football clubs & finance 2014

8/10/2019 Football Clubs & Finance 2014

1/73

Market Update 2 014

Sixth Edition February 2014Edited by Robert Hucker

ISBN 978-1-78304-125-1

Football Clubs & Finance


2/73

In todays competitive business environment, knowledge and understanding of your marketplace is essential. With over 30 years experience producing highly respected off-the-shelf publications, Key Note has built a reputation as the number one sourceof UK market information. Below are just a few of the comments our business partnersand clients have made on Key Notes range of reports.

The test of any marketing strategy and plan lies in the quality of information used, upon whichmarketing judgments and decisions are based. Quality is the key word here. The Key Notereports are an excellent source of such quality information, covering a wide variety of productsectors.

The Chartered Institute of Marketing

We have enjoyed a long-standing relationship with Key Note and have always received anexcellent service. Key Note reports are well produced and are always in demand by users of the

business library. Having subscribed to Market Assessment reports for a number of years, wecontinue to be impressed by their quality and breadth of coverage.

The British Library

When we are putting together strategic information for presentations to major retailers andSymingtons Board, the combination of Key Notes market research and company informationproves invaluable. It is accurate and easy to use, and provides us with important insight that wecannot get elsewhere.

Symingtons

I regard Key Note as the number one provider of UK market research. The way Key Notecontent is packaged and presented is appealing and easy to understand and therefore a mustfor my taught course students. Its products are complemented by remarkably high levels ofcustomer service.

University of Cambridge, Judge Business School

Football Clubs & Finance Foreword

Key Note Ltd 2014


3/73

Contents

Executive Summary 1

1. Market Definition 2

REPORT COVERAGE....................................................................................................................2MARKET SECTORS.......................................................................................................................3Size of Club ....................................................................................................................................3Type of Income ..............................................................................................................................3Ownership ......................................................................................................................................3MARKET TRENDS.........................................................................................................................4Illegal Streaming ...........................................................................................................................4Financial Difficulties .....................................................................................................................4Ticket Prices .....................................................................................................................................4ECONOMIC TRENDS....................................................................................................................5Table 1.1: UK Economic Trends (000, m, %, million and ), 2008-2012 ............................6MARKET POSITION......................................................................................................................7The UK ..............................................................................................................................................7Overseas ...........................................................................................................................................8

2. Market Size 9

THE TOTAL MARKET..................................................................................................................9Table 2.1: Total Turnover of Main UK Football Clubs by Value (m and %), SeasonsEnding May 2005-2013 .................................................................................................................9Figure 2.1: Total Turnover of Main UK Football Clubs by Value (m), Seasons EndingMay 2005-2013 .............................................................................................................................10BY MARKET SECTOR.................................................................................................................11

By League Turnover ....................................................................................................................11Table 2.2: Turnover of Main UK Football Clubs by Leagueby Value (m and %), Seasons Ending May 2005-2013 ........................................................12Figure 2.2: Turnover of Main UK Football Clubs by League by Value Share(%), Seasons Ending May 2005 and 2013 ................................................................................13Market Structure .........................................................................................................................13Table 2.3: Structure of Professional Football in the UK and Europe, 2013/2014 ............14Promotion and Relegation ........................................................................................................152012/2013 League and Cup Awards ........................................................................................16

Table 2.4: Final League Standings and Cup Winners, 2012/2013 .......................................17

Football Clubs & Finance Contents

Key Note Ltd 2014


4/73

By Revenue ...................................................................................................................................18Table 2.5: Turnover of the English Premier League by Typeof Revenue (m and %), Seasons Ending May 2005-2014 ...................................................19Figure 2.3: Turnover of the English Premier League by Typeof Revenue (m), Seasons Ending May 2005-2014 ................................................................20Match Day Revenues ..................................................................................................................20Table 2.6: Total Attendance to League Matches in Englandand Wales by Division (million), Selected Seasons Ending May 1949-2013 .....................21Figure 2.4: Total Attendance to League Matches in Englandand Wales by Division (million), Selected Seasons Ending May 1959-2013 .....................22Table 2.7: Average Attendance to League Matches for Selected Clubs in Englandand Wales (number), Season Ending May 2013 ....................................................................23Broadcasting Revenue ...............................................................................................................24Commercial Revenue ...................................................................................................................25

Table 2.8: Sponsors of Premier League Football Clubs, 2012/2013 ....................................25

3. Strengths, Weaknesses, Opportunities and Threats 27

STRENGTHS..................................................................................................................................27WEAKNESSES..............................................................................................................................27OPPORTUNITIES.........................................................................................................................28THREATS.......................................................................................................................................28

4. Current Issues 29

2012/2013 SEASON ....................................................................................................................29GOAL-LINE TECHNOLOGY.....................................................................................................30FINANCIAL FAIR PLAY.............................................................................................................30Union of European Football Associations ..............................................................................30Premier League .............................................................................................................................31Football League ............................................................................................................................32SCOTTISH FOOTBALL STRUCTURE REORGANISATION.................................................33


Key Note Ltd 2014


5/73

5. Forecasts 34

INTRODUCTION..........................................................................................................................34

General Economic Forecasts.....................................................................................................34

Table 5.1: Forecast UK Economic Trends (000, %, million), 2013-2017 .............................34FORECASTS 2014 TO 2018 ......................................................................................................35Table 5.2: Forecast Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2014-2018 ....................................................................36Figure 5.1: Forecast Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2014-2018 ....................................................................36MARKET GROWTH....................................................................................................................36Figure 5.2: Growth in Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2005-2018 ....................................................................37FUTURE TRENDS.........................................................................................................................37Managerial Dismissals ................................................................................................................37Financial Fair Play .......................................................................................................................38Player Contract Disclosure ..........................................................................................................38

6. Company Profiles 39

ASTON VILLA FOOTBALL CLUB LTD....................................................................................40CHELSEA FOOTBALL CLUB LTD.............................................................................................42EVERTON FOOTBALL CLUB COMPANY LTD (THE).........................................................44FULHAM FOOTBALL CLUB LTD.............................................................................................46MANCHESTER CITY LTD...........................................................................................................48MANCHESTER UNITED LTD....................................................................................................50NEWCASTLE UNITED FOOTBALL COMPANY LTD...........................................................52THE ARSENAL FOOTBALL CLUB PLC....................................................................................54THE LIVERPOOL FOOTBALL CLUB AND ATHLETIC GROUNDS LTD...........................56TOTTENHAM HOTSPUR LTD..................................................................................................58

7. Further Sources 60

Publications .................................................................................................................................60Government Publications ......................................................................................................60Other Sources .............................................................................................................................60


Key Note Ltd 2014


6/73

Key Note Research 61

The Key Note Range of Reports 62


Key Note Ltd 2014


7/73

Executive Summary

Professional football in the UK remains hugely popular, both domestically andoverseas, with live matches attracting massive crowds each week, alongsidethe huge numbers of spectators throughout the world watching livebroadcasts. In the year ending May 2013, revenue across the main UKprofessional football clubs continued to grow, exhibiting a year-on-yearincrease of 3.4%.

This rate of growth is, however, relatively low for the football market. This isprimarily attributable to broadcasting agreements in the Premier League with each new 3-year deal providing massive growth rates in the initial season with 2013 representing the final year of the current agreement. Numerousother factors have also contributed to the significant growth experienced inthe football market in recent years, ranging from massive investment in

stadium facilities across the nation; through the influx of wealthy overseasinvestment, international footballing talent and managers; to the continuedhigh performance of English football clubs and players on the internationalfootball scene.

Although these factors have boosted the football market considerably,broadcasting revenues remain by far the most lucrative area of the footballindustry, at least within the elite league. In the Premier League, revenues frombroadcasting over the 5-year period ending May 2012 rose by 28.5%, farsurpassing growth rates within the commercial and match day revenuestreams.

Furthermore, in 2012, the Premier League signed a lucrative new 3-yearbroadcasting agreement covering the seasons ending 2014 and 2016. Withboth BT and British Sky Broadcasting (BSkyB) engaged in the tendering process,the Premier League managed to secure just over 3bn for television rights overthe 3-year period, representing a massive increase over the previous 1.78bnagreement. In addition, Premier League football is now broadcast in 212territories across the world, netting the elite league just over 1bn more inbroadcasting revenue during the 2012/2013 season.

