the clubs based on where they finish in the league table at the end of the season. Quality is rewarded.
Why this matters to Crisitano Ronaldo (and to me)
Manchester City FC’s purchase by ABUG has radically changed many aspects of the Premier League described above almost over night.
Manchester City appear to be willing to outbid even Chelsea, with its own oil millions, in the transfer market as they did with signing Robinho from Real Madrid at the deadline. If they manage the club well it is reasonable to believe that the hold of Manchester United, Chelsea, Arsenal and Liverpool on the top four places, and therefore competition in the Champions League, will be broken within a year or two.
In the process of doing this they will also bid up wages and transfer fees for everyone else, further polarizing the gap between the Premier League and the rest of English and World football.
It is also reasonable to expect that in their efforts to keep up many clubs will over-extend themselves financially, and that the overall profitability of the Premier League will decline. It has been the most profitable league in Europe if looked at over the last ten years but if Manchester City really spends its’ new owners oil billions as they seem willing to do this will surely change. Or, the big clubs of England until now will surrender the top of the league to City.
Cristiano Ronaldo, and other top players whose contracts expire in the next one to two years, or whom force a transfer as Cristiano Ronaldo almost certainly will to break their existing contracts, can expect a windfall in wages and also in their slice of the transfer fee. It should be noted that if a player requests a transfer that they do not receive a portion of the transfer fee. As Manchester City puts holes in other teams rosters those holes will have to be filled. A game of musical chairs will ensue, and those sitting when the music stops will see their wages increased.
Now that Manchester City can be expected to bid up fees and wages, stating that they want to buy Cristiano Ronaldo (and Torres the Spanish striker from Liverpool, and at least 18 top players) for £120 Million, Mr. Ronaldo can expect that a very lucrative phase of his career is about to commence. Because even if they retain him, Manchester United, and the other teams in Europe, will have to raise wages to retain players who could otherwise move to the new super power. Doing so will change the whole wage structure of these clubs. The position of Arsenal with its strict adherence to a wage structure and rejection of outside investors looks especially vulnerable. In such an environment there will be enormous pressure for Premier League clubs to find their own wealthy benefactors.
If it is going to be hard on the big clubs of Europe then how can a Bolton Wanderers ever compete with clubs like these?
Sources: Wikipedia, BBC SkySports, Guardian Unlimited, Deliotte & Touche, Memory (mine)
