North American growth – The announcement of la Liga’s new 8 year $1.4bn TV deal with Disney/ESPN in the world’s biggest sports market is a real game changer for Spanish football. In a so called “deflationary rights environment” this new deal is not only an uplift in value but means that La Liga will move from the fringes to front and centre of North American TV audiences, something la Liga have been craving for years. Their JV with Relevent is also a huge testament to the league for investing into a market in the long term to build brand equity, which will pay off handsomely. La Liga’s domestic TV rights are up for renewal in the 22/23 season (same as the EPL) but with 46% of La Liga’s total media rights revenue currently coming from international sales they are well protected should there be any potential reduction (Pitch32 are actually predicting flatline domestic revenue growth at worse).
Parachute Payments – This week the UK government was praised for allowing the EPL to roll over their current domestic TV deal whilst also extracting an additional £100M from the EPL to be distributed to lower league clubs. However, instead of securing this additional £100M they should have addressed the real elephant in the room, the one which is the singularly biggest influence on the completely mad/bonkers/crazy (insert adjective here) finances of the Championship “Parachute payments”. This is the ludicrous system that exists for clubs relegated from the Premier league. Clubs in receipt of parachute payments receive around £45M in year 1 and £35M in year 2( If in EPL for more than 2 years before relegation you are entitled to a third year – around £15M) – so close to £100M for being relegated! Compare this to the clubs in the Championship that are not in receipt of parachute payments (around £8-9M media rights revenue per annum) then it is no surprise that the two clubs that have automatically gained promotion from the Championship this season were relegated from the Premier League last season. In fact, there are currently seven clubs in the Championship in receipt of Parachute payments with a combined total over £230M. These parachute payments are the single biggest revenue generator in the Championship, completely distorting the league and is without doubt the primary reason why many clubs are on the brink chasing “Premier league Nirvana”. The average wage/revenue ratio across the league is 120%! (some are over 200%). Clubs are selling their own grounds to their owners at sky high prices and then leasing them back to the club in a bid to circumvent weak FFP rules. These rules state that it is considered “sound prudent financial management” to only lose £39M over three years! Yet many clubs cannot even do that. The average annual operating loss across the league is £26M per annum – AVERAGE! Aston Villa lost £85M in 18/19 the year they gained promotion – which would be considered prudent and worth it in many circles. Hence why many clubs try to emulate this completely flawed approach believing it is the only way of achieving promotion. Investing in a Championship club is therefore not for the faint hearted or those with small pockets. This crazy financial model is set to continue but surely the time has come to create a fairer distribution of income across the 24 clubs in the Championship (and the leagues below in the pyramid). Not a system that rewards failure with the lion’s share of revenue going to the privileged few. Otherwise just re-name it the “Yoyo League” or “The Championship Debt league”. Something has to give as the status quo that currently exists is not sustainable in the short, let alone mid-long term.
Fair and equitable – Compare this to La Liga. They do have a Parachute payments system, but it only exists for one year and averages circa £12M. With the average value of media rights of a Segunda club of around £7-8M this ensures relegated clubs in receipt of parachute payments have a very limited competitive advantage over the opposition. Combined with strict spending limits, this ensures a far more equitable league where the operational excellence of a club is rewarded with promotion rather than having to invest large amounts of capital or accrue huge amounts of debt.
Segunda – This compelling triumvirate of strict spending limits (only league in Europe to do this), a desirable media rights product and a fair parachute payments system makes the Segunda division in Spain the most equitable and desirable league in European football to invest in. Combine this with Pitch32’s unique disruptive operating models across performance and commercial, means we at Pitch32 have identified significant opportunities in Spain for professional investors willing to do things differently and better in a market where operational excellence will be not only be encouraged but effectively rewarded.