BY JOHN McNAMARA
In the first few months of 1637 a peculiar event happened in the Netherlands that would have repercussions for centuries to come. Savvy Dutch entrepreneurs had pioneered, in basic terms, the first recognisable capitalist economy. However, in February of 1637 this fledgling economy burst.
What was this economy built on? Gold, silver, oil? No, it was built on the trade of exotic tulip bulbs – how very Dutch. As tulip bulbs are only available seasonally, buyers would have to wait for their goods, in which time the price of the bulbs may have increased or decreased.
Therefore, people would buy and sell their ‘tulip bulb’ depending on the price. This was, in effect, the first ever stock market with people from all parts of society trading tulip bulbs that were yet to exist. In 1637, however, the price of tulip bulbs plummeted causing a lot of people to lose vast sums of money. Just have a look at that drop below, falling from around 200 florins to 25 in a few months; to put that in relative terms 1 florin was the equivalent to around £10.50.
The halcyon days of making large profits from trading tulip bulbs were over. This was the first ever recorded economic crash, and the cycle of boom and bust has gone on to characterise capitalist society ever since.
I bet you’re thinking to yourself now, “Why on earth is this idiot giving me a potted history of Dutch tulip traders and pontificating about economics?” Well, it’s not because I’m Dutch, an economist or a tulip enthusiast. It’s because I want to take a look at the Premier League and see if it’s headed the same way as the 17th century tulip trade.
In recent years the Premier League has gobbled up a seemingly endless stream of cash, growing into a financial behemoth.
In February 2015, BT Sport & Sky Sports paid a staggering £5.136bn for the Premier League TV rights from 2016-2019, a 71% increase on the previous deal.
Sky Sports themselves ended up paying £330m more than their own analysts had forecast for the live Premier League rights. With average viewing figures down 14% last season and advances in technology meaning we can access football from almost anywhere, is the Premier League money train finally running out of steam?
“Those who cannot remember the past are condemned to repeat it” – George Santayana
The past is often the best place to start when analysing trends and predicting future outcomes, luckily in football we have a recent example of a financial crash. ITV Digital anyone?
In 2002, ITV Digital decided that they would jump on board the football gravy train by utilising advances in digital TV to provide the general public with yet more subscription football. They bid a staggering £315m for the rights to broadcast Championship, League 1, League 2 & Worthington Cup games over a 3-year period.
Huzzah! Times were great. It wasn’t just the Premier League that was benefiting from an injection of cash, but now lower league teams were also invited to the party. Like a teenager from a council estate with a winning lottery ticket, clubs began to spend and spend. Although, unlike Sally from the council estate they didn’t have the winning ticket…
You see, ITV Digital had vastly overestimated the public’s desire to watch football. They never received anywhere near their projected figures for subscriptions and subsequently began to backtrack.
Tail between their legs, they went back to the Football League and tried to re-negotiate the deal from £315m to £130m, and they received a big old ‘eff off. The problem was, that clubs had already begun to spend this money: transfers had gone mad, contracts grew and bank loans became out of control.
ITV Digital were in a bind, they were haemorrhaging £1million a day before they finally went bust in March 2002. A court ruled that they weren’t obliged to pay the £315m they had promised and Sky swooped in to buy 4 years of TV rights for £95m. Quite a substantial drop.
That shortfall of £220m had a profound effect on lower league football, at one stage it was reported that 30 of the 72 Football League clubs were at real risk of going under. Clubs had to cut their cloth accordingly, closing academies, cutting staff and increasing ticket prices.
Despite the best efforts of chairman around the country, 16 clubs entered administration within a year of the deal failing – clubs like Lincoln City only being saved due to generous fund raising from their fans. Barnsley, who had turned a profit for the previous 12 seasons, filed for administration in October 2002 with debts of £2.5m.
My beloved Huddersfield Town stood on the brink of oblivion a year later, relying on the efforts of fans to keep the club afloat in the face of tremendous debts. Lower league football was, to put it bluntly, f*cked – and there are still some clubs feeling the aftershocks.
So, what can we learn from this? Was it a one-off? One of those things that happens from time to time, or was it a clear and stark warning that we must heed? After all, Premier League clubs rely on TV money and the figures show that subscriptions are falling. Could we be headed toward another disaster? Iceberg ahead, Captain!