With the new 3bn agreement broadcast deal starting in the 2013/2014 season,alongside strong growth forecast across the Football League, aggregate

turnover among the main football clubs is expected to rise massively in the yearending May 2014. Growth is then is expected to be fairly subdued, before thenext broadcast agreement comes into force in 2017.

Football Clubs & Finance Executive Summary

Key Note Ltd 2014 1


8/73

1. Market Definition

REPORT COVERAGE

This Key Note Market Update examines the UKs football clubs and theirfinances across the Premier and Football Leagues in England and Wales, andin the Scottish Professional Football League (SPFL). In addition to financialinformation, the report covers demand for football and football products inthe UK.

The English football leagues are the oldest in the world; they were officiallyformed in 1888 and comprised of just 12 teams within one division. In the2013/2014 season, 92 clubs participated in the top four divisions in England,alongside 42 clubs competing in four leagues in Scotland.

On the international level, English football hosts some of the worlds top clubs,both in terms of sporting achievement and turnover, with the major teams inthe Premier League such as Manchester United, Chelsea, Manchester City,Arsenal and Liverpool all consistently achieving positions in global top 20listings by turnover. Furthermore, on a sporting level, English football hasenjoyed significant success in recent years, with clubs such as Chelsea whichwon the Champions League in 2011/2012 and the Europa League in 2012/2013 and other major clubs remaining competitive in elite internationalcompetitions year-on-year.

However, the major clubs that persistently finish within the top four or five

positions in the English Premier League largely dominate the sport, both interms of performance and financial results. These clubs are now wellestablished, with significant income from wealthy benefactors, commercialrevenues and massive average attendances. While numerous measures havebeen introduced over the last season or two to address this issue and to haltthe massive inflationary effect on player transfers and wages many havesuggested that this could serve to maintain the status quo, preventing anyfurther wealthy benefactors from investing significantly in teams as hasbeen done by Manchester City and Chelsea and challenging the dominantclubs at the top of the Premier League.

The report analyses data from long-running financial results on the UK footballleagues from Deloitte, in addition to the annual review of Scottish football byPwC.

Football Clubs & Finance Market Definition

Key Note Ltd 2014 2


9/73

MARKET SECTORS

Size of Club

Generally, the size of each football club is related to the league in which itparticipates. The largest clubs, in terms of both attendances and revenue,participate in the Premier League. Formerly part of the Football League, thePremier League was formed in 1992 by the largest clubs at the time, alongsidethe Football Association (FA), in an effort to boost revenue further thoughgreater television exposure, therefore cementing participants as major UKclubs.

However, there remain some considerable differences in the size of clubsoperating within the same competition, particularly in the Premier League,within which the top clubs, such as Manchester United, can draw in averagecrowds in excess of 70,000; smaller clubs such as Wigan Athletic and QueensPark Rangers (QPR), both of which were relegated in the 2012/2013 season drew an average attendance of under 20,000.

Type of Income

In terms of type of income, football club revenues can be segmented into threebroad streams: match day, broadcasting and commercial activity. Clubs can alsogenerate significant turnover from the sale of players. However, across themajority of clubs, any profit gained from player sales are usually reinvested inthe team.

Ownership

Club ownership has changed significantly since the mid-1990s and theformation of the Premier League. With massive growth in revenues across thePremier League and to a lesser extent the Championship in recent years,largely as a result of increasingly valuable broadcasting agreements, numerouswealthy overseas investors have entered into club ownership. As a result, clubownership can be now used to segment the market, with three broad separateforms of ownership now preeminent across the leagues:

full ownership by wealthy individuals or groups publicly quoted companies

traditional control by a wealthy supporter.


Key Note Ltd 2014 3


10/73

MARKET TRENDS

Illegal Streaming

In July 2013, the Premier League became the first sporting body to use theCopyright Designs and Patents Act 1988 used previously by the film andmusic industries to stop copyright infringement to block access to majorillegal football streaming services across the six main UK-based Internet ServiceProviders (ISPs).

As in the film and music industry, illegal live football match streaming hasbecome an increasing problem in recent years. With an increasingly significantportion of revenue coming from broadcasting, and with viewership numbersa key deciding factor in attracting and evaluating advertising and sponsorship,illegal streaming sites can pose a real threat.

Financial Difficulties

Despite the introduction of various financial regulations over the last seasonor two, many football clubs across the UK remain at risk of insolvency.According to the Red Flag Alert Football Distress Report published by BegbiesTraynor in November 2012, a total of six clubs in the Football LeagueChampionship, League One and League Two are currently highlighted asfacing critical financial pressure, as of the end of October 2013. This representsaround 8% of the total 72 clubs participating in the Football League.

The continued prevalence of financial struggles across UK football is primarilyattributable to stagnation in average attendances, with a 2% rise whenaveraged across all English divisions the Premier League and FootballLeagues in the 2013/2014 season up to the end of October 2013. This increaseis largely attributable to rises in the Premier League, where finances tend tobe stronger, and an increase in League One as a result of WolverhamptonWanderers relegation. With clubs in the Championship and below much moredependent on match day revenues, little to no growth in attendances can havea significant impact on financial stability.

Ticket Prices

In recent years there has been significant outcry from fans, and considerablecriticism from the FA and other bodies involved in the industry, concerningabove-inflation increases in the cost of match day tickets. In October 2012, aBBC survey Price of Football found that the average cost of the cheapestadult ticket in the top four divisions of English football had risen by 11.7% inthe 12 months prior to the survey. In a period during which household financesare increasingly being squeezed with high unemployment and inflation, andslow wages growth the recent annual growth in the average cost of a tickethas priced many out of attending live matches.


Key Note Ltd 2014 4


11/73

In response to this, many clubs have reduced prices over the last year, with thelatest BBC survey published in September 2013 revealing a 2.4% averagereduction in ticket prices across the top four divisions. While this is a positiveindication for fans across the country, it does little to offset the above-inflationincreases in prices of previous years.

ECONOMIC TRENDS

National population growth amounted to 3% between 2008 and 2012, risingfrom 61.4 million to 63.2 million. While growth in the UK resident populationprovides a slight increase in potential consumers, it has no real significantimpact on the market. Similarly, trends in gross national product (GDP) areunlikely to have a major impact on the football market, other than vagueindications of consumer demand for merchandise and, to a lesser extent, matchday tickets.

Inflation can have a pronounced impact on the football industry, mostnoticeably on ticket prices, but it can also affect the cost of club merchandiseand broadcasting revenues. In 2010 and 2011, the rate of inflation remainedrelatively high, at 4.6% and 5.2%, respectively, before falling back slightly to3.2% in 2012. Despite the dip in 2012, the recent rate of inflation will havepushed up prices for tickets and contributed to the rise in the cost ofbroadcasting rights agreements.

As it is a traditionally working-class sport, unemployment can have a majorimpact on the football market, particularly match attendances. While thedemographic for attendances has diversified significantly over recent decades,

high unemployment can still represent a barrier. Between 2008 and 2012,unemployment remained high, increasing by 74.7% from 910,000 to 1.59million.

Despite the poor economic conditions, household disposable income improvedyear-on-year over the review period a positive indication for the footballmarket rising by 12.7% from 15,008 in 2008 to 16,918 in 2012. Ultimately,any rise in household disposable income can lead to increased expenditure onleisure activities, although it is important to note that high inflation and therising cost of living could offset this somewhat.


