Research Study on Risks in English Premier League

Risks in English Premier League/European Football

By Aquib Patankar and Aditya Sai Kanaparthy, PGDRM Jan’21-22

European football is one of the most popular sporting events across the world. It includes some of most the watched football leagues in the world like English Premier League, LaLiga, bundesliga, Ligue 1 & the Italian Serie A. Champions league organised by UEFA is the one which garners one of the most views across sporting events worldwide.

UEFA also organises UEFA Europa league and the Conference League which are there, particularly to ensure participation for clubs that miss out champions league qualification. Out of all the League competitions English Premier league continues to be the most watched and the leader in overall money being generated with 5 clubs being included in the top 10 highest valued clubs across the world.

TOP 5 biggest leagues and their finances

Notes: Commercial revenue is not disaggregated into ‘sponsorship’ and ‘other commercial’ for clubs in England, Spain, Italy.
2019/20 average attendances and utilisation are upto the point of suspension of each respective league.

Source: Leagues, Deloitte Analysis

Transfer Market and player valuation

Player evaluationIn the history of football, 10 transfers have been made for at least 100 million EUR, including the highest one for 220 million EUR (Neymar to Paris SG in 2017). It should be added that players of a club are not only acquired by transfers. A club can also have players from their youth academy, players that joined the club by a free transition (as they were not bound by a contract with any other club), or players that are loaned from another club. Obtaining a good economic valuation of football players is highly valuable because allows, to some extent, the valuation of the club, budget planning, and remuneration.

Some key factors while evaluating economic value of a transfer are:

Player ́s playing position (i.e. goalkeeper, defender, midfielder, forward);
Age and nationality;
Contract: assessment of a player ́s contractual situation with his current club;
Individual sports performance: assessment of the player ́s on-pitch performance (e.g. goals, assists, minutes played, dribbles, tackles);
Disciplinary actions (i.e. number of fouls, number of red and yellow cards);
Assessment of the player ́s performance with his national team (e.g. number of international matches, international goals);
Assessment of the player ́s media and commercial potential
Team performance and characteristics: sporting results, league competitiveness, economic and financial aspects of the club, etc.;
Team dependence: evaluation of the importance of a given player in his playing team;
Timing of player ́s transfer and economic profiles of potential recruiting and selling clubs.

Risk Mitigation and European Super League

Big 12 clubs in Europe came together in Europe to mitigate some of the biggest risks facing football world. Though the implementation flopped , it raised some very important question about some of the biggest Risks facing European football:

Increasing crystallisation and polarisation of various clubs economic power.
Media landscape and evolution through digitalisation. The Gen Z football fans are more tech savvy and expect top end end digital entertainment and connect.
The rise of player power over a clubs pull , this continues to be a major risk top three followed football players have more Instagram followers top 5 clubs combined for example. Retaining such players and maintaining the brand come at huge costs which through the current business model is no longer sustainable.
Rise of esports and other video game business – the avenues of entertainment have also changed over generations. E sports and video games are expected to be the most popular form of entertainment for next generation.
Huge economic losses and piling amounts of debt furthered by the emergence of pandemic have threatened to impact long term of financial sustainability of all major clubs.
Even pre-pandemic lack of stabilising cash flows to sustain sporting performance was a major challenge. The clubs have had a limited control on governance of international club competitions and revenue distribution while the entire enterprise risk alone is to be borne by the club.
Fluctuation in champions league revenue due to competitions structural problems leading to huge revenue losses for clubs who do not participate in later stages or in some case qualification misses unlike other major sport leagues in the world like MLS, NFL, IPL where equitable distribution of resources and money is ensured year on year.
Overplaying players continuously leading to major injuries at critical times resulting in clubs having to maintain large squads and thereby bloating both the transfer bills and wage costs.
Emergence of state owned clubs with almost unparalleled resources leading to massive inflation of player wages and transfers.

Sports washing a major ethical challenge

Sports washing

Sports washing describes the way sport is used to launder a reputation, to gloss a human rights record by investing in sporting clubs, organisations, events etc, to normalise lost reputations and past misdeeds by countries or large MNC’s.

In the past decades several investments have been made into European football rich tycoon state authorities wishing for better PR and brand image due to the popularity of football across the globe.

To name a few major clubs, Chelsea, Manchester city,Paris Saint German all have owners who looked to improve their brand image by investing in football clubs.

These owners backed by huge wealth from other investments have continuously inflated football markets by flaunting financial fair play rules and use their respective clubs as a front for better PR.

Future of European football

In the next few years, Football is set to change some of the factors which will revolutionise the football industry. They are:

NFTs

Of all sports, Football has the biggest fan base and NFTs and football could be a very compelling combination. NFTs could be used for multiple purposes.

a)E-tickets could be sold as an NFT, with programmable features that could stipulate that a percentage of any resale value flow back to the issuing club.

b)NFTs could also be applied to physical elements, starting with collectibles. NFTs can be applied to physical collecting cards, match balls and other mementoes, using techniques pioneered for the art market. Over time the range of applications of NFTs should steadily grow.

Rise of Women’s football

With almost every super club across Europe having women’s team and the facilities of women’s football is growing steadily. this could be another scope of revenue for clubs. The success of recent women world cup has shown that Women’s game could slowly but steadily rise in popularity.

Reform of UEFA regulations

The Super League might have failed but the need for a more stringent financial fair play will continue to be on the agenda of various stakeholders across football.

Reform of sporting calendars

Better co-ordination between international matches and domestic matches is needed to avoid player burnout and sporting success of clubs.

Balacing Sporting merit and financial stability

As there is a direct relationship between sporting merit & club revenues, there is an urgent need for financial uncertainty but also ensure sporting success. A model granting financial stability based on past performance would help mitigate the uncertainty of under performance on sporting side for shorter term.

Better insurance coverage

The pandemic was something no club planned, for lots of clubs had epidemic insurance in place but did not anticipate the possibility of a pandemic .Clubs and governing will have to ensure a coverage on a wide variety of scenarios to avoid the repetition of such events.

References

https://www.theweek.co.uk/news/sport/football/954435/newcastle-saudi-takeover-what-is-sportswashing

https://footballbenchmark.com/home

https://www2.deloitte.com/uk/en/pages/sports-business-group/articles/annual-review-of-football-finance.html

https://www.theweek.co.uk/news/sport/football/954435/newcastle-saudi-takeover-what-is-sportswashing

https://www.transfermarkt.co.in/

Get the full study here: Risks in EPL

Disclaimer
This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.
GRMI or it’s students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

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