However, the world that we live in is changing; live streams, Twitter clips and Now TV packages mean that we can access football anywhere, anytime without the need for expensive television subscriptions.
For years, sport has been seen as the staple of subscription TV, the one thing left that the customer will prioritise and make time for. Far easier to maintain by the broadcaster than movie or entertainment packages. It seems that might not be the case anymore.
NFL coverage in America is worth $50bn in rights until the early 2020’s, making the riches of the Premier League look paltry in comparison. However, in 2016 American broadcasters suffered a double digit decrease in viewers and subscriptions.
In the short-term it’s easy to attribute a loss of viewers to seasonal things like the weather, the Olympics or simply a boring game/season. However, it seems that short-term causes are just part of the story, the rise in illegal streams has deeply affected viewing figures.
When illegal streams first came to the fore, Sky Sports invested millions in trying to stop them, and were largely successful, now they resemble an old man trying to plug a hole in a sieve as there are easily 10-15 streams available per game now. I only know that because a friend told me, you know I’d never indulge in an illegal stream, right?
People also want to engage with football differently – blogs such as this one, YouTube, 6 second vines and Twitter highlights. Whilst Sky have been quick to adapt – deciding to show goal highlights on Twitter last season – it’s becoming increasingly hard for them to monetise these new platforms.
In the last election, the Tories found out that the traditional media is declining as the youth of today seek out their information in new and varied ways. Much like the wounded Tories, Sky Sports must learn to adapt to a changing environment or both Murdoch backed enterprises could fall into obscurity.
So, let’s just say that everything I’ve said so far is spot on and that TV subscriptions and packages are on the wane. How else is the Premier League going to sustain itself as a financial giant?
The Far East
Earlier in the summer Liverpool, West Brom, Leicester and Crystal Palace played out a meaningless pre-season tournament in Hong Kong. It was of no benefit to their players to struggle in 80% humidity, suffer jet lag and play on terrible pitches.
It was, however, of benefit to their long-term future. You see, Premier League clubs are now starting to think independently and of themselves, rather than relying on Richard Scudamore at the Premier League to secure their future.
The clubs are aware that the Far East represents a tremendous growth opportunity for them; football is becoming increasingly popular and why should 10-year-olds in China support Shanghai when they could support, say, Everton? They could buy Everton jerseys, Everton subscriptions and even Everton Toffees!
50% of China is connected to the internet and Premier League clubs are eager to secure the fans of tomorrow so that when broadband reaches Daocheng there’s a 21-year-old in an Everton top waiting to buy his Everton TV subscription and singing ‘Z Cars’.
No, I’ve not gone all Doctor Who and I’m not confusing the real world with Playstation games, I’m being deadly serious. Virtual reality is the future of football.
Imagine it; a 360-degree camera placed on a seat with a prime view at Old Trafford. The club sell the equipment to watch the game for £50-£100 and then charge a similar price for a virtual season ticket.
That’s one seat that they could make millions of pounds from, forget charging some loyal Manc £600 for one season ticket – charge a couple of million in China £100 each for it and the money brought in would be humongous. If the technology is right then it will sell, not just to China but all over the world. Think of all the plastic United fans in London that could then claim to be ‘proper fans’!
At a conference about technology and football earlier this year, Aston Villa chief executive Keith Wyness said that clubs are very close to finalising the technology and infrastructure needed to sell virtual reality season tickets.
With a mixture of falling viewing figures and the emergence of new technology it’s perfectly plausible to think that the Premier League could suffer financially in the next 10 years and that we may see an economic crash similar to the ITV Digital debacle.
Yes, advances in technology and virtual reality season tickets could see Premier League clubs replace any loss in television money that they may suffer, but who would that benefit? The big clubs. There’s less likely to be an even share of money, is a child in Beijing going to get a virtual season ticket in the Kilner Bank at Huddersfield or the Stretford End of Old Trafford?
Other European giants could also cash-in on new advancements, challenging the dominance of the Premier League and maybe even paving the way for a European super league. The money won’t run out for the super clubs, but the smaller clubs could be in real danger. I thank God, Huddersfield got to the Premier League in the economic boom period.
Let’s make the most of it.