Key Note Ltd 2014 5


12/73

Table 1.1: UK Economic Trends (000, m, %, million and ),2008-2012

2008 2009 2010 2011 2012

Resident PopulationEstimates (000),Mid-Years

Female 31,244 31,418 31,619 31,833 32,065

Male 30,154 30,374 30,643 30,902 31,179

Total population 61,398 61,792 62,262 62,735 63,244

% change year-on-year - 0.6 0.8 0.8 0.8

Gross DomesticProduct (m)

Current prices 1,462,070 1,417,359 1,485,615 1,536,937 1,564,639

% change year-on-year - -3.1 4.8 3.5 1.8

Annual chain-linkedGDP 1,541,039 1,461,361 1,485,616 1,502,216 1,504,091

% change

year-on-year - -5.2 1.7 1.1 0.1

Rate of Inflation (%)

Inflation 4.0 -0.5 4.6 5.2 3.2

Percentage point change

year-on-year - -4.5 5.1 0.6 -2.0

Actual Number ofUnemployed Personsin the UK (million)

Actual number ofclaimants 0.91 1.53 1.50 1.53 1.59

% change year-on-year - 68.1 -2.0 2.0 3.9

Table continues...


Key Note Ltd 2014 6


13/73

Table 1.1: UK Economic Trends (000, m, %, million and ),2008-2012

...table continued

2008 2009 2010 2011 2012

Household DisposableIncome Per Capita ()

Householddisposable income 15,008 15,443 16,058 16,371 16,918

% change year-on-year - 2.9 4.0 1.9 3.3

GDP gross domestic product

Note: inflation is at retail price index (RPI); inflation data shown are annual averagechanges; claimant count measures the number of people claiming Jobseekers Allowance.

Source: Population Estimates for UK, England and Wales, Scotland and NorthernIreland Population Estimates Timeseries 1971 to Current Year, December 2011/ National Population Projections, 2010-based projections/United KingdomEconomic Accounts, November 2013/Consumer Price Inflation, October 2013/ Labour Market Statistics, November 2013, National Statistics website Crowncopyright material is reproduced with the permission of the Controller of HMSO(and the Queens Printer for Scotland)

MARKET POSITION

The UK

Football can be considered the main national sport in the UK, given the volumeof weekly spectators both at stadia and on television and in the supportof the national teams in the European Championships and World Cupcompetitions.

The football market is also the dominant sector in terms of sports sponsorship,accounting for around just under half of all major deals each year, evenoutpacing the Olympic Games in 2012.

The football market can also be considered a major sector within the contextof the leisure industry, with numerous consumers across the UK attracted tofootball events hosted throughout the nation. It can also contribute to tourism,due to clubs within the English Premier Leagues strong participation in themajor European competitions.


Key Note Ltd 2014 7


14/73

Overseas

UK football is also incredibly successful on an international level, both in termsof overseas viewership of the national game and in sporting achievement.Through the last decade or so, a number of English clubs have achieved success

in the most prestigious of European competitions, the Union of EuropeanFootball Associations (UEFA) Champions League, with Liverpool, ManchesterUnited and Chelsea lifting the trophy in 2004/2005, 2007/2008 and 2011/2012,respectively.

The Premier League is also one of the most-watched football leagues in theworld. In the 2012/2013 season, 804 million households across 212 territoriesreceived Premier League matches, with agreements in place between the FAand 40 broadcast partners from across the globe, earning the Premier League1.28bn in revenue for the season.


Key Note Ltd 2014 8


15/73

2. Market Size

THE TOTAL MARKET

Due to massive number of football clubs active across the UK, it is difficult toquantify the market value of the entire UK football industry. As a result, thisKey Note Market Update examines the value of the main professional footballclubs operating across the English Premier and Football Leagues, and theScottish Professional Football League (SPFL). According to Deloitte projections,PwCs Annual Financial Review of the Scottish Premier League and Key Noteestimates relating to the Scottish Premiership, aggregated turnover among themain UK football clubs amounted to 3.3bn in the season ending May 2013,following year-on-year growth of 3.4%. With the 2012/2013 seasonrepresenting the final year of the current Premier League broadcasting

agreement, revenue growth was comparatively subdued for the season endingMay 2013. However, with a new multi-billion-pound broadcasting agreementin place for next season, the market is expected to exhibit significant growthin 2013/2014.

Table 2.1: Total Turnover of Main UK Football Clubs by Value(m and %), Seasons Ending May 2005-2013

Value (m) % Change Year-on-Year

2005 1,962 -

2006 2,030 3.5

2007 2,199 8.3

2008 2,654 20.7

2009 2,714 2.3

2010 2,834 4.4

2011 3,063 8.1

2012 3,191 4.22013 3,298 3.4

Note: includes main professional and semi-professional clubs, i.e. those participating inthe English Premier League and Football Leagues and the Scottish Premiership; 2012 dataincludes Key Note estimates for the Scottish Premiership; 2013 data includes Deloitte

projections for the Premier and Football Leagues, and Key Note estimates for the ScottishPremiership.

Source: Deloitte Annual Review of Football Finance/PwCs Annual Financial Review of the Scottish Premier League/Key Note

Football Clubs & Finance Market Size

Key Note Ltd 2014 9


16/73

Figure 2.1: Total Turnover of Main UK Football Clubs by Value(m), Seasons Ending May 2005-2013

2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1,000

1,500

2,000

2,500

3,000

3,500

Note: includes main professional and semi-professional clubs, i.e. those participating inthe English Premier League and Football Leagues and the Scottish Premiership; 2012data includes Key Note estimates for the Scottish Premiership; 2013 data includesDeloitte projections for the Premier and Football Leagues, and Key Note estimates for the Scottish Premiership.


The consistently strong growth in revenue across the main football leagues inrecent decades has been driven by numerous factors. One of the key factorshas been the increasing value of football broadcasting, particularly in thePremier League. This revenue stream has seen incredible growth rates over thelast 3 decades, rising from a 6.3m 2-year agreement with the old FootballLeague in 1986 to the recently signed 3bn agreement for domesticbroadcasting rights for the three seasons starting 2013/2014 in the PremierLeague alone.

Growth in the popularity of the sport has also provided a boost in revenue overrecent decades. Following falling match day attendances across the nationduring the 1980s with the sport plagued by hooliganism and poor facilities football clubs across the country invested significant capital through the1990s to improve the condition of stadiums, in addition to the conversiontowards all-seater stadia through the top two division in England. Thisdramatically improved safety standards and the general condition of facilities,and watching live football matches once again became a popular leisureactivity.

Investment in the game has continued throughout the 2000s and 2010s,particularly in the Premier League, where it has become common for wealthyoverseas owners to invest significantly in English football clubs, furtherdeveloping football stadia to increase capital, and expending huge sums to

bring some of the best international footballing talent to the UK.


Key Note Ltd 2014 10


17/73

While this investment in British football is positive for the game, there arenumerous draw backs. The main issue has been the huge disparity betweenrevenue generation in the elite league compared with that achieved across theFootball Leagues. Furthermore, even within the Premier League itself there canbe huge differences in turnover between those at the top of the league, and

recently promoted and/or bottom-placed clubs. Another main issue created bythe massive level of invested in football has been the huge inflation in playertransfer fees, player wages and agents costs.

BY MARKET SECTOR

While the segmentation of the market by league is useful for an examinationof the market, football clubs themselves break the market down in terms ofthe three main revenue streams: broadcasting, match day and commercial.

By League Turnover

In the year ending May 2012, 74% of aggregated football club revenue wasgenerated by the Premier League, while just over a fifth (21.2%) was derivedfrom the Football League and an estimated 4.9% was accounted for by theScottish Premier League. The obvious disparity in value of the leagues haswidened in recent years, with the Premier Leagues share of the market risingfrom just over two-thirds (68%) in the year ending May 2005, to just underthree-quarters in 2012 (74%). For the season ending May 2013, this gulf isexpected to have widened, with the projected revenue of 2.48bn amongPremier League clubs standing at 75.2% of total estimated turnover.

In the Football League covering teams participating in the Championship,League One and League Two total revenue is projected to fall by 2.2% inthe year ending May 2013, from 675m in the previous year to 660m. As aresult, the Football Leagues share of total UK club revenue is expected todecline further, from 21.2% in 2012 to 20% in 2013.

In the Scottish Premiership, the expulsion of Rangers Football Club from theelite league had a significant impact on revenue in 2012, causing an estimated4.9% decline in comparison with the previous year. The market, however, wasestimated to have increase in value by 1.3% in 2013 to reach 158m, accountingfor 4.8% of total club revenue.




