The real problem with Liverpool's media income

There are few things as unedifying in any aspect of life as hearing the rich demand more at the expense of the less well off, and football is no different.

Ian Ayre, Liverpool FC's Managing Director has suggested that the current (equitable) distribution of the Premier League's overseas rights income should be looked at. Ayre believes that "big" clubs (which apparently includes clubs that finish 7th and 6th respectively in the last two seasons) should get a bigger share.

Ayre is particularly worried about "competing" with Barcelona and Real Madrid and told the Guardian:

"If Real Madrid or Barcelona or other big European clubs have the opportunity to truly realise their international media value potential, where does that leave Liverpool and Manchester United? We'll just share ours because we'll all be nice to each other? The whole phenomenon of the Premier League could be threatened. If they just get bigger and bigger and they generate more and more, then all the players will start drifting that way and will the Premier League bubble burst because we are sticking to this equal-sharing model? It's a real debate that has to happen."

So how bad is the competitive gap between Liverpool and the Spanish giants?

Well at face value, the gap is big and growing. The chart below shows Liverpool and Barcelona's media income for the last five seasons (numbers for 2010/11 are derived from the PL, UEFA, FCB's account and an estimate of LFC's domestic cup income). I have converted Barcelona's income from Euros into Sterling at the average exchange rate for each season.

Having been £20m in 2006/07, the gap has expanded enormously to £75m last season. So what's going on?

Much is made of La Liga's highly inequitable TV rights deal which allows Barcelona and Real Madrid to negotiate to sell their rights individually, creaming off the majority of the total paid between the two clubs. This has indeed been a factor as the chart below showing income from the domestic league rights demonstrates:

The chart appears to show Barcelona's league income running far ahead of Liverpool's in recent years, but it masks the key impact not of the way rights are sold, but of currency. In 2006/07, one € was worth on average 67.6p, by 2010/11 the pound had devalued substantially and one € was worth 85.7p. Once this currency impact is accounted for, a different picture emerges:

The chart above, rebases domestic league media income to 100 in 2006/7 and shows Barcelona's figures in both £ and €. From this chart it is clear that in local currency, the value Liverpool receive for domestic competitions (PL, FA Cup and Carling Cup) has actually grown faster than the equivalent in Spain.

So currency plays one factor in explaining the divergence between the clubs, but there is another huge factor at play; performance on the pitch.

To get a sense of how the relative fortunes of the two clubs have diverged and how crucial this is to media income, consider the following chart showing UEFA TV distributions (all in €).

In 2006/07, Liverpool earned €9.5m (£6.4m) more from the Champions League than Barca. By 2010/11, the positions were radically reversed with Barcelona earning €44.9m (£39m) more from their winning CL campaign than Liverpool did from the Europa league. This season, Liverpool will earn precisely zero from Europe.

Rather than bleating on about how unfair the allocation to Bolton Wanderers is, Ayre needs to look at the performance of his own club. The gap in media income with Bolton over the last five years is already £159m, how much more does he want?

If Liverpool football club had made better use of the £340m in media income they have received since 2007, perhaps they would have been closer to Manchester United on the pitch. The gap last year between United and Barcelona? Not £75m but £20m.....

LUHG

Why Barcelona are entering a period of “austerity” and probably can’t afford Rooney....

The shadow of UEFA's Financial Fair Play Regulations ("FFPR") continues to fall over European football. Whilst most commentators see the FFPR as being designed primarily to clip the wings of the sugar daddy financed Manchester City or Chelsea, the last few days has seen their practical impact on a club that should require no external financing; FC Barcelona.

On Saturday, new President Sandro Rosell and CEO Rossich Anthony not only persuaded Barca members to vote for court action against former President Joan Laporta but presented a budget for the current 2010/11 financial year which imposes breathtaking cuts on the formerly spendthrift club.

