You wouldn’t know it from the headlines, but the English Premier League—full of debt-plagued playthings beloved of billionaires—is heading back to profitability.
According to the financial results so far published for last season, 15 of the 20 Premier League soccer clubs turned a profit. The collective net profit so far was £78 million ($116 million) for 2013/14, with the largest contributions made by Manchester United (pdf) with almost £24 million and Everton with £28 million. Only two clubs—Manchester City and Cardiff—made losses greater than £5 million. This net profit compares with a combined loss of £361 million for all 20 clubs just four years ago.
What changed? On the revenue side, club coffers in 2013/14 were swelled by the start of a new UK broadcasting rights deal with Sky and BT Sport, which saw each match bring in an average of £6.6 million, up from £4.7 million.
Indeed, thanks to the new deal, the lowest-ranked team, Cardiff, received more in payments from the Premier League in 2013/14 than Manchester United did in the previous year—when it won the league.
Ordinarily, another chunk of broadcasters’ cash would trigger a round of transfer-fee inflation and fiscal irresponsibility. Yet net spending in the summer 2014 transfer window, at £392 million, was 2% lower than in the previous year because of pressure on expenditure thanks to financial fair play rules introduced by the Premier League from the 2013/14 season.
These set a cap on the losses that clubs are allowed to make—currently between £15 million and £105 million over three seasons—and promise stiff punishments (such as points deductions) for those that flout them. There are also tighter rules for clubs that participate in European competition. So far, the new rules actually seem to be working.
How does the Premier League compare with the rest of European soccer? In Italy’s Serie A, the 20 clubs made a combined loss of €53 million ($58 million) in 2013/14, with just eight clubs making a profit—and some collapsing quite disastrously since then.
In the German Bundesliga, regularly held up as a paragon of financial sensibility thanks to its affordable ticket prices and fan ownership model, 13 of the 18 clubs were in the black in 2013/14 (pdf), with a total net profit of €39 million. The biggest difference between Italy and Germany is the distribution of broadcasting revenue. Both leagues have complicated criteria for dividing up the spoils, but there is much wider variation in Italy than in either Germany or England, which serves to further increase the revenue of the richer clubs.
In Spain, there is no collective bargaining on broadcasting rights, which means that Real Madrid and Barcelona receive almost half of La Liga’s media revenue. And then, a completely different approach is pursued in the US, where wage caps, draft picks, and closed leagues are designed to produce more egalitarian competition across all sports.
There is no prospect of such measures being introduced in the Premier League. After all, why change a winning formula? The league has become the envy of the world for its success in turning soccer into revenue. Furthermore, negotiations begin later this year for the next round of foreign rights. Another big increase is assured, given the amount of time that clubs spending wooing fans abroad.
The Premier League recently signed another, even bigger broadcasting rights deal that begins in 2016, which sees clubs make an average of more than £10 million a match. As income rises higher, clubs will have less of an excuse than ever to fall into the red.