18/73

Table 2.2: Turnover of Main UK Football Clubs by Leagueby Value (m and %), Seasons Ending May 2005-2013

England Scotland

Premier LeagueFootballLeagues Premiership Total

Value (m)

2005 1,334 460 168 1,962

2006 1,379 481 170 2,030

2007 1,530 494 175 2,199

2008 1,932 526 196 2,654

2009 1,981 566 167 2,714

2010 2,030 633 171 2,8342011 2,273 626 164 3,063

2012 2,360 675 e156 3,191

2013 p 2,480 p 660 e158 3,298

% of Total

2005 68.0 23.4 8.6 100.0

2013 75.2 20.0 4.8 100.0

e Key Note estimates

p Deloitte projections

Note: includes main professional and semi-professional clubs, i.e. those participating inthe English Premier League and Football League, and the Scottish Premiership.





19/73

Figure 2.2: Turnover of Main UK Football Clubs by Leagueby Value Share (%), Seasons Ending May 2005 and 2013

English Premier League

English Football Leagues

Scottish Premiership

2005 20130

10

20

30

40

50

60

70

80

90

100

Note: figures for English Premier League and English Football Leagues for 2013 areDeloitte projections; figures for Scottish Premiership for 2013 are Key Note estimates;includes main professional and semi-professional clubs, i.e. those participating in theEnglish Premier League and Football League, and the Scottish Premiership.


Market Structure

UK football clubs participate in league competitions, accruing pointsdepending on results against other clubs which are used to rank themaccordingly. Furthermore, clubs are invited to participate in domestic cupcompetitions, in which clubs from across the various leagues are pairedrandomly. The top Premier League clubs and the victors in the two main UKcup competitions also participate in European competitions, which use acombination of both league and knock-out formats.

The structure of the football leagues in the UK are dependent primarily on theparticular governing bodies, although the clubs involved in the league areoften consulted in the event of any change in structure. League and cupcompetitions are generally structured around geographical location, althoughthere are a number of notable exceptions to this, such as Cardiff and Swanseasparticipation in the English Premier League and cup competitions.

Table 2.3 outlines the main domestic and European league and cupcompetitions currently in operation, alongside its governing body and mainsponsor. Typically, the main sponsor of a particular league or cup will appearwithin its official title, such as the Barclays Premier League and the Sky BetChampionship, or the FA cup with Budweiser and the Capital One Cup.




20/73

One of the most significant changes to the structure of UK football occurredin June 2013, when the Scottish Premier League (SPL) and Scottish FootballLeague (SFL) agreed to merge, creating the SPFL as the main governing bodyfor all professional leagues in Scotland, as well as the national league cup. Asa result the SPL competition was rebranded as the Scottish Premiership, while

the SFL Division One, Two and Three were renamed the Scottish Championship,League One and League Two, respectively. However, despite the mergeragreement, the actual structure of the league remains much the same, both interms of the number of teams per league and the promotion/relegationprocess.

Due to the upheaval related to the formation of the new governing body inScotland, and the end of main sponsorship agreements with ClydesdaleBank, Irn-Bru and the Scottish Government the Scottish Premiership, ScottishChampionship and lower leagues, and the Scottish League Cup have allremained without main title sponsorship as of the end of 2013 calendar year.According to the SPF, however, it has continued to engage with variouscorporations and organisations to secure future sponsorship.

Table 2.3: Structure of Professional Football in the UKand Europe, 2013/2014

Governing Body Main Sponsor

Domestic Leagues

Premier League The Premier League Barclays

Championship The Football League Sky Bet

League One The Football League Sky Bet

League Two The Football League Sky Bet

Scottish PremiershipScottish Professional FootballLeague -

ScottishChampionship,League One andLeague Two

Scottish Professional FootballLeague -

Domestic Cups

FA Cup The Football Association Budweiser

League Cup The Football League Capital One

Scottish Cup Scottish Football Association William Hill

Scottish League Cup Scottish Professional FootballLeague -

Table continues...




21/73

Table 2.3: Structure of Professional Football in the UKand Europe, 2013/2014

...table continued

Governing Body Main Sponsor

International Cups

Champions League UEFA -

Europa League UEFA -

Club World Cup FIFA -

FA Football Association

UEFA Union of European Football Associations

FIFA Fdration Internationale de Football Association

Note: the Champions League, Europa League and Club World Cup are sponsored by anumber of multinational corporations and do not have one main sponsor.

Source: Key Note

Promotion and Relegation

The elite leagues in both England and Scotland were formed in the 1990s, withthe top clubs joining to form Premier Leagues, largely due to the desire toretain a greater share of broadcasting revenues from the game. In England,the Premier League is largely autonomous in terms of operation, although itremains under the general remit of The Football Association (FA). The SPL wasoperated in a similar fashion to that of the English Premier League; however,following its merger with the SFL in June 2013, the elite and lower leagues arenow governed by a single body once again.

In the English Premier League, the worst three performing teams in terms ofpoints accrued are subject to relegation, and are replaced with the top twoperforming teams in the Championship, alongside the winner of a play-offcompetition between those finishing between third and sixth place. The

play-off competition is utilised throughout the Football League divisions,allowing smaller clubs who often struggle to compete with the dominantleague leaders the chance at promotion.

The promotion and relegation process across the English and Scottish leaguesis largely uniform, although the actual number of teams promoted andrelegated varies. There is some variation in format between the newly formedScottish Premiership and Championship, however, in the form of a play-offcompetition between the 11th-placed team in the elite league and 3 teamsfrom tier two those clubs finishing second, third and fourth with thewinner either maintaining their position in the Premiership or gainingpromotion into it.




22/73

2012/2013 League and Cup Awards

In the 2012/2013 season, Manchester United regained the Premiership Titleafter narrowly missing out to Manchester City in the previous season.Manchester City did, however, achieve a second-place finish, followed by

Chelsea, Arsenal and Tottenham Hotspur. Each of the above teams earnedqualification into European competitions as a result of their top-five finish,with Tottenham gaining entry into the Union of European FootballAssociations (UEFA) Europa League, while the remaining teams were enteredinto the elite Champions League competition.

The cup competitions in England proved more competitive than in recentseasons, with ninth-placed Swansea achieving victory in the Capital One Cup,while Wigan Athletic who finished in 18th placed and were thus relegatedfrom the Premier League lifted The FA Cup trophy. As a result, these twoteams took Englands remaining two European qualification spots, gainingentrance into the Europa League competition.

Besides Wigan Athletic, Reading who only gained promotion in the previousseason and Queens Park Rangers (QPR) were relegated from thePremiership, finishing in 19th and 20th, respectively. These were replaced withthe winners of the Championship, Cardiff City, alongside second-placed HullCity and play-off winners Crystal Palace.

Also in the Championship, Wolverhampton Wonderers faced their secondconsecutive season of relegation after finishing bottom of the Premiershipin the 2011/2012 season finishing 23rd, joining Peterborough United andBristol City at the bottom of the league in 2012/2013.

In League One, Doncaster Rovers prevailed as champions, gaining automaticpromotion alongside second-placed Bournemouth. Fourth-placed Yeovil Townsecured victory in the play-off competition, earning the final League Onepromotion spot. At the bottom of the table, Portsmouth who have facedsignificant financial difficulties after their 2008 FA Cup Triumph finished in24th, joined by Hartlepool (23rd), Bury (22nd) and Scunthorpe United (21st) inrelegation.

Finally, for the English leagues, Gillingham, Rotherham United and Port Valeall secured automatic promotion to League One, while Bradford City securedpromotion via the play-offs. Barnet and Aldershot Town dropped out of the

Football League finishing in 23rd and 24th, respectively, in League Two to be replaced with Mansfield Town and Newport County.

In Scotland, Celtic retained the Championship in the SPL, securing the nationsonly Champions League qualification spot. Motherwell and St Johnstonefinished in second and third, respectively, gaining qualification to the EuropaLeague, joining Scottish Cup runners-up Hibernian. In addition to theChampionship, Celtic secured victory in the Scottish Cup, while St Mirrenprevailed in the Scottish League Cup.




