Here’s a familiar story: A foreign competitor grows large and begins exporting, stealing a chunk of the domestic market from a local industry. The local companies begin to complain to their government about unfairness and demand protective measures like import tariffs and quotas. The foreign competitor then warns the local government to resist market-distorting policies that thwart free and transparent competition. Tension and distrust reign.
That could easily describe the steel market today, as steelmakers in the globe’s biggest producer, China, have flooded the world with exports, and struggling American and European steel companies have begun to ask their governments for trade protection.
It could also describe what’s going on in international professional soccer, as a new television contract has suddenly made the English Premier League (EPL) much richer than its competitors and has led to calls from those rivals for their own modernization as well as some dubious measures to protect them.
According to a recent report from Deloitte, EPL teams had revenues of €3.9 billion for the 2013-14 season, a 32% increase from the previous year. With TV revenues of some €2.1 billion/$2.9 billion, the EPL was second only to the NFL (€4.8 billion/$6.6 billion) in terms of international sports. And it puts its “Big Five” European competitors to shame: The EPL had higher revenues than the German (€2.3 billion) and French (€1.5 billion) or Spanish (€1.9 billion) and Italian (€1.7 billion) leagues combined, and none of them had TV revenues over €860 million.
This happened because the EPL has done a much better job globalizing its revenue base—i.e. Its fans—says Vanderbilt University sports economist John Vrooman.
“Over 40% of the current $1.15 billion annually drawn by the EPL from its overseas contracts comes from Asia,” he says, “and two-thirds of that comes from Thailand, Singapore, Hong Kong, and Malaysia. EPL is blowing away the European competition in the new pan-fanatic game of football neo-imperialism.”
That inequality will only get worse, Vrooman says, because under the upcoming TV deal for 2016-2019, TV money for the EPL will explode to $4.7 billion per season. And since last season, the euro has weakened against the British pound by about 12%, making the continental European teams even poorer. (Vrooman compares their situation to that of Canadian NHL teams when the Canadian dollar is weak.)
“European football now has a TV rights problem that has become seriously complicated by its foreign exchange rate problem,” he says.
This raises the interesting question of how this inequality will affect competition between the Big Five leagues: Now that the European soccer market is more highly concentrated in terms of revenues, will talent inexorably flow to the bigger paydays of the EPL, thereby draining other leagues of stars and leading to a golden age for England in the Champions League, the pan-European soccer championship?
There’s no simple answer. While the big new TV contracts are a huge advantage for English teams, several issues blunt their benefit. First, while the new TV money means that all EPL teams are richer than in the past, each of the other leagues has a few “super teams”—PSG in France, Bayern Munich in Germany, and Barcelona and Real Madrid in Spain—that can compete with the richest teams in England.
“Though the Premier is the one that generates the most revenue … the soccer superstars are not in the Premier but in the big Spanish teams (Messi, Neymar, Suarez, Ronaldo, Bale, James) and in Germany with Bayern Munich (Ribery, Robben),” says Plácido Rodríguez, president of the International Association of Sports Economists and former president of Spain’s Sporting de Gijon soccer team.
Factors as simple as weather, culture, and language preferences also matter when players decide where they want to work. “Many South Americans won’t be keen on wet and windy Manchester vs. Warmer and culturally closer locations such as Rome,” says Rob Simmons, a sports economist at England’s Lancaster University Management School.
What is more likely to happen is that instead of draining all the superstars to top English clubs, the EPL’s sudden revenue boom may enable its newly rich mid-tier teams to poach talent from mid-level continental teams, further exacerbating the lack of competition in those leagues and turning off fans.
In the EPL, foreign TV money and half of domestic TV money are shared evenly among the teams. (The rest is divided by performance.) This even share means that, while Real Madrid is still the richest soccer team in the world according to Deloitte, eight of the richest 20 are from the EPL, compared with four from Italy, three from Spain and Germany, and one from France. All 20 EPL teams are also in the top 40.
This disparity is forcing other leagues to look for bigger TV paydays—and distribute them more evenly. Spain’s government recently passed a new law that stops Real Madrid and Barcelona from negotiating their own TV deals. The league will now negotiate collectively, and the money will be distributed more equally once it passes a threshold.
Continental teams still have a long way to go on the inequality front. In Spain, the ratio of richest to poorest in terms of TV pay distribution is 7:1, while in the UK it’s less than 2:1. Because of this, the poorest EPL team in the 2013-14 season, Cardiff City, earned twice as much from TV as the team that won the Spanish La Liga league that year, Atlético de Madrid, which was Spain’s fourth-richest.
“The division here is utterly in-egalitarian, in favor of the haves. It’s just gotten to the point that there’s not enough competition within Spain to optimize fan interest,” says Pankaj Ghemawat, a professor of global strategy at IESE Business School in Barcelona.
For now, though, some continental league officials are falling back on the kind of dubious protective measures that steel industry and other industrialists call for when threatened. At a recent event in Madrid, Spanish La Liga president Javier Tebas said that if the other leagues didn’t modernize quickly, the EPL would become the NBA of soccer, and the rest would become uncompetitive feeders to it.
His solution? Along with Portuguese league president João Martins, Tebas called for the reinstatement of Third Party Ownership (TPO), a practice banned in Europe as of May. Under TPO, investors own a player’s transfer rights—they own the players, in a sense—and profit when he is sold from one team to another.
Tebas and other proponents say bringing in investors allows small clubs to buy players they otherwise could not afford, while opponents say it is not transparent and could lead to match-fixing as players are told to throw games by their “owners.” Michael Platini, the head of Europe’s soccer governing body, has even called it “a type of slavery.”
Now that Spain and the rest of the European leagues are facing soccer’s equivalent of Chinese steel—the Premier League—the question today is whether they’ll find the ability and the desire to modernize … or slip into minor league irrelevance.