It is time for Sheffield United to expand its financial reach after returning to the Premier League. The process of getting at this stage took them twelve years, and Dr Daniel Plumley, who analyses economic and sporting performance in professional English football believes that they need to manage the incoming money systematically.
“Premier League broadcast revenue tends to be the main difference. The bottom Premiership clubs will still earn £100 million in broadcasting alone compared to that of £6 million in the English Football League (EFL) Championship,” informed Dr Plumley.
Clubs from the EFL Championship battle not just to play in the topflight but to also reap the commercial opportunities that come along securing promotion as the stakes are much higher and rewards more fruitful.
“We can easily add about £20 million in gate receipt uplifts and signing commercial deals. The ballpark estimate after securing promotion is around £120 million, which is a base to build upon.”
The downside of relegation can prove to be a significant decrease in revenue. Therefore, clubs usually tie down their valuable players with relegation clause contracts.
“New clubs should follow the sustainability approach where they don’t spend all their money on transfers and look to build incrementally over three to five years. Sustainable models in a business sense include new signings, wage increase and possible upgrades that are vital for a club to expand for the future.”
Sheffield United will consider spending their gains wisely after looking at Fulham as an example. The London club spent more than £100 million on transfers but was still relegated, posing a problem for the club regarding wage distribution with a fall in overall income.
“It worked alright for a club like Wolves, but if you do overspend and get relegated then, it disrupts the cash flow structure,” Dr Plumley comparing Fulham and Wolves on overspending.
Clubs do get a financial cushion to soften the blow of relegation with some parachute payments. However, the objective for smaller clubs is to stay in the Premier League and pocket an easy £100 million next year for long term development.
“The Premier League sanctions parachute payments of about £90 million for three years to clubs that get relegated. These payments are divided as £40 million during the first year and £25 million each following year.”
Big money for big guns
Premier League sanctions money from the broadcasting pot that is a sum of total earnings from all over the world which is shared among the Premier League clubs and narrowly distributed down into the English football leagues.
“The broadcasting revenue ratio from top to bottom clubs is 1.6 to 1.0. For example, Manchester City winning the league pocketed £150 million compared to £100 million of Huddersfield,” Dr Plumley on the difference in money distribution.
There is not a massive gap in the television broadcasting money but where the top six clubs have pulled away is commercial deals and regular qualification in UEFA competitions. The introduction of Financial Fair Play (FFP) has made things more complicated as clubs are not allowed to spend more than they earn, which stretches the margin of money power.
“The distribution mechanism in the Premier League is still the fairest mechanism among the big five leagues in Europe (Bundesliga, La Liga, Serie A and Ligue 1),” said Dr Plumley.
Arguably, there are two leagues in one involving the big guns in the Premier League who have been dominant over the recent years with their success that has been on and off the pitch apart from the unforgettable miraculous season from Leicester City in 2015-16.
The role of modern dynamics has been critical in making the rich clubs richer as kit deals are more important than ever. Clubs like Manchester United have taken advantage of having more than twenty commercial partners to increase their revenue as there is no restriction regarding the number of business deals and partners under the FFP.
“Shirt sales are more beneficial to the kit producer as only 10 per cent of the profit is shared with the club.”
The riches of the Premier League provide an exponential rise in the financial growth of a club due to its popularity all over the world. It is up to the promoted clubs of how they take advantage of this situation and develop themselves into an even bigger brand. The commercial side of football is an ocean full of opportunities for the players and the clubs to achieve a sustainable future. The Blades have already made some new signings and will look to spend the rest of their budget reasonably.