23/73

Table 2.4: Final League Standings and Cup Winners, 2012/2013

England/Wales

Premier League

Champions Manchester United

Champions Leaguequalifiers Manchester City, Chelsea, Arsenal

Europa Leaguequalifiers

Tottenham Hotspur, Swansea City,Wigan Athletic

Relegated Wigan Athletic, Reading, Queens ParkRangers

Championship

Promoted Cardiff City, Hull City, Crystal PalaceRelegated Peterborough United, Wolverhampton

Wanderers, Bristol City

League One

Promoted Doncaster Rovers, Bournemouth,Yeovil Town

Relegated Scunthorpe United, Bury, HartlepoolUnited, Portsmouth

League Two

Promoted Gillingham, Rotherham United, PortVale, Bradford City

Relegated Barnet, Aldershot Town

Scotland

Premier League

Champions Celtic

Europa Leaguequalifiers Motherwell, St. Johnstone, Hibernian

Relegated Dundee

Football League

Promoted Partick Thistle (to SPL)

Queen of the South, Alloa Athletic (toFirst Division)

Rangers (to Second Division)

Table continues...




24/73

Table 2.4: Final League Standings and Cup Winners, 2012/2013

...table continued

Cup CompetitionScottish Cup Celtic

Scottish League Cup St Mirren

Mansfield Town and Newport Country promoted to League Two

SPL Scottish Premier League

Source: Key Note

By Revenue

Football clubs generate the vast majority of their income from three distinctrevenue streams. However, it is important to note that losses and gains fromplayer transfers which can be significant are generally excluded fromfinancial data.

The three main revenue streams consist of:

broadcasting earnings from television rights and distributions fromEuropean competitions

commercial revenue from sponsorship, merchandising and exploitation ofthe club brand

match day revenue from match day ticket sales and corporate hospitality.

Table 2.5 shows a breakdown of revenue generation across the three mainsources of income at Premier League football clubs between 2005 and 2012,and projected earnings for the seasons ending 2013 and 2014. Broadcastinghas consistently remained the most significant source of revenue at footballclubs since 2005, accounting for 43.4% of the total in 2005, rising to 50.4% in2012 and a projected share of 55.5% by 2014. In 2012, commercial revenuesovertook match day earnings, following a 14.7% rise to reach 624m,accounting for a 26.4% share of total income. In the same period, match dayrevenues fell slightly, declining by 0.7% to 547m, accounting for 23.2% of thetotal.




25/73

Table 2.5: Turnover of the English Premier League by Typeof Revenue (m and %), Seasons Ending May 2005-2014

Broadcasting Commercial

Match

Day TotalRevenue (m)

2005 579 316 439 1,334

2006 580 346 453 1,379

2007 592 398 540 1,530

2008 925 453 554 1,932

2009 973 435 573 1,981

2010 1,040 459 531 2,030

2011 1,178 544 551 2,2732012 1,189 624 547 2,360

2013 p 1,200 710 570 2,480

2014 p 1,710 790 580 3,080

% of Turnover

2005 43.4 23.7 32.9 100.0

2008 47.9 23.4 28.7 100.0

2012 50.4 26.4 23.2 100.0

2014 55.5 25.6 18.8 100.0

p projection

does not sum due to rounding

Source: Deloitte Annual Review of Football Finance




26/73

Figure 2.3: Turnover of the English Premier League by Typeof Revenue (m), Seasons Ending May 2005-2014

Broadcasting

Commercial

Match day

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

500

1,000

1,500

2,000

2,500

3,000

Note: 2013 and 2014 figures are Deloitte projections.

Source: Deloitte Annual Review of Football Finance/Key Note

Match Day Revenues

While broadcasting and commercial revenues are the main source of incomein the Premier League as a whole, match day revenues remain vital to footballclubs, with numerous teams either engaged in or developing plans to expandexisting stadium capacity as a means of greater revenue generation.Furthermore, for certain clubs within the Premier League barring the largestof teams and the majority operating in the Football Leagues, match dayrevenues continue to represent the largest source of income.

Match day revenues consist of income derived from the sale of all domestic andEuropean match day tickets and hospitality revenues for games played at theclubs stadium, as well as its share of receipts from cup games played at an awaystadium. The majority of match day ticket sales occur in the off-season, duringwhich time season tickets are released to the general public.

With tickets accounting for the largest proportion of match day revenue,attendance is by the far the largest driver within this segment. Since the turnof the millennium, aggregated attendances have remained relatively static,fluctuating around the 30 million mark per season. In the Premier League,figures have sat around the 13 million mark since 2005. For the Championship,attendances in recent history have ranged between 9 million and 10 million,while League One and League Two have consistently attracted live audiencesof around 4 million and 2 million a season, respectively.




27/73

Over the long term, however, football attendances have fallen from in excessof 40 million in post-Second World War years. In the 1980s, football attendancedropped to record lows due mainly to neglected stadiums and theproliferation of hooliganism across the countrys football grounds fallingbelow 20 million during the decade. In the late 1980s and early 1990s,

following a number of high-profile stadium disasters, all-seater stadia becamea requirement in the UK (later scaled back to cover the top two divisions only)and with television coverage increasing and a strong performance at the1990 World Cup interest in football was reinvigorated, with attendancesonce again on the rise, aided by a period of reinvestment in facilities.

Table 2.6: Total Attendance to League Matches in Englandand Wales by Division (million), Selected

Seasons Ending May 1949-2013

P r emi er

L e a g u e

C h am pi on s h i p

L e a g u e

On e

L e a g u e

T w o

T o t al

1949 - - - - 41.3

1959 14.7 8.6 5.9 4.3 33.6

1969 14.6 7.4 4.3 3.1 29.4

1979 12.7 6.2 3.4 2.3 24.5

1989 7.8 5.9 3.0 1.8 18.5

1999 11.7 7.8 3.7 2.2 25.3

2005 12.9 9.5 4.1 2.3 28.8

2006 12.9 9.7 4.1 2.3 29.0

2007 13.1 10.0 4.1 2.3 29.5

2008 13.7 9.4 4.4 2.4 29.9

2009 13.5 9.9 4.2 2.3 29.9

2010 13.0 9.9 5.0 2.1 30.0

2011 13.4 9.6 4.2 2.3 29.4

Table continues...




28/73

Table 2.6: Total Attendance to League Matches in Englandand Wales by Division (million), Selected


...table continued

P r emi er

L e a g u e

C h am

pi on s h i p

L e a g u e

On e

L e a g u e

T w o

T o t al

2012 13.1 9.8 4.1 2.4 29.4

2013 13.7 9.7 3.5 2.4 29.2

Note: data for 2010 to 2013 sourced from ESPN; data prior to 1999 for the Premier League,Championship, League One and Two relates to the old First Division, Second Division,Third Division and Fourth Division, respectively; totals may not sum due to rounding.

Source: The Political Economy of Football (www.footballeconomy.com)/ESPN

Figure 2.4: Total Attendance to League Matches in Englandand Wales by Division (million), Selected


Premier League

Championship

League One

League Two

1 9 5 9

1 9 6 9

1 9 7 9

1 9 8 9

1 9 9 9

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Note: data for 2010 to 2013 sourced from ESPN; data prior to 1999 for the Premier League, Championship, League One and Two relates to the old First Division, Second Division, Third Division and Fourth Division, respectively; totals may not sum due torounding.

Source: The Political Economy of Football (www.footballeconomy.com)/ESPN/ Key Note




29/73

For the cup competitions particularly the domestic tournaments attendances tend to be lower than those of the average league game. This islargely due to the additional costs for season ticket holders the mainpredominant fan base at any club as cup games tend not to be includedwithin the price of a season ticket.

Although aggregated attendances across the season are an importantindication of trends in match day revenues, for an individual club, averageattendance at their home ground is more significant. For the 2012/2013 season,Manchester United remained top in terms of average home attendance, at73,452, followed by Arsenal at 60,079. These teams also have the largestgrounds Old Trafford and The Emirates in terms of capacity, highlightingthe benefits of stadium expansion.

In comparison, other major teams at the top of the Premier League, such asManchester City, Liverpool and Chelsea, all have average weekly attendancesof around 40,000 to 45,000, a factor attributable entirely to limitations in

capacity at their current respective stadiums. As a result, each of these clubshave been linked either with new stadium sites or with plans to further developexisting venues in an attempt to boost attendance and match day revenue.

