It’s the elephant in the Premier League boardroom. The seventeen years of the expansion (and, subsequently, the debt) of the Premier League has been built largely on television money, but possible upcoming changes to the regulations regarding digital television in England could see the once seemingly endless increase of money being paid to the clubs by Skt Sports start to dry up somewhat. At a Premier League meeting three weeks ago, Richard Scudamore admitted as much to the chairmen of the twenty members of the league. The response, according to one source at the meeting, was “stunned silence”.
The Premier League’s business plan is utterly, hopelessly dependent upon a constant stream of money. More than prize money or gate receipts, it is the bed rock upon which the illusion of the league’s wealth is built. The concerns of the Premier League are very real, though. Prompted by complaints that Sky are too dominant in the pay TV market from rivals BT Vision, Virgin and Top-Up TV, the industry regulator Ofcom launched an investigation into the market, in particular focussing on the high cost to these rivals of carrying Sky’s premium sports and movie channels. The results didn’t make for very encouraging reading for Sky.
Ofcom’s intention is to force Sky to cut the cost of the sale of their services to their rivals by something up to one third. Such reductions would be likely to introduce something of a price war, with significant reductions being passed on to consumers. It would also have knock-on effects that would go on to affect Premier League football clubs. On the one hand, if revenues are due to drop, Sky may decide to bid less for sports rights next time around. This is unlikely in itself (although certainly possible), but it is not the most damaging scenario for the Premier League.
The most damaging scenario would be a situation in which Sky’s rivals decided that it was not worth their while to bid serious amounts for the Premier League because they could be guaranteed a reasonable rate through re-selling Sky’s coverage of matches. This in turn would lead to a less competitive auction next time around, and without competition that was prepared to bid into billions of pounds against them, there would be no obligation on Sky to do so either. Whichever of the two scenarios unfolds, the outcome would appear, on paper at least, to be cheaper Premier League football for British viewers.
Of course, things aren’t quite that simple. There is a reason why Ofcom is pushing through the recommendations now is because it fears for its own existence if (or when) a Conservative government takes power in the spring. It is possible that they may have left it too late, especially if, as is widely expected, Sky launch a legal appeal which will suspend the report from taking firm shape until a court case has been heard. This may prove to be long enough for a new government to strip Ofcom of its regulatory power and, considering the amount of mutual love there has been between the Murdochs and the Conservatives over the last couple of years or so, such an eventuality would hardly be surprising. The free market only seems to be “free” when it is defending the hegemony of those in charge.
There is a third way, however, which may just be enough to appease Sky, and details of this were made public earlier this week. In 2007, Sky proposed launching an equivalent service to Freeview to be called Picnic, which would offer a limited range of premium channels through an alternative set top box and a normal aerial. One of the factors that still holds Sky back is that millions of homes cannot receive its programming because they cannot get cable television and cannot install a satellite dish. Allowing Sky to push on with Picnic (which was ruled out by Ofcom three years ago) or through Freeview itself might just be enough of a sweetener to persuade them to grudgingly drop any legal action beyond stalling tactics. It is not currently known whether this tactic would work, though.
How would this affect the Premier League, though? At the top end of the division, the clubs are less reliant than the clubs at the bottom are on television money. Just over a third of Manchester United’s income comes from the domestic television money that they receive, but down at the foot of the table Sky’s pot of gold accounts for considerably more. According to The Times, “the latest accounts for Hull City showed that 84% of the almost £40m increase in turnover it has enjoyed since promotion was from broadcast money”, although we have to take much of what The Times says on the subject with a pinch of salt because of its affiliations to Rupert Murdoch.
So, Sky may be able to claw their money back, but the issue of how this will be reflected in future television contract negotiations remains intractable. The Premier League has bumped up the amount of money that it makes from overseas television contracts considerably, but the total of these sales remains dwarfed by the domestic contract. The Premier League is, however, somewhat better insulated against this than other sports such as rugby and cricket, because of its overseas appeal. Also, the collective bargaining principle is enshrined in the Premier League rule book, and the likelihood of bigger clubs getting enough support from the smaller clubs to negotiate a bigger slice of the pie for themselves through independent television deals would seem to be remote.
Despite these silver linings, however, the Premier League is sitting on a time bomb and it has three options to deal with it. The current contract isn’t up until 2013, which gives clubs three years to cut their cloth accordingly. Considering the way in which most Premier League football clubs deal with their finances, this seems unlikely. They could pass these costs on to supporters through increasing season ticket sales again, but the pattern of season ticket sales over the last couple of seasons would seem to indicate that the glass ceiling of what supporters – even the most loyal – are prepared to say for their seats would appear to be close, if not already actually reached. This would be a high risk gamble. The third option would be for the twenty Premier League football clubs to put their fingers in their ears and sing very loudly. It says something about the level of confidence that most people have in those running Premier League clubs that many supporters would pick the latter of the most likely of those three scenarios.