Wednesday, April 25, 2012

Champions League Revenue - The Final Countdown

Chelsea’s remarkable triumph over Barcelona in last night’s Champions League semi-final was a surprise, but no more than their old fashioned, backs to the wall display deserved. They might not have played the prettiest football, but the result made it all worthwhile in the end, as they could book their tickets to Munich for a sumptuous final against either Real Madrid or Bayern Munich. You can’t put a price on nights like that.

Well, actually you can, as we are now in a position to estimate the impact on Chelsea’s Champions League revenue compared to last season. In fact, we can now work out the increases (or decreases) in revenue for all the English clubs in Europe with a reasonable degree of accuracy.

First, we need to understand how revenue is distributed among the clubs competing in the Champions League. UEFA negotiate various TV and sponsorship deals that contribute to a pot of around €1.1 billion to be distributed to teams competing in the Champions League and Europa League – after reserving around a fifth to cover their own costs and make “solidarity” payments to associations, leagues and clubs.

The pot made available for the clubs is divided into two parts: (a) prize money based on participation and results; (b) TV (market) pool.

Prize Money – Champions League

The above table lists the participation fees and prize money payable to the 32 teams that qualify for the Champions League group stages. Right off the bat, each team is awarded €3.9 million for participation plus another €550,000 per match played in the group phase, regardless of the result. Assuming that a club fulfills its six group fixtures (a fairly safe assumption), that’s worth €3.3 million. This means that each team is guaranteed €7.2 million for qualifying for the group stage, even if it loses every single game.

There is also a performance bonus of €800,000 for each victory in the group stage plus €400,000 for a draw. So if a team really puts its pedal to the metal and manages to win all six of their group matches, it will get €4.8 million. If a team qualifies for the first knock-out round (the last 16), they are awarded a further €3 million.

There are additional performance prizes for each further stage reached: quarter-final €3.3 million, semi-final €4.2 million, final €5.6 million and winners €9 million. So if you go all the way and win the damn thing, you would earn a total of €31.5 million (not counting the TV pool share), which is serious money in anybody’s language.

"UEFA's Michel Platini - Hammer Time"

Prize Money – Europe League

The principle is the same in the Europa League, though the sums involved are considerably smaller. Each of the 48 clubs involved in the group stages receives a participation bonus of €640,000 plus €60,000 for each match played in the group, giving a total of €1 million. In addition, there is €140,000 for each win and €70,000 for each draw in the group stage.

Turning to the knock-out stages, clubs competing in the round of 32 will receive €200,000 each, clubs in the last 16 €300,000, the quarter-finalists €400,000 and the semi-finalists €700,000. The Europa League winners will collect €3 million and the runners-up €2 million. The winning club could therefore receive a maximum of €6.4 million (around 20% of the Champions League).

TV Pool

In addition to these fixed sums, the clubs receive a share of the television money from the TV (market) pool, which is allocated according to a number of variables. First, the total amount available in the pool depends on the size/value of a country’s TV market, so the amount allocated to teams in England is more than that given to, say, Spain, as English television generates more revenue.

Clubs can also potentially do better if fewer representatives from their country reach the group stage, as the available money is divided between fewer clubs. This tends to benefit clubs from smaller countries, e.g. in 2010/11 Panathinaikos received €14.4 million from the TV pool, as Greece only had one qualifier, which was much more than the €9.7 million that Lyon received, as the French TV pool was divided between three clubs.

"Pep Guardiola - can't win them all"

OK, in the case of the English clubs in the Champions League, the allocation works as follows:

(a) Half depends on the position that the club finished in the previous season’s Premier League with the team finishing first receiving 40%, the team finishing second 30%, third 20% and fourth 10%.

(b) Half depends on the progress in the current season’s Champions League, which is based on the number of games played, starting from the group stages.

In other words, success has a direct impact on the amount of money received. Qualifying for the Champions League in fourth place is obviously beneficial, but that team would not receive as much as the teams finishing above it based on the above algorithm.

Of course, fourth place has other unhappy implications, as there is potential for an awkward qualifying match at an inconvenient stage of the club’s preparation (like Arsenal having to play Udinese this season). This season could actually be even worse, if Chelsea win the Champions League, as this would guarantee them qualification into next season’s competition. They would take the place of the team finishing fourth in the Premier League, which would then be bumped into the Europa League.

TV Pool – Allocation

Let’s see the result of these factors on the allocation of this season’s TV pool, taking Chelsea as the example, which seems only fair, as they have progressed furthest. We shall assume that the size of the English TV pool remains unchanged from last season at €84 million.

Chelsea finished second in the 2010/11 Premier League, so they receive 30% of the half allocated to this element, meaning 30% of €42 million, giving €12.6 million. Including the final, they will play a total of 13 games in this season’s Champions League, which works out to 39% of the total 33 games played by the four English clubs, generating another €16.5 million. They have benefited here from the early exits of the other English clubs with the two Manchester sides going out at the group stage and Arsenal being defeated by Milan in the last 16. In total, that gives Chelsea €29.1 million from the TV pool (€12.6 million plus €16.5 million).