Table 2.7: Average Attendance to League Matches for SelectedClubs in England and Wales (number), Season Ending May 2013

League Attendance

Manchester United EPL 75,186Arsenal EPL 60,019

Newcastle United EPL 50,454

Manchester City EPL 47,070

Celtic SPL 46,917

Rangers SPL 45,750

Liverpool EPL 44,652

Chelsea EPL 41,500

Sunderland EPL 41,240Aston Villa EPL 37,056

Everton EPL 37,031

Table continues...




30/73

Table 2.7: Average Attendance to League Matches for SelectedClubs in England and Wales (number), Season Ending May 2013

...table continued

League Attendance

Tottenham Hotspur EPL 35,948

West Ham United EPL 34,604

Derby County Championship 33,010

Sheffield Wednesday Championship 31,375

EPL English Premier League

Note: data for the EPL is sourced from SoccerSTATS.com; data for the Championship is

sourced from The Football League.

Source: SoccerSTATS.com/FitbaStats/The Football League

Broadcasting Revenue

Broadcasting revenues have represented the fastest area of growth for footballclubs participating in the Premier League. In 1991/1992 the final season ofthe old divisional structure broadcasting income stood at just 15m,

accounting for around 9% of total turnover. This has risen in each subsequentbroadcasting agreement, to reach 1.19bn in 2012, accounting for more thanhalf (50.4%) of total income. The 2012/2013 season marked the final year of a3-year agreement for Premier League broadcasting rights with British SkyBroadcasting (BSkyB) and Setanta (later replaced by ESPN following financialdifficulties). The agreement covered the period between the seasons ending2011 and 2013, with BSkyB and Setanta/ESPN paying a total of 1.78bn to thePremier League.

The current agreement for Premier League broadcasting rights was signed inJune 2012, with just over 3bn paid by BSkyB and BT for the three seasonsending 2014 to 2016, representing a massive increase on the previousagreement. BSkyB secured the rights for the majority of games on offer,winning the rights to five of the seven packages on offer, totalling 116 matchesper season at a cost of 2.3bn over the agreement period. The remaining games a total of 38 per season were awarded to BT in exchange for 738m overthree seasons. BSkyB also currently has the monopoly on football games,following the signing of a 3-year deal worth 195m for the exclusive rights forall Football League live broadcasting for the three seasons commencing2012/2013.




31/73

Other areas of income from broadcasting include significant payments fromoverseas broadcasting rights estimated at around 2bn over the threeseasons ending 2013 to 2016 and agreements for The FA Cup, the EuropaLeague and the Champions League. There are also comparatively smalleragreements for television highlight packages and radio commentary, currently

with the BBC and talkSport.

Commercial Revenue

Commercial revenues are derived from a range of sources, covering all activitiesinvolving the exploitation of the clubs brand. The main sources of income inthis segment, however, include sponsorship, the marketing of brandedproducts, income derived from conference or event hosting, and clubmuseums. Sponsorship is by far the most lucrative activity within thecommercial revenue stream, and with numerous agreements available forclubs and their corporate partners, including:

League and cup sponsor between businesses and the governing body ofthe tournament for headline sponsorship, such as the Barclays PremierLeague, BSkyB Championship and the Capital One Cup. Clubs, in turn, receiveparachute payments from the governing body.

Kit sponsorships between clubs and sports equipment manufacturers,whereby the manufacturer will pay the club to provide its kit in exchange foradvertising on both the kit itself and in and around the stadium.

Commercial sponsors and partners typically each football team will haveone main sponsor whose brand appears on the kit itself. In addition, the

majority of clubs have a number of commercial partners whose branding isdisplayed within and around the stadium.

Stadium sponsorship a relatively new trend, whereby the football stadiumis named after the sponsor, such as the Etihad Stadium and the EmiratesStadium.

Table 2.8: Sponsors of Premier League Football Clubs,2012/2013

Type Kit Sponsor

Club Main Sponsor

Arsenal Fly Emirates Airline Nike

Aston Villa Genting Casinos Gambling Macron

Chelsea Samsung Electronics adidas

Everton Chang Beer Nike

Fulham FxPRO Financial Services Kappa

Table continues...




32/73

Table 2.8: Sponsors of Premier League Football Clubs,2012/2013

...table continued

Type Kit Sponsor

Club Main Sponsor

Liverpool Standard Charter Financial Services Warrior Sports

Manchester City Etihad Airways Airline Umbro

Manchester United AON InsuranceServices Nike

Newcastle United Virgin Money Financial Services Puma

Norwich City Aviva InsuranceServices Errea

Queens Park Rangers Air Asia Airline Lotto

Reading Waitrose Supermarket Puma

Southampton aap3 IT Services Umbro

Stoke City Bet365 Gambling adidas

Sunderland Invest in Africa Conglomerate adidas

Swansea City 32 Red Gambling adidas

Tottenham Hotspur Aurasma Technology Under Armour

West BromwichAlbion Zoopla Property Services adidas

West Ham United SBOBET Gambling Macron

Wigan Athletic 12Bet Gambling MiFit

Source: Key Note

Other major activities within the commercial segment include the marketingof branded products. The distribution of replica kits is the most lucrative

product for football clubs, with income generated both from kit sponsorshipand from unit sales. In addition to replica kits, clubs market a wide range ofbranded items, from scarves, gloves and posters through to mugs and towels.Such products are typically distributed via a number of channels, includingonline stores; physical dedicated stores located in or around the footballstadium; general sportswear retailers; and, increasingly, dedicated clubretailers in high streets where support for the particular club is significant.

Other activities within the commercial segment include publications, such asthe weekly printed programmes; official club membership charges; DVDs; andrevenue from dedicated television channels.




33/73

3. Strengths, Weaknesses, Opportunitiesand Threats

STRENGTHS

Football is considered the UKs national sport, maintaining a massivefollowing throughout country.

The Premier League is the most watched domestic tournament in the world,reaching 804 million households outside the UK.

The vast majority of teams operating in the English Premier League andChampionship have the capacity to accommodate tens of thousands ofspectators.

Football clubs, particularly in the English Premier League, are highly soughtafter as corporate partners, due to the levels of spectatorship both in theground and on television. As such, sponsorship can be massively lucrative inthe elite league.

Mainstream media coverage of football in the UK, particularly the EnglishPremier League, is extensive.

WEAKNESSES

The domination of the largest clubs, and the expenditure of those withwealthy investors, is a cause for concern regarding the competitiveness in theEnglish Leagues.

Relegation from the Premier League can have significant financial impact onclubs, due to the massive drop in broadcasting revenue and performancepayments from the governing body. Although measures have beenintroduced to address this, it remains a concern.

Despite the introduction of financial regulations in the English leagues overthe last few seasons, at least eight clubs remain in critical financial positions.

Although the appeal of football continues to widen, the game continues toattract a primarily male audience.

Football Clubs & Finance Strengths, Weaknesses, Opportunities and Threats



34/73

OPPORTUNITIES

Additional revenue can be generated at football clubs through the leasingof stadia for activities other than football, such as music gigs, boxing matchesand rugby matches.

Merchandising and the exploitation of the club brand, in both the UK andinternationally, by the top Premier League teams has been an area of strongdevelopment in recent years. There remains significant scope for otherPremier League teams to follow suit.

Each broadcasting agreement since the inception of the Premier League hasseen significant growth in the value of contracts, a trend unlikely to end inthe foreseeable future.

Broadcasting agreements for the Premier League are now global business,presenting opportunities to reach an increasing number of overseas nationalmarkets.

Sponsorship agreements between clubs and corporate partners have alsocontinued to increase over the last decade, representing a furtheropportunity for revenue growth, should this trend continue.

The Internet has presented new opportunities for revenue throughmembership and subscription benefits and promotion of the club brand.Development in this area, particularly among the smaller clubs, could helpraise further income and the profiles of the teams.

THREATS

Negative fan behaviour although vastly improved over the last fewdecades has continued to reflect badly on the games image. This has beenexacerbated by the recent trend by some fans to bring flares into UK footballgrounds.

