A game worth £1,200 per second
During summer 2012 the English Football Association Premier League (PL) increased the quantity of matches available to be broadcast live from 138 (of 380) to 154 per season. Under auction BSkyB purchased 116, British Telecom the remaining 38, with total revenue received by the PL topping £1 billion a season, 2013 onwards. The increase in marginal revenue with an increase in quantity shows that demand for live PL matches has grown. The PL sold these rights for £6.5 million per match (approx), the equivalent of around £1,200 per second of game time. Protecting this revenue on behalf of the member clubs, the PL acts in such a manner that would usually be considered against government guidelines.
Is this really illegal behaviour?
Since its creation in 1992, the PL has attracted large audiences and with it large revenues for the rights to broadcast live matches on television. The 20 PL clubs act collectively in the sale of broadcast rights, worth £594 million per year, 2010 – 2013. The quantity of broadcast games is restricted to roughly one third of the total 380 matches played per season. Unlike the Italian and Spanish leagues, individual clubs are prevented from selling the rights to their own games directly to a broadcaster, even though these would not otherwise be broadcast.
The concern is that the PL is acting as a cartel, restricting output and depriving consumers of the benefits of viewing more football matches in such a way that only pay-TV companies, such as BSkyB, can afford to purchase the rights. Although contrary to government competition guidelines, restrictive practices have been allowed to continue. Until 2007 UK football fans could only watch live PL matches on television by subscription to Sky Sports, owned by BSkyB. The European Commission has attempted to remove the exclusivity of BSkyB by ruling that rights have to be sold to more than one broadcaster. Despite this regulatory intervention, the power of the single seller and the dominance of BSkyB arguably still distort the market.
The PL states that this collective arrangement is an efficient way to organise the selling of broadcast rights, benefiting all parties concerned (European Commission, 2002). The main argument put forward by the PL is that matches broadcast live on television can be considered as a substitute for watching at the stadium. Restricting the quantity of live broadcasts limits the potentially negative effect of lower attendance at the stadium and limits reduction of support due to overexposure in the long run. The PL has argued that any increase in revenues from selling additional rights would be offset by the loss of gate receipts at the matches, as attendances would fall.
So does stadium attendance fall?
Analyzing this argument for collective behavior put forward by the PL has been attempted a number of times in the past. This study uses a four-season-long data set from 2004 to 2008 to estimate the effect of live broadcasting on match-day gate revenue. This more recent data includes the first-year Setanta acquired broadcasting rights due to the European Commission’s involvement. The demand for attending a live football match at the stadium will be influenced by factors such as the ticket price, prices of related goods and services (such as travel costs), prices of substitutes (such as live on TV) and income (Hammervold & Solberg, 2006).
The model is estimated using a fixed effects method, with the assumption that the observable factors in the model contain useful information about the club-specific unobserved effect. The club-specific effect is also referred to as unobserved, time-invariant, cross-sectional heterogeneity. If left unaccounted for the unobserved effect will force the estimation to return inconsistent results as it is a relevant omitted variable. The effect can be addressed directly, using fixed effects estimation to account for the unique club characteristics such as population density, unemployment, male earnings, last season’s attendance, age of club, relative wage bill and transfer spend (Allan & Roy 2008).
Television broadcasters will wish to show the most attractive matches to gain the largest television audience as possible. Attractive matches that are broadcast will therefore have two opposing effects on gate revenue: Firstly, gate revenue will be greater for more attractive matches as either more fans wish to watch the match or the ticket price will be higher, or both. Secondly, the attractive match is broadcast live, reducing the gate attendance. To decompose this effect the model is estimated once with more attractive matches and again with less attractive matches. The “top four” clubs appear in live broadcast matches between 18 to 25 times each in the 2007-08 season , as the PL and the broadcasters believe these to be more attractive matches. For the least attractive broadcast matches the games involving Wigan (9 matches televised during the 2007-08 season), Birmingham (10), Middlesbrough (10), West Bromwich Albion (11 matches during the 2004-05 season) and Sunderland (12), collectively named “bottom five” clubs will be used. All information you may need, you will find it on Football Perspectives.
Estimation shows that gate revenue is reduced by 19.7% (or £232,237 based on the average gate revenue for all clubs) when the match is broadcast live for all clubs. Compared to existing studies, at the extremities, Allan (2004) estimates a similar effect to be 7.7% and Garcia and Rodriguez (2002) estimate 46%. The marginal effect is reduced to 2.4% for just the “top four” clubs and increased to 21.5% for the “bottom five” clubs. This indicates the differences in demand for matches involving the two groups of teams. The more successful teams are better able to keep gate revenue from reducing when fans have an alternative to watching the game at the stadium. Payments to each club from the PL are on average £4.12m per game broadcast (2007-08 season). This figure includes the equal share allocated to each club by the PL and the merit payments awarded for final League position as well as a facility fee. Facility fees are based on how many appearances the team makes on live television, this part of the payments is the only part to vary with the amount of games broadcast.
These results show that the effect of live broadcasting on match day gate revenue is negative and not the same for every club in the PL. Importantly, the payments to clubs from the PL for live broadcasting outweigh the loss of gate revenue. In other words marginal revenue is greater than marginal cost. The price, in theory, will fall as quantity increases but relaxing the quantity constraint on broadcast matches towards the point that marginal coast and revenue are equal should increase profit. This is to say, the fans, the broadcasters and the clubs involved in the market may well be made better off by an increase in PL matches shown live on TV.