Jacksonville Jaguars’ owner Shad Khan recently purchased a controlling interest in an English Premier League (EPL) soccer club Fulham in a deal thought to be worth between $250-300 million. During the last decade Americans have acquired a controlling interest in three fabled clubs (Arsenal, Manchester United, and Liverpool), two mid-sized ones (Aston Villa and Sunderland), and now an even smaller one. Fulham has not won a major trophy since it was established in 1879.
Americans are not the only billionaires investing in the EPL. Twelve of the twenty clubs have non-English owners. Most notably, a Russian oligarch (Roman Abramovich) and an Arab sheik (Sheikh Mansur) have poured hundreds of millions of dollars into Chelsea and Manchester City, transforming them into European powers. But the huge losses both have racked up suggest that their motives have more to do with the dizzy glory of winning trophies than good business.
Traditionally, owning soccer clubs has never been seen as a business, let alone a profitable one. As former FIAT and Juventus Turin president Gianni Agnelli explained: “If it’s a business, then it’s a losing business.” Agnelli and his wealthy fraternity assumed a controlling interest in clubs out of vanity or civic pride or just because it was a lot more fun than making widgets. Big soccer clubs were always run differently than teams in the major American sports: the point of generating revenue was to buy the players to win trophies rather than to buy players and win titles to make bigger profits.
A lot has changed since Agnelli’s death. Clubs are now run like sophisticated corporations and the biggest leagues generate huge TV rights, both domestically and abroad. The EPL’s most recent domestic contract, which takes effect next month, is worth more than $4.6B, a 75% increase on the prior one. And the increasing value of foreign rights is highlighted by NBC’s recent $250M acquisition of EPL rights for the next three seasons, which is more than triple what Fox previously paid. In sum, sales of rights have inflated total TV revenues to an estimated $8.31B over the next three years.
Throw in the huge money that comes with participating in the Champions League, other domestic competitions, such as the FA Cup, and the global marketing and merchandising possibilities and you can understand how the EPL has lured so many American owners. They see the EPL’s vast global growth potential—far more than any other domestic soccer league, and maybe enough to eventually make it as lucrative as the NFL—despite the fact that commercials cannot be shown during matches.
But these huge investments do not come without risks. The most obvious of these is relegation. Manchester United, Arsenal, and Liverpool are almost certainly safe (though United were demoted in 1974). Aston Villa and Sunderland flirted with the ‘drop’ last season. And, although Fulham has enjoyed being in the top flight the past 13 seasons, most of their history has been spent toiling in lower divisions. One assumes that Kahn and his brethren at Villa and Sunderland have planned for this contingency, but Leicester City, Bradford City, Crystal Palace, Wimbledon, and most notably Leeds, which used to be a very big club, declared bankruptcy after being demoted.
Some conspiracy theorists have suggested that relegation (and consequently promotion) might be abolished. But the political fallout makes this more or less inconceivable. The reaction of fans, especially in England but also around the world, would be hostile to the point where they would take collective political action or even resort to violence.
The next huge problem club owners face is the fact that they must compete in a global market. In fact, the amount of increases in player salaries has more or less kept up with the increases in revenue generated. EPL owners have recently taken steps to control their own spending and the governing body of European soccer, UEFA, has adopted a policy called Financial Fair Play, which is supposed to compel clubs to ‘live within their means’. But, so far at least, there is little evidence that these policies are slowing spending. There is never going to be a salary cap to strictly control costs, like there is in the NFL, and players figure to continue to enjoy relatively unrestricted freedom of movement (what Americans call free agency).
American owners have never demonstrated an ability to live within their means when faced with free agency. That’s why they clung to the ‘reserve clause’, which allowed them to retain rights to a player unless they released him; tried to restrict free agency once the courts abolished the reserve clause in the 70s; and instituted salary caps and luxury taxes, of varying degrees of strictness. Finally, at some point in their history all of the major American sports leagues have merged or entered into strict non-compete agreements with other leagues in order to curb labor costs. American owners are fond of touting the virtues of the free market, but the success of their businesses would not have been possible without strict regulation and revenue sharing. As former Cleveland Browns’ owner Art Modell once admitted, “We’re 28 Republicans who vote socialist.”
This gets to the heart of the challenge NFL owners face in the EPL: they will have to compete in a largely unfettered marketplace and negotiate with stakeholders they are used to ignoring.
The biggest clubs in England will always have to compete for players in a free market with each other as well as with the biggest clubs in Spain, Italy, and Germany. And the middling and smaller ones will have to compete in an even more saturated, global market. The fact that the average club in the EPL is appreciably bigger than the average club in la Primera Liga, Serie A, or the Bundesliga, let alone the average ones in smaller leagues, will not help hold down player costs. A club like Sunderland does not compete for players with, say, a middle of the table team in Holland or Russia; they compete with the financially comparably sized clubs, like Ajax or Zenit St. Petersburg, that are usually higher in the league table. The other problem with competing in a free market is that the demand for talented players is always greater than the supply, and thus—given the lack of restrictions on player movement—there will always be bidding wars for the players on the right side of the bell curve. These realties explain why one EPL club, Portsmouth, actually had to file for bankruptcy even though, or precisely because, they were enjoying unprecedented success.
Until the 1970s the owners of major American franchises did not have to negotiate seriously with other stakeholders unless there was a rival league. They did not have to work with governing bodies, like the English Football Association (FA), whose primary charge is to promote the best interest of English soccer at all levels. No equivalent body exists in the United States. They did not have to bargain with players over pay because of the reserve clause. Fans in the United States and Canada have never organized collectively. And franchise owners have rarely faced concerted political opposition at home and never abroad.
EPL club owners could face strong opposition from all of these groups. The FA may very well attempt to direct a larger share of the EPL’s revenues to the lower tiers and the youth system. The players’ agents and union, the Professional Footballers’ Association, might resist any attempt to impose cost controls. Supporters groups are already organizing with the goal of lowering ticket prices. And the other major domestic leagues, as well as UEFA, and perhaps even FIFA, will not likely just stand by if the EPL becomes too big. They might, for example, pass regulations to distribute Champions League TV revenues more equitably.
The NFL has been the most profitable league in sports history because owners, like Modell, were creative and open minded. It would be foolish to dismiss their EPL investments as folly. And it is easy to see how they could come to the conclusion that the EPL could be a global NFL. But the structural challenges they now face could not be more different. They will never enjoy market exclusivity, be able to run their business with player cost certainty, or be largely free from having to negotiate with fans or other governing bodies. Their success will depend on their ability to adapt to an entirely different sporting culture.