High wages remain a persistent problem in the football market, swallowinga significant portion of annual club revenue. While measures have beenintroduced to counteract this, inflating wages presents huge problems.

Furthermore, the excessiveness of wages has had a negative impact on theimage of the game, particularly in the context of national and globaleconomic recession.

Football clubs across the English Premier League have been criticised for thehigh, and rising, cost of match day tickets. Fans have become particularlydisillusioned with the costs of away games, for which significant travel costsmust also be factored in.

Football Clubs & Finance Strengths, Weaknesses, Opportunities and Threats



35/73

4. Current Issues

2012/2013 SEASON

In the 2012/2013 season, Manchester United regained the Premier Leaguechampionship having narrowly lost out to Manchester City in the final gameof the previous season securing the title with four fixtures left to play.Manchester City finished 11 points behind Manchester United in second place,followed by Chelsea and Arsenal in third and fourth, respectively. In thedomestic cup competitions, the tournaments proved more competitive thanthe league, with mid-table Swansea City defeating League Two side BradfordCity in the League Cup, while in The FA Cup Final Wigan Athletic who wereultimately relegated from the Premier League triumphed over ManchesterCity. As a result, Manchester United, Manchester City, Chelsea and Arsenal all

secured entrance into the 2013/2014 Champions League, while fifth-placedTottenham Hotspur and cup winners Swansea City and Wigan Athleticqualified from the 2013/2014 Europa League competition.

In the 2012/2013 European competitions there was little success for UK teamsin the elite Champions League tournament, with Chelsea and Manchester Cityfailing to proceed through the initial group stage, and Manchester United,Arsenal and Celtic all facing defeat in the Round of 16. However, with Chelseafinishing third in the group stage of the Champions League, the team gainedentrance into the Round of 32 in the Europa League and proceeded to win thecompetition against Portuguese team Benfica in the final, securing Chelseatheir second European trophy in successive seasons following their victoryagainst Bayern Munich in the 2011/2012 Champions League final.

At the bottom of the Premier League, Reading and Queens Park Ranger (QPR) who finished 19th and 20th, respectively joined FA Cup winners WiganAthletic, who ended the season in 18th place, in relegation to the FootballLeague Championship. Promotion to the Premier League was awarded to2012/2013 Championship winners Cardiff City and second place Hull City,alongside play-off winners Crystal Palace. In the Scottish Premier League (SPL) known as the Scottish Premiership from 2013/2014 Celtic retained thechampionship, finishing 16 points above second place Motherwell, and 23points ahead of third place St Johnstone. In the main cup competitions, Celtic

secured victory in the Scottish Cup, while St Mirren prevailed in the ScottishLeague Cup.

Football Clubs & Finance Current Issues



36/73

GOAL-LINE TECHNOLOGY

In April 2013, it was announced that the Premier League had voted in favourof introducing goal-line technology from the 2013/2014 season. British-basedcompany Hawk-Eyes eponymous system which has been used extensively incricket since 2001 and tennis since 2006 as a technological means ofadjudication was selected to provide the camera-based technology.Hawk-Eye, which was installed across the 20 stadiums during the close seasonfrom central Premier League funds, will instantly relay information to thereferee as to whether the football has crossed the goal-line or not.

The introduction of this new technology was taken to a vote in April after theInternational Football Association Board (IFAB) ratified the use of a goal-lineadjudication system following significant debate and campaign led by theEnglish Football Association (FA) after a wrongly disallowed goal in thehigh-profile Round of 16 England versus Germany game at the 2010 South

African World Cup.In addition to Premier League games, the technology will be utilised in any FACup or League Cup fixture where Hawk-Eye has been installed. However, anyground with goal-line adjudication systems that host a Champions League orEuropa League fixture will be required to switch the technology off, as it hasyet to be ratified by the Union of European Football Associations (UEFA).

While the technology to definitively discover whether a football has crossedthe goal line has been available for a number of years, various concerns primarily that the use of adjudication systems would slow the game down had halted its implementation. However, various high-profile incidents that

could have been averted resulted in the technology gaining supportthroughout the UK and internationally. Football managers have beenparticularly vociferous in their support of goal-line technology, with manyfacing defeat in previous seasons as a result of incorrect decisions being made.

FINANCIAL FAIR PLAY

Union of European Football Associations

In 2009, UEFAs Executive Committee unanimously approved a financial fairplay concept in an effort to create a more even playing field and halt theinflationary impact of football clubs spending on salaries and transfer fees.According to UEFA, the principal objectives of the financial fair play conceptare:

to introduce greater discipline and rationality in football club finances

to relieve the upwards pressure on player salaries and transfer fees

to encourage clubs to compete within the means of their revenues

to encourage long-term investment in youth player development andinfrastructure




37/73

to protect the long-term viability of European club football

to ensure clubs settle their liabilities on a timely basis.

The UEFA Club Licensing and Financial Fair Play Regulations were eventuallyapproved in May 2010 and an initial implementation period commenced insummer 2011, with the first assessment period covering the two seasons ending2012 and 2013. As such, the first season in which a club could fail to be licensedfor European Competition is the current 2013/2014 season.

The regulations essentially introduce various criteria that clubs must complywith in order to be licensed to participate in UEFAs club competitions. Themain criterion is an obligation for clubs to achieve a break-even figure inrevenue over a fixed period of time for football-related activities, covering:income from gate receipts; broadcasting rights; sponsorship; advertising;profits from player transfers; expenditure on player transfers; salaries,employee benefits and expenses; and other operating expenses. Expenditure

on youth development activities, community development activities and thedevelopment of infrastructure are excluded from the scope of the break-evencriteria, allowing essentially limitless spending in these areas.

There is, however, an acceptable deviation in the maximum break-evendeficit allowed at each club of 5m. However, if the deficit is entirely coveredby contributions from the clubs equity participants, it is allowed to post a lossof 45m for the 2011/2012 to 2012/2013 and 2013/2014 to 2014/2015assessment period, with this figure falling to 30m in the 2015/2016 to2017/2018 monitoring period, with lower allowable deviations expected to beintroduced beyond this time.

While the withholding of a licence to participate in European competitionsrepresents the ultimately penalty of non-compliance, a number of otherpunitive measure are available for UEFA, including: reprimands and warnings;fines; points deduction; withholding of UEFA distributions from competitionparticipation; and disqualification from a competition in progress.

Premier League

In February 2013, Premier Clubs agreed in principle to a system of domesticfinancial regulations, similar in design to those of the UEFA Financial Fair PlayRegulations. Unlike the UEFA regulations, however, domestic regulations willaffect all clubs participating in the league, rather than only those who qualifyfor the European competitions. The regulations, as agreed in principle, arefocused primarily on a break-even rule, requiring all Premier League teamsto limit aggregated losses to 105m over the three seasons ending 2014, 2015and 2016. Any club exceeding this limit will face a tighter regulatory regime.




38/73

Also included were short-term cost-control measures to halt the massiveinflation in player wages, through the restriction of the amount of PremierLeague central funds that can be used to increase current player wages. Thesemeasures will only apply to clubs with an aggregated wage bill in excess of52m in 2013/2014, 56m in 2014/2015 and 60m in 2015/2016. In 2013/2014,

Premier Clubs with wages in excess of these amounts will only be allowed toincrease salary bills further by 4m; this figure rises to 8m in 2015/2016 and12m in 2015/2016.

However, these measures have been criticised for not going far enough, as thelimit to the annual aggregate wage bill only includes income from PremierLeague distributions. As a result, clubs will still have free reign to increase wagecosts using any increased income from commercial and match day revenues.

Football League

The Football League has also agreed on the implementation of a Financial FairPlay framework to operate across the three divisions Championship, LeagueOne and League Two from the beginning of the 2012/2013 season, again inan effort to limit financial losses at clubs across the country, and to ultimatelyestablish a league of financially self-sustaining football clubs.

The break-even approach, based on the UEFA regulations, was once againfavoured for the Championship, while in League One and Two, clubs willimplement the Salary Cost Management Protocol (SCMP) that has been inoperation in the latter competition since 2004/2005.

