The great Premier League TV revenue debate

When the English Premier League released its revenue distribution data for the 2016-17 season, a few mouths might have hung agape. But soon enough, the football world realized that the mind-boggling nine- and 10-figure sums revealed a startling truth: Each of England’s top six clubs brought in more TV revenue from the Premier League than Barcelona or Real Madrid did from La Liga; more than Bayern Munich garnered from the Bundesliga; more than Juventus got from Serie A. The EPL’s top clubs, in part thanks to its lucrative television contracts, are absurdly rich.

And yet, they want to be richer.

According to several reports, the Premier League’s Big Six – Manchester United, Manchester City, Chelsea, Arsenal, Liverpool and Tottenham – are pushing for larger shares of revenue; the league’s chairman, Richard Scudamore, is hoping to appease them; but the league’s commoners, the other 14, are pushing back.

A Wednesday meeting that was expected to end in a vote concluded without an agreement. The 20 clubs unanimously agreed to adjourn, and will re-engage in discussions at their next meeting in November.

Scudamore reportedly met with representatives from the bottom 14 clubs at a London hotel last Wednesday to present a proposal that called for a larger portion of the league’s TV revenue to be allocated based on performance, rather than divided up equally among the clubs. Three of the 14 – Everton, Leicester and West Ham – reportedly backed the proposal. Eleven didn’t. Scudamore and the Big Six needed to get five more smaller clubs on board, and failed to do so by Wednesday.

So the battle continues. And it’s not an exaggeration to say that the future of the Premier League could be at stake.

What exactly do the Big Six want, and why?

The proposal reportedly calls for 35 percent of revenue from the Premier League’s next overseas TV rights deals – negotiated in early 2018, effective 2019-2022 – to be distributed based on league finish.

Overseas TV revenue, which totals over £1 billion per season under existing rights deals, is currently split evenly between all 20 clubs. It represented almost a third of the revenue distributed by the league to its 20 members in 2016-17. For clubs at the bottom of the table, the £39 million payment was as much as 42 percent of the money they took in from the league.

If rights fees held at their current value for the next three-year cycle, and if the distribution mechanism for the 35 percent of overseas TV money were similar to the one used for 25 percent of domestic TV money, Scudamore’s proposal would cost the league’s 20th-place team roughly £12.3 million per season. It would add the same amount the league champion’s bottom line. The new policy could be worth as much as £37 million to a given club over the three-year period.

(Note: There have been suggestions that the distribution mechanism is a bit more complicated than the one used for domestic TV “merit payments,” and that 13 of the 20 clubs, rather than 10, would make more money in a given year. But that would simply mean less money for the other seven.)

But herein also lies the reason the overseas TV money is the subject of Big Six interest: There is no way rights fees don’t balloon. Foreign TV contracts are seen as the next source of massive revenue growth for the Premier League. While the £2 billion increase in domestic rights fees, which drove the latest boom, is unsustainable, foreign interest is expected to drive the next boom. That’s why the big clubs want a bigger slice of that specific pie.

How does the Premier League currently distribute revenue? And how does its system compare to those of other top European leagues?

The Big Six already do get a large chunk of the pie relative to the Premier League’s stragglers. But in 2016-17, under the current system and current broadcast and sponsorship contracts, 66 percent of the league’s shared revenue is apportioned equally to its 20 clubs. That 66 percent comprises all of the overseas TV money, half of the domestic TV money, and all other central commercial revenues.

The other half of the domestic TV money is divvied up based on league finish – “merit payments” – and number of games featured on TV in the U.K. – “facility fees.” Here’s how the money broke down in 2016-17:

The Premier League’s top-to-bottom revenue distribution ratio was 1.61-1, by far the most equitable among its European competitors. La Liga’s was roughly 3.7-1. Serie A’s was around 4.7-1. The Bundesliga’s was estimated at 3.2-1. France’s Ligue 1 was in the La Liga-Bundesliga range.

England’s top clubs still bring in more TV revenue from their league than their German and Spanish counterparts because of the Premier League’s overall financial might. Sixth-place Manchester United earned £141 million last season, more than the approximately £131 million and £125 million La Liga paid Barcelona and Real Madrid, respectively.

But England’s heavyweights get a lesser proportion of their league’s revenue than do Madrid, Barcelona, Bayern or Juventus.

