Can US owners bring NFL cost controls to the Premier League?

With Vegas Golden Knights owner Bill Foley get AFC Bournemouth Last month, the number of American-owned clubs in the Premier League was now eight out of 20, including four from the so-called Big Six (Manchester United, Arsenal, Liverpool and Chelsea). And every time a Premier League club is put up for sale, a host of American billionaires and private equity types show up to kick the tyres.

Chelsea was the most recent example in the spring, when a bidding process selected offers from Boston Celtics co-owner Stephen Pagliuca, a consortium led by Los Angeles Dodgers owners Todd Boyle and Mark Walter, the Ricketts family (who own the Chicago Cubs) and another group that included Josh Harris and David Blitzer (owner Philadelphia 76ers).

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Most American owners – in fact, most foreign owners, who make up 75% of the Premier League – have done little so far to fundamentally change how the league operates. But as the sports and media landscape has changed — and with the league making operating profits in only two of the past 10 years, according to Kieron O’Connor, who… He writes the Swiss newsletter Rampel On football finance – you wonder how long this will be the case. (Note that operating profit/loss is different from accounting profit, which includes trading players, i.e. the cost of acquiring players versus the revenue from letting them go.)

Given that the Premier League’s shareholders are the 20 member clubs themselves, there is little doubt that they have the power to make sweeping changes – such as setting salary caps, reducing or eliminating relegation and altering the distribution of revenue – if they choose.

Why might they choose to do this? Well, because circumstances have changed and because this group of owners (not just Americans) is different from the one that owned European clubs in the past.

Historically, teams were funded by individuals or companies who weren’t necessarily looking to make a final return. Many clubs ran at breakeven, while those who took losses were OK with that because their owners got return in other ways. Sometimes, they were simply as wealthy cheerleaders as wealthy boosters in NCAA sports; Sometimes they were businessmen looking to raise their profile or gain political influence.

None of the current US ownership groups fit this profile, but they nonetheless invested because conditions seemed right. The rationale was simple: getting a Premier League club was relatively affordable, and that gave you a foothold to the most popular league (one with a truly global footprint) in the most popular sport in the world.

Many were convinced that with some business sports knowledge in the US, they could monetize the game more effectively and the league’s popularity would continue to grow, and if penetration into the US market occurred in a meaningful way, you were set for a day’s pay. Plus, with money so cheap at the time—and with many of those investors having piles of it—acquiring unique assets like a sports team (or a piece of art or real estate) was a natural hedge against inflation.

Things have changed a bit. Money isn’t exactly cheap (interest rates have gone up), the economy has taken a hit and people are realizing that there is no quick fix in the US to increase revenue. (Well, anyway…)

There are three primary criteria that may lead an ownership group (not a nation-state, which has other reasons) to acquire an asset. One is vanity/philanthropy/personal enjoyment (eg historical owners of football clubs), but that doesn’t generally apply here. Another is profitability and cash flow, but as O’Connor shows, Premier League clubs incurred operating losses of £1.4 billion ($1.7 billion) in the eight years before the pandemic (and £2.3 billion – or $2.8 billion – of total) losses. in the following two years that were affected by COVID). Third, capital appreciation: What you earn when you sell the asset will be much more than what it cost you, both to acquire it and to operate it over the years (if you’ve incurred operating losses).

It seems that this last factor is the only one that still applies. It may be spurred on by the fact that both Fenway Sports Group and The Glazers are open to selling all or part of their stakes in Liverpool and Manchester United at reported estimates of $3 billion, $5 billion to $7 billion – several multiples more than they paid. for them. But as the fine print says, “past performance is not indicative of future results.” It’s not something you want to take for granted.

The main reason many Premier League clubs continue to incur operating losses is that wages and acquisition costs continue to rise each year, more than doubling from around £2 billion ($2.4 billion) to £4.8 billion ($5.8 billion) in a decade. time.

Another way to think about this – and understand losses – is to look at the percentage of revenue that is spent on labor costs, i.e. the amount that is paid to players in salaries. In the NFL, it is set at 48% as a result of a collective bargaining agreement with the NFL Players Association (NFLPA). In the English Premier League, only One Among the 20 clubs (Tottenham, 39%) were below that threshold in 2018-19, the last season before the coronavirus pandemic. Excluding the three newly promoted clubs that year, the league average was 65.6%.

Keep in mind that unlike the NFL, where money doesn’t change hands when players switch teams, in the Premier League, you pay a transfer fee when you sign up a player from another club. In the 2018-19 season, net spending in the Premier League – the difference between the costs incurred to sign players and the revenue earned from sending them elsewhere – was $1.15 billion… which is far more than the NFL’s figure. Well, zero.

Simply put, the quickest way to profitability is to control costs, a concept all too familiar to American sports owners, all of whom have some version of a salary cap or luxury tax. It seems reasonable that Premier League owners would push for something along these lines, likely pegging team expenses (not just player salaries, but transfer expenses, agent fees and coaching staff wages) to a percentage of revenue. In fact, a similar system already exists in La Liga, and UEFA, the governing body for European football, also Implementation of the new regulations For teams competing in continental tournaments such as the Champions League which aims to reduce team expenditures to 70% of revenues by 2025-26.

So the appetite for something like this is already there, and you’d expect Premier League clubs – including those not involved in European competition – to follow suit in some way. Of course, limiting your spending increases your exposure to downside, which can be financially disastrous.

Is it possible that there is pressure to reduce the number of relegation points? Why not? It is the fastest and easiest way to increase the value of all Premier League clubs, especially the smaller ones.

Also, why stop there? Could we see more revenue sharing like in the NFL, where almost all revenue other than corporate sponsorships, franchises, and 60% of total ticket sales is split evenly among the 32 teams? In the interest of parity, sustainability and with certain guarantees (eg no landing), who knows?

The main argument against this model is that it could handicap English clubs in the Champions League – another problem the NFL does not have to worry about. And certainly, if the new UEFA regulations are not applied properly or are not applicable, it will hurt the Premier League team’s performance in Europe. But even for clubs that qualify for Europe, revenues from UEFA competitions account for no more than 15-20% of the total. It is not as if English clubs would suddenly stagnate and disappear if they spent a smaller proportion of their revenues.

Don’t you think it will ever happen? Maybe you are right. When times are good, the money keeps flowing in and the club’s valuations keep rising, maybe all this isn’t needed. But it is worth noting that the Big Six of the English Premier League are all involved in the Premier League, and that Liverpool and Manchester United were behind The big picture project. Both projects were abandoned amid public protests and political pressure, but the willingness was there. And if they are willing to stand up and stand up to political pressure, all it takes is for 14 of the 20 Premier League clubs to rewrite the rules. No. Given the NFL’s success and profitability, it’s not just American owners who might look favorably on this.

Every owner, no matter where they come from, knows how things work across the pond and how successful the NFL and NBA are. Every owner has got there by knowing how to run a business. And not every owner is attached to the ancient pyramid model of the European game.

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