Financial Fair Play in the Championship will require clubs to provide annual

accounts to The Football League by 1st December each year, covering theprevious season/financial year. A Fair Play Result will then be determinedusing the clubs profit/loss for the year, excluding investment in certain areasof infrastructure and losses in extraordinary circumstances.

The Fair Play Result must not show a loss of less than the permitted level ofacceptable deviation and shareholder equity investment for the seasons,originally set at 4m and 8m, respectively, falling to 2m and 3m,respectively, by 2015/2016 .Failure to comply with the regulations fromDecember 2014 will be subject to a transfer, which will remain in place untilthe club can lodge financial information that demonstrates compliance.

For League One, SCMP which is already in operation in League Two willlimit spending on total player wages to a proportion of each clubs turnover.In the 2011/2012 seasons, League One introduced a pilot of the SCMP, limitingexpenditure on wages to 75% of the clubs turnover, but no sanctions wereput in place. For the 2012/2013 season this was reduced to 65%, with thecurrent level (2013/2014 season) set at 60%, with sanctions (transferembargoes) applicable.




39/73

SCOTTISH FOOTBALL STRUCTURE REORGANISATION

In June 2013, it was announced that both the SPL and the Scottish FootballLeague (SFL) had voted in favour of a package of measures to deliver a mergedleague in time for the commencement of the 2013/2014 season. The proposalsthat both entities agreed to included:

a single merged league of 42 clubs

the retention of the 12, 10, 10, 10 between the first, second, third andfourth tiers, respectively divisional structure

a more equitable distribution model, with substantial redistribution to thesecond tier to enable full-time operation

a pyramid for the entire game, allowing access to the senior leagues to clubsoperating outside the top 42

play-offs involving the 11th-placed team in the top division and the second,third and fourth-placed teams in the division below at the end of eachseason.

As a result of the agreement, the two governing bodies of the leagues inScotland SPL and SFL were merged to create a single body: the ScottishProfessional Football League (SPFL), and the league divisions were rebrandedthe Scottish Premiership, Scottish Championship, Scottish League One andScottish League Two.




40/73

5. Forecasts

INTRODUCTION

General Economic Forecasts

The UK resident population is forecast to rise by 3.1% from 63.8 million to 65.8million. While this is unlikely to be a major influencing factor for the footballindustry, it should contribute to sustained long-term demand for tickets,broadcasting subscriptions and merchandise.

From 2013, economic conditions are expected to improve, with gross domesticproduct (GDP) growth of 1.3%, followed by more significant annual growthsbetween 2014 and 2017. Growth in GDP indicates increased consumerexpenditure, helping to boost demand for football and football relatedproducts.

Improving economic conditions are expected to provide greater stability in therate of inflation particularly in comparison with the recessionary andpost-recession period ranging from 3.1% to 3.5% over the forecast period.While stable inflation should provide greater confidence in the economy, therelatively high rate predicted over the next 5 years at least in comparison tothe Bank of Englands (BoEs) 2% target rate is likely to impact the price ofmatch day tickets.

UK employment is also expected to improve between 2013 and 2017, with a23.3% fall in unemployment from 1.5 million to below 1.2 million. This shouldalso contribute to a rise in consumer expenditure, and therefore, spending onleisure services and goods.

Table 5.1: Forecast UK Economic Trends (000, %, million),2013-2017

2013 2014 2015 2016 2017

UK resident population(000) 63,758 64,271 64,776 65,271 65,755

GDP growth (%) 1.3 2.2 2.4 2.4 2.3

Table continues...

Football Clubs & Finance Forecasts



41/73

Table 5.1: Forecast UK Economic Trends (000, %, million),2013-2017

...table continued

2013 2014 2015 2016 2017

Inflation (%) 3.1 3.1 3.1 3.3 3.5

Unemployment (million) 1.50 1.39 1.26 1.21 1.15

GDP gross domestic product

at retail price index (RPI)

actual number of claimants; claimant count measures the number of people claiming Jobseekers Allowance

Source: National Population Projections, 2010-based projections, National Statistics website/Forecasts for the UK Economy, November 2013, Treasury Independent Average Crown copyright material is reproduced with the

permission of the Controller of HMSO (and the Queens Printer for Scotland)

FORECASTS 2014 TO 2018

Aggregated turnover at the main UK football clubs is forecast to rise by 18.8%between the seasons ending May 2014 and 2018, from 3.75bn to 4.45bn.Annual growth in club revenue is forecast to fluctuate significantly, largely inline with the start of new Premier League broadcasting agreements in the2013/2014 and the 2016/2017 seasons.

In 2014, as the first year of the new 3bn domestic television broadcastingagreements up significantly from the 1.78bn received in the last deal club revenues are forecast for massive growth, particularly in the EnglishPremier League, where total turnover is projected to rise by 24.2% to 3.08bn,according to Deloitte. Furthermore, Deloitte also projects a 10.9% growth inChampionship revenues in the 2013/2014 seasons, while Key Note estimates acautious 1.3% rise in Scottish Premiership turnover. As a result, revenue across

the main UK football clubs is expected to rise by 13.7% to reach 3.75bn in theseason ending May 2014.

In 2015 and 2016, growth is likely to be subdued following the significantincrease in broadcasting revenue in 2014 at just 3.2% and 3%, respectively,before the implementation of the next Premier League broadcastingagreement for the three seasons beginning 2016/2017. This is expected toprovide a 9% boost in aggregate club turnover, to reach 4.35bn, beforereturning to more subdued growth in 2018 (2.5%).




42/73

Table 5.2: Forecast Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2014-2018

p 2014 2015 2016 2017 2018

Value (m) 3,750 3,870 3,986 4,345 4,454

% change year-on-year 13.7 3.2 3.0 9.0 2.5

p includes Deloitte projections for the Premier and Football Leagues, and Key Noteestimates for the Scottish Premiership

Note: includes main professional and semi-professional clubs, i.e. those participating inthe English Premier League and Football League and the Scottish Premiership.


Figure 5.1: Forecast Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2014-2018

2014 2015 2016 2017 20180

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Note: 2014 includes Deloitte projections for the Premier and Football Leagues, and Key Note estimates for the Scottish Premiership; includes main professional and

semi-professional clubs, i.e. those participating in the English Premier League and Football League and the Scottish Premiership.


MARKET GROWTH

Between the years ending May 2005 and 2018, Key Note forecasts growth of127% in total turnover at the main UK professional football clubs, from1.96bn to 4.45bn, as illustrated in Figure 5.2 overleaf.




43/73

Figure 5.2: Growth in Total Turnover of Main UK Football Clubsby Value (m), Seasons Ending May 2005-2018

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2,000

2,250

2,500

2,750

3,000

3,250

3,500

3,750

4,000

4,250

4,500

Note: includes main professional and semi-professional clubs, i.e. those participating inthe English Premier League and Football League and the Scottish Premiership; 2012data includes Key Note estimates for the Scottish Premiership; 2013 and 2014 dataincludes Deloitte projections for the Premier and Football Leagues, and Key Noteestimates for the Scottish Premiership.


FUTURE TRENDS

Managerial Dismissals

As of January 2014, a total of 23 managers in the English Premier and FootballLeagues have been fired since the beginning of the 2013/2014 season in August2013, and around half of Englands 92 league clubs have a manager who hasbeen in the position for less than a year. This massive glut of managerialdismissals and the pervasive tendency across English football to view

manager dismissal as the quickest route to better results has led the LeagueManagers Association (LMA) to place pressure on The Football Association (FA)to impose sanctions on clubs who ignore employment when replacing technicalstaff. According to the LMA, the majority of managerial sackings are unfairdismissals, ignoring standard human resource (HR) procedures and employerobligations when making staff redundant. With evidence suggesting thatmanagerial dismissals have little effect on club performance; an aggregatedcost estimated at 100m a year in compensation; and increased pressure fromthe LMA on employment law, technical staff could see increasing stability in

job roles in the future.




44/73

Financial Fair Play

With European and domestic Financial Fair Play regulations (examined ingreater detail in Chapter 4 Current Issues) now in effect across the divisions,numerous clubs are at risk of non-compliance. Clubs such

football clubs & finance 2014

Documents