Economic explains that the lower currency exchange rate

Economic View of the
“Big Five” in Europe

This literature review
analyses the economic aspects using previous research, and forms the basis for
answering the question of how important financial investors are in the English
Premier League. Generally speaking, the clubs playing in the major football
leagues in Europe generate revenues and pay salaries in millions. According to the
Annual Review of Football Finance 2017,
published by the multinational accounting company Deloitte, the revenues of the
top five football leagues (“Big Five”) during the 2015 / 2016 season,
went up by € 1.4 billion, an increase of 12 %. Deloitte states that over
35 % of the total “big five” leagues’ revenues, were earned by the English
Premier League (EPL). In this season (2015 / 2016), the English
Premier League announced revenue of € 4,865 million, a new record, followed by
the German “Bundesliga” with a total of € 2,712 million (Deloitte, 2017). According to Forster (2016), the English
Premier League has been generating the highest turnover for years, and in the
season 2012 / 2013 the EPL’s revenue was more than double that of the
French league, which is the fifth largest in Europe. Moreover, Deloitte
explains that the lower currency exchange rate reduced the English Premier League’s
earnings. Deloitte also predicts that in the 2017 / 2018 season, the
Premier League will achieve a total revenue of € 5 billion (Barnard et al.,
2017). In its latest report, Barnard et al. (2017), compare revenues and
salaries in the different leagues, and conclude that “Premier League clubs’
wages increased to € 3 billion, more than double the total spent by the
clubs in any of the other ‘big five’ league sic”.

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Football in England

England is known worldwide
as “the home of football”. According to the FIFA, football was first played in
England and therefore it is literally “the home of football” (FIFA, n.d.). Richard Turnbull,
who was the British Governor of Tanganyika and was mentioned in the book The Game of Our Lives: The Meaning and
Making of English Football (Goldblatt, 2015); believed that “Cricket, the sport of
the gentleman, will leave its mark in much of the empire, but football, the
game of the people would be present everywhere”. However, there are also other
reasons, as it is stated in the report, The
economic impact of the premier league by Ernst & Young (2015), the EPL contributed
practically “£ 3.4 billion to national GDP in 2013/14”. Furthermore,
the EPL is well-known for its supporters, as is underlined by the statistics;
in the season 2013 / 2014 the stadiums were 95.9 % utilised (Ernst & Young, 2015). Moreover, in the
season 2014 / 2015, approximately 800,000 visitors from all around the world
travelled to England to attend a Premier League game.

There are many reasons
why the English Premier League is one of the leading football leagues
worldwide. The English Premier League is the highest English football league
with twenty teams (Deloitte, 2017). As mentioned above,
the EPL has massive financial resources and in the season 2015 / 2016, for the
first time spent more than £ 1 billion on new players, according to Sopie Leech
(2016). This information was double checked with sky sports to ensure its accuracy (Dickson, 2016). Thus, English clubs were able to sign
contracts with superstars like Paul Pogba, engaged by Manchester United F.C. in
the year 2016 with a market value of £ 67.5 million (Transfermarkt, 2017), or Àlvaro Morata,
signed this year by Chelsea F.C. with a market value of £ 45 million (Transfermarkt, 2017). Moreover, the
economic aspects of football have gained importance over recent years, and as
stated by Ernst & Young (Ernst & Young, 2016), has encouraged the
local economy in Leicester. The football business created over 2,500 jobs in
this city as a result of higher numbers of tourists in the season 2015 / 2016.

The English Premier
League receives extensive income and also has huge expenses, for various
reasons. On the one hand, as explained by Cox (2016), the twenty football
teams attract a huge number of people and together sell the rights to live transmission
on television. In the season 2015 / 2016, the rights for TV broadcasting
were worth £ 1,927 million, reflecting a growth of approximately 8 % in
this sector (Deloitte, 2017). Deloitte also underlines the
importance of commercials, which in that season, were responsible for £ 1,090
million, and match day revenues of £ 622 million. On the other hand, the
English Premier League had huge expenses, and in the season 2015 / 2016 paid wages
of € 3,047 million, which results in wage/revenue-ratio of approximately
63 % (KPMG, 2016).

According to Stewart,
the English Premier League is well-known, but the clubs’ revenues and expenses
are very unequal. Stewart explains that the EPL had been led during the last
two decades by only five teams; Manchester United F.C., Chelsea F.C., Arsenal
F.C., Liverpool FC, and in more recent years, Manchester City F.C. (Stewart,
2015).
Figure 1 shows the difference between the twenty Premier League clubs in the
season 2015 / 2016 (KPMG, 2016).
As stated by Deloitte, Manchester United F.C.’s revenue of € 689 million was
the absolute highest ever recorded. This turnover was possible due to their
return to the UEFA Champions’ League (Parrett, 2017). Furthermore, the leading five football
clubs all have rich financial investors (Dawson, 2017).

Figure 1: Operating Revenues and
Expenses during the season 2015 / 2016 (footballbenchmark.com, 2017)

Private Investors

For several reasons,
rich people invest in the English Premier League. As underlined by an academic study,
the revenues of the major clubs in Europe grew on average by 6 % p.a.
between the years 2004 to 2013. Manchester City was the second-best performer
within Europe, with revenue growth of 16.1 % per year (Rohde, 2016).
Moreover, football clubs were used for money laundering, as it was proven in
the 1990’s in the Scottish Football League (Lilley,
2003, P. 76). Last but not least, investors could be supporters such as
Mike Ashely, who is currently the chairman of Newcastle United. It was
mentioned in a BBC article that he is not concerned about his investment, worth
£ 200 million, because he is primarily a fan (Yueh, 2014).
However, a recent article (Taylor, 2017), shows that Ashely wishes
to sell the football club for roughly £ 380 million. There are always a lot of
rumours and changing facts in the football business, therefore there is never any
guarantee about the exact price of a deal, or even if the trade will actually take
place.

KPMG explains that there is a lower connection
between directly investing in a football club and receiving a profit (success) than
in other organisations (KPMG, 2016).
Although, according to Dawson (2017) there are many
famous investors in the football business, such as Sheikh Mansour, the owner of
Manchester City F.C., Roman Abramovich, owner of Chelsea F.C., and Stan
Kroenke, owner of Arsenal F.C. The first of these, Sheikh Mansour, bought
Manchester City F.C. in the year 2008 and afterwards signed idols like Robinho,
Yaya Touré, or Sergio Aguero, and won the FA Cup in the year 2011 and the
English Premier League in the following year. In the year 2015, Manchester City
F.C. generated a record revenue of £ 352 million, after winning the English
Premier League in the season 2013 / 2014, and made a profit for the first time
since Sheikh Mansour bought the football club (Robson, 2015). While “the blues” were
celebrating successes, the club was penalised by a £ 49 million fine for
violating the UEFA financial fair play regulations. According to sky sports,
the UEFA reimbursed two thirds of the fine as a result of achieved financial
and operational restrictions. This part of the penance was originally planned
to be returned, if the UEFA boundaries are met. (Sky Sport, 2017).

Although there are
several sources about the economic aspects of the English Premier League and
about the interests of the investors, there is no published study about the
importance of financial investors for a football club in England. In the
following study, the economic factors, the reputation, and the sporting success
of the different clubs will be evaluated and compared. Moreover, there were
several fines, as illustrated by the Manchester City F.C. case above, which
have to be considered. Last but not least, there are variances in revenues and
expenses between the clubs, and therefore there might also be a difference in
the importance of financial investors among the twenty football clubs.