Why joint selling is crucial to La Liga's future
Published 23 September 2016 By: Alexander Guede
To many, 15 April 2015 marked the birth of a new era in Spanish domestic football.
On that date, the new Spanish Royal Decree1 on football broadcasting and media rights was passed. It introduces the joint selling of the broadcasting rights for the Spanish national football league (La Liga divisions one and two).2 It also creates a way to distribute the resulting revenue fairly between the clubs. The law took two tough years to negotiate and anecdotally has been compared to the challenges of drafting the Spanish Constitution of 1978. It is however noteworthy that the main players in the market (broadcasters, football clubs, government, league organisers) all showed a willingness to find a solution.
Many see the new law as a crucial and necessary measure in the development of the Spanish football industry. It resolved one of the main problems: the lack of effective broadcasting regulation and the uncertainty stemming from it. Neither the Spanish Professional Sports Act3 nor any other laws, regulations or administrative provisions directly approached the problematic area of broadcasting. And while general media and broadcasting regulations existed, they lacked the specificity required by the football industry4.
Much has been written about how the new regulations work and what it means for Spanish football in general (for example, see Lloyd Thomas’s article here5). This article therefore focuses on the and historical corporate and commercial issues that gave rise to the prior unacceptable situation, before explaining how the broadcasting funds are distributed under the new model and looking at the first results of the new regime.
Specifically we examine:
- Background and former problems: the way broadcasting rights were distributed previously and the problems this created for Spanish football
- The new regulations: a brief review of joint selling before a detailed break down of how the funds are distributed by La Liga
- Expected results of the new system
- First results of the new system
BACKGROUND AND FORMER PROBLEMS
During the 1990s, as a result of the development and increase in use of new digital platforms, the Spanish football clubs started to consider an efficient way to facilitate the acquisition and exploitation of the broadcasting and media rights for their competitions. In 1995, Spain’s National Football League, la Liga Nacional de Fútbol Profesiona (La Liga), called for an assembly of all its members, with the sole view of discussing a potential joint sale. However, against all predictions, the member clubs decided to negotiate their rights individually and independently, rejecting any collaboration with the football union.
As a consequence of that decision, many broadcasters fiercely sent offers to the clubs to try to acquire their rights and soon started to sign the first deals. Two different blocks of clubs emerged in the negotiation process: the dominant two, Real Madrid and FC Barcelona, and then the rest. A substantial gap developed as the more modest clubs requested more limelight whereas Real Madrid and FC Barcelona were closing important monetary deals for the following seasons.
Contrary to what it may seem at first sight, it is not entirely true that the Spanish broadcasting model was unique at that time. Despite the independent sale of the rights upstream, the clubs created Audiovisual Sport S.L in 1997, a company that was appointed to manage the exploitation of the broadcasting rights of matches in La Liga and Copa del Rey (Spanish FA Cup).6 Initially, the broadcasting rights were sold individually by the clubs (each club agreed with a particular broadcaster, its rights for a certain period of time), but afterwards, Audiovisual Sport collected them as an effective pool of broadcasters and commercialized them downstream.
Among others, Audiovisual Sport was one of the causes of the litigation between the broadcasters and clubs: problems arrived regarding the assignment contracts for the rights and antitrust issues took place given some alleged anticompetitive practices by the involved parties. Over time, more digital broadcasters came into the market and started to influence the selling model.
At that time, the clubs were generally in a poor financial position, so the Spanish broadcasters, under their legitimate business strategy, offered advanced payments in order to get their broadcasting rights at a low price. Each broadcaster was buying the rights of very different clubs, so therefore, given that those rights were not gathered together (regardless of the potential agreements between the broadcasters within the Audiovisual Sport structure), a downstream arrangement between the holders of the rights was mandatory in order to exploit the championship. Otherwise, all the players would have lost their money given the impossibility of broadcasting the matches. To a certain extent, this particular need forced hard-hitting negotiations between broadcasters that resulted in unclear agreements.
Consequently, Spanish football has traditionally been in permanent conflict regarding the broadcasting of football matches. This situation, indeed, was known in Spain as an unstable balance because of the numerous disputes. Despite these contentious matters and the long negotiating processes, the TV market has always had access to football in Spain because parties have always found some agreement (often in "extra time”). Nonetheless it does not necessarily mean this system worked.