So do the Big Six deserve a larger share?

Economically, yes – United, City, Chelsea, Arsenal, Liverpool and Spurs do deserve more of the overseas TV money. That’s because they earn the Premier League most of its overseas TV money. The vast majority of foreign fans tune in to watch one of the Big Six. According to Nick Harris, the EPL’s five most popular clubs – excluding Tottenham – are responsible for around half of global TV audiences (and in reality probably way more than half), but only receive a quarter of overseas TV revenue.

Under the new proposal, and under the presumed system mentioned above, the league’s top five finishers would get 35.3 percent of the overseas TV revenue. Even that wouldn’t accurately represent their value to the league’s global brand. But it would be a step in that direction.

Why would the league agree to give them a larger share?

Because the Premier League fully understands that the Big Six are integral to that global brand. And it knows that if at some point it were to lose any or all of those six, its marketability – and revenues – would plummet.

Nobody quite knows how feasible a Big Six breakaway actually is. Every once in a while, there are rumblings of a European superleague – of some sort of revolutionary competition that would pluck the top teams from the five or six biggest European leagues and create a new, preeminent, untouchable continental league. In the short term, chances are slim. But they’re not non-existent.

And Scudamore is surely aware of the historical irony here: The Premier League was initially founded because England’s dominant clubs felt revenue was too widely dispersed down through the lower divisions.

In a way, the same forces that brought the league together 25 years ago threaten to tear it apart.

So does that mean the league should give the Big Six a larger share?

No. Because a big reason the Premier League’s TV deal is so lucrative in the first place is that its method for distributing that TV money has been so equitable.

There is little doubt that, throughout this decade, Spain’s best teams have been better than England’s. But the Premier League has seen its greatest growth at a time when its clubs have regularly failed in the Champions League. The EPL is by far the most popular league in the world because of its top-to-bottom competitiveness.

And it is competitive because its revenue sharing is equitable. Until 2015, La Liga allowed its individual clubs to negotiate their own TV deals. This allowed Barcelona and Real Madrid to pull in nine-figure annual numbers while most of the league was in the low eight figures. The 1st-to-20th TV revenue ratio was around 8-1. Meanwhile, the average point total of La Liga’s top two in the eight seasons since 2009-2010 was 92.9. The average point total of the Premier League’s top two in the same period was 83.4.

And yet despite the on-field and financial inequality in La Liga, the Premier League’s top teams make more than the La Liga giants. Spanish authorities recognized this, and moved in the direction of the Premier League, toward a more equitable system. It would make little sense for the Premier League to regress back toward its European peers.

There is an argument that the smaller revenue proportions have held English clubs back in the Champions League. Former Liverpool CEO Ian Ayre has made that argument. But those failures aren’t about money. The Big Six all ranked among the top 12 in the world in annual revenue even before the new TV deals kicked in, and could all claim spots in the top 10 when Deloitte releases its new Football Money League table in a few months.

They are already separating themselves from the pack via separate Champions League TV revenues. They are already separating themselves via merchandise sales and club sponsorship deals. The Premier League is already becoming stratified. The Big Six don’t need more money from the league to keep up.

What will the resolution be?

If the 11 who oppose Scudamore’s proposal held firm on Wednesday, it seems likely that some sort of compromise will be reached at a subsequent meeting. Involved parties will find some sort of middle ground in between the current system and Wednesday’s proposal. With the support of 14 of 20 clubs necessary to approve a change, and only nine in favor last Wednesday, a lot would have to change for the proposal on the table to be accepted.

Any amendment that suggests sending more money to clubs that finish higher up the table is inherently difficult to pass under the Premier League’s current structure. Essentially, 14 of the 20 clubs would have to consider themselves among the 10 (or 13) best in England. That requires a good amount of irrational optimism and self-belief.

But this is the first time the league’s powerbrokering clubs have compelled Scudamore to move to heed their demands. It is not the first time they have clamored for larger revenue shares. It is the first it appears they might get them. Their voices appear to be louder than they’ve been in the past. They aren’t just going to be silenced by the status quo.

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Henry Bushnell covers soccer – the U.S. national teams, the Premier League, and much, much more – for FC Yahoo and Yahoo Sports. Have a tip? Question? Comment? Email him at henrydbushnell@gmail.com or follow him on Twitter @HenryBushnell.