This is €2.1 million more than the €27.0 million they received from the TV pool in the 2010/11 season. This might seem like a relatively small increment, given that the Blues only reached the quarter-finals last year, but this is due to the way the money is allocated. In particular, Chelsea won the 2009/10 Premier League, so they received 40% of the half of the TV pool based on the previous season’s Premier League finish, as opposed to 30% this season. In other words, they receive €4.2 million less this season for this element (€12.6 million minus €16.8 million), which offsets the additional €6.3 million (€16.5 million minus €10.2 million) from progress in the Champions League.

This factor is not very well understood among the football public, but it can have a significant impact on Champions League revenue. If we look at Arsenal, yes, they qualified for Europe’s flagship tournament this season, but their fourth place was only worth €4.2 million, which is a quarter of the €16.2 million that Manchester United received for their first place in the Premier League.

Similarly, progress in the actual tournament is very worthwhile, not just for the obvious higher prize money, but also the impact that it has on the TV pool allocation. For example, both United and City did not get out of their group this season, so received €7.6 million, while Arsenal got €2.6 million more (€10.2 million) for reaching the last 16.

Prize Money – Allocation

The allocation of the prize money is thankfully a bit simpler. This season, Chelsea will receive at least €26.5 million, which is made up of €7.2 million participation, €3.2 million from the group stage (3 wins at €800,000 plus 2 draws at €400,000), €3 million for the last 16, €3.3 million for the quarter-final, €4.2 for the semi-final and €5.6 million for the final (with the conservative assumption that their injury-ravaged team finish runners-up).

Total Money

So, Chelsea’s total revenue for the 2011/12 Champions League will be at least €55.6 million, comprising €26.5 million prize money and €29.1 million TV pool. That is €11.1 million higher than last season’s €44.5 million, when they exited the competition at the quarter-final stage.

Of course, if they actually win the final, they would receive €9 million prize money instead of the assumed €5.6 million, increasing their total money by €3.4 million (€9 million less €5.6 million) to €59.0 million, €14.5 million higher than last season.

In Sterling terms, Chelsea will receive £46.4 million (if they finish runners-up) or £49.2 million (if they win the final). That would be either £9.3 million or £12.1 million more than last season.

Exchange rates obviously play a part in the Sterling sum received by the club, but I have assumed a constant rate of €1.20 to the Pound for the sake of simplicity.

Other Clubs

Let’s look at how the other English clubs have fared in revenue terms compared to the previous season: 
  • Manchester United – down £14.0 million. Although they received a minor uplift (€2 million) from being parachuted into the Europa League, this was nowhere near enough to compensate for the difference in the Champions League (did not get out of the group compared to reaching the final last season).
  • Manchester City – up £18.2 million. Qualified for the Champions League instead of the Europa League.
  • Arsenal – down £1.8 million. Virtually unchanged, as they were knocked-out in the last 16 both seasons. Only difference comes from the market pool.
  • Tottenham – down £22.2 million, as they only qualified for the Europa League, as opposed to the Champions League in 2010/11.
  • Stoke City – up £4.2 million. Reached the last 32 of the Europa League.
  • Birmingham City – up £3.7 million. Qualified for the Europa League, but did not get out of the group.
  • Fulham – up £3.7 million. Qualified for the Europa League, but did not get out of the group.
  • Liverpool – down £5.1 million. Did not qualify for Europe, but reached the last 16 of the Europa League the previous season.
My one caveat here is that the TV pool allocations for the Europa League have been estimated based on previous seasons, so will not be completely accurate.

"Sir Alex Ferguson - Mind over Money" 

Other Factors

In addition to the TV money analysed above, clubs will also benefit from additional gate receipts from staging European matches. Chelsea will receive money from UEFA for the final, but this amount is unspecified.

Finally, participation and progress in the Champions League should boost a club’s sponsorship revenue, both in the short term through contractual bonuses, and longer term by strengthening the club’s brand attractiveness through increased exposure and profile.

However, this is difficult to quantify, as a former Barcelona vice-president admitted, “What is harder to put into figures is the impact it has on your brand. That is very difficult to discern. There is no doubt we got a massive boost from winning the competition. We were on television and on the front of all newspapers all around the world, but that increased exposure and interest doesn’t lead to an immediate increase in the value of your sponsorship deals.”

There is no doubt that competing in the Champions League makes a big difference financially, especially as the equitable nature of the distribution methodology for TV money in England means that there is not a huge difference between Premier League payments to the leading clubs.

In other words, whatever the size of the increases and decreases compared to last season, it should not be forgotten that all English clubs playing in the Champions League still have a considerable financial advantage over the rest of the Premier League, as can be seen by the above analysis of TV revenue.

Nevertheless, Chelsea and Manchester City will surely enjoy their additional funds from this season’s Champions league, while Manchester United and Tottenham will have to cope with reduced revenue. All part of the fun and games aboard UEFA’s Trans-Europe Express.