With the former model of individual selling, the first problem was the disaggregation of the offer, which considerably limited the profitability of incomes in the international markets. In addition to that, the way of sharing the incomes was anomalous. When compared to the European markets, the Spanish league has been, for many years, the only major European competition with a model that maintained the position of its two major clubs. As discussed before, the other problem of the individual model was that it gave a rise to aggressive litigation between the players in the market.
Taking into consideration all the above and speaking in economic terms, in general, the former self-management model was clearly inadequate for the stability and progress of Spanish football. The lack of clear regulation made it impossible to hold a balanced championship, and consequently, a fair competition between clubs. In this chaotic panorama, for many years, the differed players in the market demanded a new and detailed regulatory framework to consolidate such matters as how to collect the different packages of the broadcasting rights, and how to distribute the incomes fairly between clubs.
THE NEW REGULATIONS
The new regulations established under the Decree provide for:
- the joint selling of broadcasting rights (in a similar fashion to other competitions such as the Premier League); and
- a method to fairly share the resulting income.
A detailed explanation of the precise mechanics of the joint selling procedure is beyond the scope of this article. For a more detailed look into this, please see here. In brief, however, the regulations acknowledge that the ownership of the football broadcasting rights in Spain belongs to the football clubs (not the organisers). However, it is mandatory for league clubs to pool their rights at La Liga's hands (via a compulsory transfer), and La Liga is then responsible for selling the rights (both domestically and internationally).7
Even though the regulations constitute a horizontal agreement (i.e. between competitors) to fix the price of broadcasting rights in the Spanish market, the regulations are lawful as they follow the criteria of the European Commission.
Distribution of funds
In terms of the sharing model for revenue generated by La Liga, innovative and objective criteria are applied. The regulations state that:
- 83% goes to La Liga clubs based on the following formula: 50% equal share for all clubs in La Liga, 25% merit money based on how the clubs finish in the table in last 5 years (previous season 30%, one before 20%, the other 3 years splits), and 25% according to resource generation ability of clubs (e.g. season-ticketing sales, social factors, etc.);
- 5% allocated as support payments for relegated clubs from La Liga First Division;
- 2% covers overheads incurred by the Spanish FA;
- 5% goes to grassroots initiatives and minor sports; and
- 10% to La Liga Second Division clubs.
On the economic side, revenues are expected to increase. The joint sale of broadcasting rights should increase revenues both in the domestic and international market – hopefully reducing the gap between the Premier League's and La Liga's global incomes. The Spanish football union expects to achieve €1,500 million in the coming seasons9.
On the competition side, there is a particular focus on the TV pay-per-view market. The new regulations guarantee to broadcasters equal access to all content. On the financial and economic control side, the championship participants will have significantly more resources for compliance within the Financial Fair Play regulations (UEFA and La Liga's). And finally, on the resources side, there will be more budget allocations to the grassroots sports, women’s football and for other minor sports.
To help ensure these aims are achieved, the legislator has indicated some compliance tools. Principle among these is the Spanish Competition Authority (SCA) who, as the watchdog, faces a very important role during the process of the public and equal bidding. The SCA has the power to intervene in La Liga's general conditions regarding the bid acceptance period.10
La Liga has already announced a three-year deal for domestic broadcasting rights, which come into play from the 2016-2017 season until the 2018-2019 season.11
Like in the Premier League, where Sky and BT compete and share the broadcasting rights, in Spain two major TV broadcasting players, Mediapro (Bein Sports) and Telefonica (Movistar+)12, have started an intense battle to achieve La Liga's rights under the new framework. Other competitors, such as Vodafone Ono13, are increasingly bidding to specific packages and re-buying rights from the above mentioned broadcasters.
So far, Mediapro is paying €633.33 million for each of the next three seasons and will have eight games of La Liga every week, while Telefonica is paying around €250 million for each of the next three seasons and will have first choice pick for one premium game every weekend.
In the author’s view, this would seem to demonstrate that the new model is already working. New efficiencies are being generated in the market given the certainty of clear, specific regulation. Spanish football seems to be on track again, well-equipped for competing with the other major global leagues.
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- Tags: Asociación de Futbolistas Españoles (AFE) | Broadcasting | Commercial Law | England | FIFA | FIFA Regulations on the Status and Transfer of Players | Football | Governance | La Liga Nacional de Fútbol Profesional (LFP) | Premier League | Regulation | Spain | Spanish Competition Authority CNMC
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