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Another Act of the "Slight Madness" of the Football Business

posted Feb 1, 2012, 11:49 AM by Julien Pillot   [ updated Feb 20, 2012, 6:07 AM ]

(Edit: 02/20/2012: Due to very recent changes in the allocation of TV broadcasting rights, the illustrating scheme below has been upated. Now, it also includes value-based evolutions for different competition rights from a period to the other. Note that this scheme is called for further modification since Cfoot - the French football Ligue's own TV channel - has recently announced it will stop its activity at the end of the current season.)

In sports, and especially in football, playing fields are not the sole places where competition takes place. Upstream, TV channels are engaged in a vigorous and ruthless war in order to acquire the broadcasting rights to football events which are, as everyone knows, a true flagship and consumer-appealing product (in one word, a “must-have”) likely to enhance the value of any TV grid. Let’s bear in mind that such broadcasting rights (properties of competitions' organizers) are used to be granted to TV channels for a period of 3 to 4-years, on a national basis (even for pan-European competitions such as UEFA’s C1 and C3), after an open call for tenders.

As the TV market became more and more international (and then competitive), notably thanks to numerical convergence, football broadcasting rights pursued a sustainable and uncontestable inflationist trend. For instance, while CANAL+ settled 4M€ to broadcast the 1985-1986 French Championship,  from 2008 to 2012 included, the same CANAL+ and Orange had to pay altogether 668M€ per year in order to display the same product. Competition amongst TV operators is nothing but a godsend, not only for rights holders such as the LFP or the UEFA (always likely to jack up the prices), but also for football clubs which inevitably became ever more TV-dependent (in 2010, TV rights counted for 44% of total revenues of the 20 major European football clubs). And when natural competition experiences difficulties to emerge by itself, licensors develop ingenious ways to build it both in segmenting their product in several shapes and in setting reserve prices high enough to discourage a single firm to serve all the market.

The very recent attribution of the TV broadcasting rights for both the UEFA and LFP competitions are the result of such a process characterized by peaking prices and in which traditional (national) operators are challenged by foreign new players looking for international growth. As regards the French market – whose ecosystem for the next 2 to 4 years has been soundly changed because of the entrance of Al Jazeera Sports – the outcome is unambiguous: we witness a clear-cut privatization of the show. The result can be seen on the illustrating homemade scheme in which green arrows are for free retransmissions and the red ones for pay TV or pay-per-view (click to enlarge).

In an article published in 2009 (whose main results can be seen on these pages) and covered in the 2010 report for the French Prime Minister relative to exclusivity rights in paying TV, I drew rights holders, regulators and legislator attention on the predictable unproductive effects in the long run flowing from an extensive commoditization of football. Obviously, the French supporter-consumer has – once again – not being invited at the negotiating table… just like his willingness to pay (and to switch from an operator to another every 4 years) was supposed infinite. But, what if dissatisfaction grows? TV Audiences might suffer from such a lack of visibility. And then, sponsors and other commercial partners could review their strategies in lowering their contributions and, eventually, in investing in new businesses… strengthening further the loudly deplored TV-dependence of football clubs. At last, it is not less than the football (as a product) value which could sunk. Because, on certain markets, vigorous competition is not necessarily likely to enhance consumer welfare…