Saturday, May 23, 2009

The Premier League – A ticking financial time bomb?

By: Tom Mallows

We have all done it – or at least those who don’t have a subscription TV service anyway. You want to watch the big game and can’t make it to the nearest pub to watch it so you go online. There you will find hundreds of sites offering live streams for virtually every game - including ones that aren’t on live TV in your country.

It is this growth of online streaming that could see the Premier League bubble finally burst. This is because the one thing that caused the explosion in popularity in the game and sustained it over the past 17 years has been TV money. Each TV deal runs into billions of pounds and has allowed clubs to spend lavishly and push the league to the top of the tree in terms of entertainment.

The TV companies knew they were onto a winner and so knew they could get away with pushing subscription prices up. The football clubs were also aware of this and so each TV deal grew and grew. More money meant more profit both for the TV companies and the football clubs.

But with the rapid growth of online streaming, and the improvement in internet technology, how long will it be before customers cancel their subscriptions and turn on their laptops?

After all why pay when you can get more choice online for free?

It is similar to what happened with the music industry and file-sharing. The record companies did their utmost to shut sites such as Napster down to try and counter this new threat and maintain their healthy profits. Similarly the Premier League battles to shut streaming sites, but as one closes another opens up - the internet is too big a space to manage.

So what effect will this have on the Premier League? Well first off the TV companies will lower their offer when they next come to the negotiating table. Without the broadcasters' millions the foundations on which many a club's shaky financial structure is built will be removed. You only have to look at the fate of clubs in the Championship and below who recently dropped out of the Premier League. The likes of Charlton, Leeds and Southampton couldn’t sustain their spending without TV money. Even those with billionaire owners beware – watch them drift away when it looks like your club is no longer a profitable business venture.

To try and arrest the economic slide, the clubs will then seek to maximise their revenue by selling an individual product rather than as a League. Clubs like Manchester United will seek to negotiate their own TV deal, perhaps using their own TV channel to stream games online. This is fine for the ‘big four’ but what about those in the bottom half of the league with smaller fan bases?

I can only really see a maximum of eight clubs earning enough money from an individual TV deal to survive. But how exciting is a league with just eight teams?

To preserve the Premier League the excessive and irresponsible spending has to stop either now or at the administrators' request when the TV deal finally implodes. If not it seems a safe football bet that the self-styled ‘greatest League in the world’ could go bankrupt.