There has been some noise made about the rising cost of ticket prices in football. With the exceptional rise in transfer fees paid by clubs over the last few years, it amplifies the issue how sustainable the sport is and the revenue levels that need to be achieved in order to maintain competitiveness.
Generally, football clubs have three streams of income, consisting of match day, broadcasting and commercial revenues.
The graph below from Deloitte Money League, published in January 2014, shows the revenue breakdown of the top 20 clubs in Europe.
On average for the top 20 clubs match day revenues represent 21% of total revenue. A number of factors are influencing some of the variations, such as Paris SG recording an extraordinary steep increase in commercial/sponsorship revenues, therefore reducing the match day revenue stream as a percentage. The graph also does not account for the number of games played, the underlying assumption for the moment is that all the clubs play the same number of games.
Taking a closer look at the match day revenue stream, it is obvious that stadium capacity for each club needs to be considered. By taking the total match day revenue generated and dividing it by the stadium capacity, you get a metric that is "Revenue per Seat". The chart below summarises the results.
Arsenal, Chelsea and Manchester United stand out in revenue generated per seat, validating the concern over inflated ticket prices, in comparison to other European clubs. Are these clubs just running a shrewder business or do they have more dedicated fans? Against other EPL clubs the differential would be even more significant due to lower stadium capacities.
Differentials in ticket price mixes, predominately driven by capacity, allows for greater flexibility. Real Madrid has a £465 spread between the most expensive and cheapest match day ticket, Hamburg the biggest spread in Germany with £68 differential, Inter Milan in Italy with a £154 spread, while in the Premier League Arsenal leads with £100 yet offering the cheapest match day ticket at £26 compared to the other EPL clubs in the table. (Source: Guardian 2013)
Is there room to be had for growth in the match day revenues? With a number of teams looking to increase the capacity of their venues (ie Liverpool, Tottenham), increased revenues can be achieved. Other clubs have potentially reached their maximum based on revenues per seat and are in danger of pricing themselves out of the market.
I accept the fact this analysis is pretty crude as the number of games played is not taken into consideration for example, some of the German stadia will offer standing room for domestic league matches while fully seated during Champions League, but looking forward to assess the sustainability of the match day revenue stream, the indications are that the chances of significant revenue growth contribution improvements in line with the increases in transfer fees are slim.
There is the possibility of offering technology enabled in-seat services, that could provide added value. But the reluctance to deploy such technology, technology that has been available for some time, would indicate that the take up would not only be slow but the return on investment may be diminished as the first mover advantage has been removed.
The sustainability for many clubs rests with the remaining sources of income, namely broadcasting revenues and commercial endorsements.
European football and English Premier League in particular continue to attract global interest. The market for global sports rights will hit £16bn in 2014, an increase of 14% from the previous year according to Deloitte. It would be prudent to assume that such growth rates are simply not sustainable as the market for satellite/cable subscriptions will eventually saturate.
"Television and premium sports are well-matched for each other: at the highest level, sport is great unscripted live drama for television. Constant advances in technology are leading to ever more sophisticated, compelling ways in which sports can be portrayed.” (The Guardian, 3 Jan 2014) While this is true, the market audience will reach a ceiling level, restricting further exponential growth.
Commercial revenues are very much dependent on the brand values and penetration, as well as on field performance. The danger lies in over extending the brand - there is a limit to the number and type of product endorsements that Manchester United for example can support. A proliferation may initially create increased returns but in the longer term it will harm the business.
At some time in the foreseeable future clubs, players and the games administrators need to start thinking about living within their own means. The Financial Fair Play rules are meant to address this, but have already become subject to differential interpretation which is certainly not in the best interest of the game.
Recent contract negotiations have also highlighted another culprit that leeches out value and has a disruptive quality. The role and function of the agent needs to be further specified and limited.
Players need to be concerned, because in the long run the game will not be able to avoid a system that caps salaries, something that some of the leagues in the United States have already adopted, with varying degrees of success. Chances are that football can learn from other professional leagues.
The overall aim should be parity in the game, to drive viewerships, foster competitiveness across the leagues and deliver a product that can compete against other current and upcoming sporting offers. Raising ticket prices is simply not an option for much longer.