The Rosell revolution

In some ways, the plans for 2010/11 contain the usual Barca swagger. Matchday and media income is projected to increase slightly implying progression to semi-finals of the Champions League for what be the fourth year in a row. What has gone however is the enormous spending of the Laporta era. Sporting salaries (84% of which relate to football according to the most recent accounts) are projected to fall 6.2% having risen 17% last season. Player amortisation (the cost of transfer spending recognised over the contract life of acquire players) is projected to fall 17% and other costs are supposed to fall a George Osborne like 24%!

Bringing costs back in line with income is of course just good practice, and Barca's need for an emergency credit line in the summer told us all we need to know about how overstretched the club had become. After all, Laporta's regime oversaw the ludicrous saga of Zlatan Ibrahimovic's transfers which the club claim cost €33.4m including no less than €8m to his agent, the lucky Mino Raiola.


What has not been mentioned in all the gnashing of teeth in Catalonia is the threat to Barcelona from UEFA FFPR. Without the full 2009/10 accounts (which are yet to be posted on the club's website) we cannot fill in all the details, but the table below shows my estimate of how Barca would have done on the regulations' "break-even" test last season, as well as how the 2010/11 budget stacks up (footnotes at end of post):

On my calculations, FC Barcelona would have missed UEFA's "break-even" target by a staggering €48.5m if the rules had been in place last season. The "Acceptable Deviation" UEFA say they will permit each year is only €5m and of course Barcelona do not have a Sheikh Mansour to fill some of the gap.

The Rosell plan, shows the club squeaking in this year with a c. €10m surplus putting the club on a firmer footing for the first "monitoring period" for the new regulations, the 2011/12 season. Plans are of course plans and football is inherently unpredictable. Rosell and his board know all this of course which is why I think we can probably rule out the Catalans in any future bidding war for W Rooney esq.


Footnotes to FFPR table
* Only net finance costs provided by the club

** Non-football sporting revenue/costs assumed to be permitted for inclusion under Annex X B(1)(k) and C(1)(k)
*** 2008/09 youth teams costs assumed constant in 2009/10 and 2010/11
**** Estimated


The new UEFA regulations can be downloaded here.


LUHG

Be sure to be prudent: FC Barcelona’s amazing disappearing profits

Different country? Same economy....

Having shocked the sporting world by failing to pay their players in June (and announcing they needed to take out a €150m bank credit facility), FC Barcelona went further today with the announcement of major adjustments to their previously published (although unaudited) results for the year to June 30^th 2010.

The unaudited results had been published by the previous Treasurer, Xavier Sala i Martin on 30^th June 2010 and showed EBITDA of €96m and net profit of €9m on turnover of €446m. The new President (Sandro Rosell) and his executive management have agreed substantial changes to the audited accounts with the club's auditors Deloittes. The changes generally relate to judgments about what revenue and costs to recognise, with the Rosell management and Deloittes taking a far more prudent approach than the previous board.

The accounting changes can be seen below:

The biggest adjustments come from two connected disputes over TV rights in Spain. FCB are now recognising a potential €37.8m liability to TV company Sogecable and are no longer recognising €18.5m owed by as yet unpaid by current rights holder Mediapro. Mediapro has sought court protection from its creditors due to a dispute with (small world) Sogecable. Although FCB have not yet published a cash flow statement, it seems likely that Mediapro's travails were the main cause of the June cash flow crisis.

Whilst the Mediapro/Sogecable adjustments are just tighter accounting practice, the need to make further adjustments relating to land sales and valuations and player sales (including that of Thierry Henry) hint at darker goings on to massage the shape of the balance sheet during the Laporta presidency.

The impact of the above changes can be seen below:

The official FCB statement talks of a higher revised debt number of €442m (and €552m "gross debt"), compared to the originally published figure of €326m. From a normal IAS (or UK GAAP) accounting perspective, this is misleadingly high, as Rosell and his team like to include all sorts of short term liabilities in their numbers (such as prepayments). We will have to wait for the full accounts to see the true debt position.

With numbers so limited (and a considerable dose of Catalan politics to take into account), proper analysis of the situation is difficult at the moment. Having said this, FCB's financial difficulties should be a salutary reminder of not relying too much on an endless bonanza of TV money.....

LUHG