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COMMENT

2/7/2010
Singapore’s leading telecommunications company, SingTel recently won the right to screen Premiership matches between 2010 and 2013 for a reported £200 million. Singapore has a population of 4.8 million people.

These facts go some way to explaining why the Glazers claimed that they turned down a reported £1.5 billion bid for Manchester United in autumn 2009 and have repeatedly declared that the club is not for sale.

Given the massive financial pressure caused by £700m of debt and accompanying fan unrest, accepting an offer of £1.5 billion would leave the Glazers walking away with a very tidy profit on a club they paid £810m for.

So why have they planned to be there for the long haul when offered an easy and lucrative route out and what has Singapore got to do with it?

There might of course be any number of reasons why the Glazers refuse to sell. They include a belief that interest payments on the debt are sustainable, that sponsorship income will keep growing (it will, but not enough to make a big impact).

They perhaps also believe that Sir Alex Ferguson can fashion a low cost but successful team out of the club academy (unlikely given that the last truly World class player that the club has produced is now on the brink of retirement). It could also be to do with the prestige associated with owning one of the biggest franchises in world sport. Finally, there is always the knowledge that if everything really does go pear-shaped, there would almost certainly be a bored billionaire ready to take it off their hands.

However, chief executive David Gill probably revealed the real reason on 27th May and few in the business of sport have really considered the ramifications.

Man Utd current TV revenues

To date Manchester United, along with Europe's other leading clubs, makes easy money from television deals. It accounted for almost exactly £100 million in 2009 out of a total turnover of £278m.

But David Gill hinted at more money coming from digital rights in the next decade. What did he have in mind? Surely not flogging a few highlights on mobile phones? We've all seen the difference between hype and reality on that one. So what else?

The game changer is TV over the internet. We have now got to the stage where you can watch high quality streamed television over broadband. That means that the traditional distribution channel for televised football i.e. the broadcaster, is no longer technically essential.

What Manchester United must be thinking is that it has this much-vaunted figure of 333 million fans around the world and the club still makes almost nothing from them. Reportedly, less than 2% of income comes from overseas sales; those Asian fans stubbornly refuse to give up cheap, readily available counterfeit merchandise and cough up for real shirts.

Potential international TV/internet revenues

Well the same can't be said for TV broadcasts – you can't fake a live match! The vast amounts paid in rights fees by Sky in the UK shows that fans are prepared to pay for live football. If that model can be replicated in the enormous and increasingly prosperous markets of Asia, then the value is potentially huge. SingTel have shown that it believes Premiership football is the deal breaker for its target audience. If they will buy there, then how about China, Korea, Malaysia, Japan, Thailand or even India?

Consider the figures. In the UK, Sky subscription for football tops six million. It means that around 40% of serious football fans will pay a premium price for live matches.

Suppose Manchester United could achieve a fraction of that uptake internationally. Let's assume that the true overseas fan base is 100 million (some would argue a conservative estimate) and that 10% can be tempted to buy a live season ticket for just £1 per match. Let's further assume that the club plays 23 home league and domestic cup games per season.

At £10 million for every match, that's £230 million for the season, which is not far short of the club's current annual turnover. The cost of televising, distributing and marketing the games would probably be in the region of £15 million, leaving a profit of £215 million. There would also be the potential to sell advertising and other services through the network adding perhaps another £20 million. One-off pay-per-view options would also generate considerable income.

Premier League obstacles

There are of course a few hurdles to overcome before this can happen. First, overseas Premiership rights are subject to collective selling to broadcasters and revenue is distributed more or less evenly. That was all very well when the income was relatively small, but the latest three-year deal achieved £1.4 billion with each club receiving approximately £23 million per year. Surely the big clubs are likely to be looking for the lion’s share as they consider that demand is down to them rather than the likes of Wigan, Stoke, Blackpool or Bolton.

The Premier League rules, however, state that any change has to be voted for by a majority of the club chairmen and it’s difficult to see the small clubs agreeing to a change that will cost them financially. But what if they could be persuaded to opt for a different model in which live and highlights packages are sold in a variety of ways to both broadcasters and individuals?

Given that the smaller clubs would own the home rights to matches against Manchester United, Liverpool, Chelsea and Arsenal etc, might they not be persuaded to sell these games through the big clubs and receive a few bumper pay days during the season? If the smaller clubs received an extra £50 million odd per year, it would also have a massive impact on their turnover.

One way or another, the big clubs are likely to get their hands on what they see as rightfully theirs, whether it’s and end to collective bargaining or a change to how the cake is sliced.

Surely also the logic behind TV rights sales will change. The majority of fans support a club first and foremost, yet they are constantly being offered a ‘league’ package in which the majority of games don’t involve their favourite club. In an era of consumer choice, the next step must be to offer the fans what they want, which is to watch live matches of their favourite team week-in, week-out, highlights of the league overall and the odd live crunch game featuring teams that they do not support. It is easy to place domestic safeguards on this model to ensure live attendance isn’t affected, while for overseas rights, that is not an issue.

Such a formula would help to maintain the overall branding and profile of the league in the manner that Sky and the BBC currently deliver in the UK through live and highlights packages respectively.

Club revenues to soar

Despite all of the superlatives about commercialism in football, there is still a huge amount more to be wrung out of football supporters. Quite simply, fans aren’t even offered the opportunity to watch every live game of their choosing. Although the majority probably wouldn’t take up such an offer, a sizeable minority represents a massive market.

Each major club would effectively become a type of mini-Hollywood studio, churning out the equivalent of a blockbuster every ten days or so for global consumption and the Glazers know that their Hollywood lot is very big indeed.

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