Reading FC - Dear Prudence

After the disappointment of losing to Swansea City in the 2011 Championship play-off final, not many people would have expected Reading to bounce back so well that they not only secured promotion to the Premier League last season, but they went up as champions, ahead of more fancied clubs like Southampton and West Ham. Their thoroughly likeable manager, Brian McDermott, deserves a huge amount of credit for superbly marshalling his resources, especially after losing leading scorer Shane Long to West Brom and skipper Matt Mills to big spending Leicester City in the summer.

On paper, Reading’s team featured few stars, making the incredible run of form after Christmas that took them to the title even more impressive. Their top scorer, Adam le Fondre, netted just 12 goals after being picked up pre-season for the princely sum of £350,000 from Rotherham United. No other player reached double figures, though Reading played some entertaining football, especially the two wingers, captain Jobi McAnuff and the Malian Jimmy Kébé.

The Royals’ success was built on the tightest defence in the division, including player of the season Alex Pearce, the experienced Latvian colossus Kaspars Gorkšs and the veteran Irish full-back Ian Harte. Behind that uncompromising combination, the Australian goalkeeper Adam Federici again demonstrated his international class.

 "Pearce - Come on, Alex. You can do it!"

Despite being one of the oldest clubs in the Football League, this is only the second time that Reading have reached the top flight. Steve Coppell’s team was the first to achieve this honour, finishing in a remarkable eighth place in the Premier League in 2006/07, just missing out on European qualification. Unfortunately, their stay was brief, as the dreaded second season syndrome led to relegation the following year. They very nearly made an immediate return, but finally lost to Burnley in the play-offs, leading to the departure of key players like Kevin Doyle and Stephen Hunt and Coppell’s resignation.

His replacement, Brendan Rogers, lasted just six months, before leaving the club “by mutual consent” in December 2009, when McDermott was given his chance. The former Arsenal striker, who had been at the club since 2000, initially as chief scout, then the under-19s and reserve team manager, seized the opportunity with both hands.

In his first season, he took the club out of the relegation zone into a creditable ninth position and followed this up with an encouraging fifth place in 2010/11, before this year’s triumph. McDermott also guided Reading to two FA Cup quarter-finals in that period, overcoming many Premier League clubs on the way, including a memorable victory over Liverpool at Anfield.

All in all, their ebullient chairman, Sir John Madejski, was fully justified in his claim that this was “the most successful period in the club’s history.” Much of this is down to his own skill in patiently pushing the club forward, not least the 1998 move to the modern stadium that bears his own name, affectionately know as the “Mad Stad”.

"McDermott - the life of Brian"

As well as the advancement to the promised land of the Premier League, there are also ch-ch-ch-ch-changes off the pitch with the announcement of a takeover by the Russian Anton Zingarevich, who bought the club for £25 million through Thames Sports Investment (TSI) last month. Madejski has been effusive in his praise of the 29-year-old businessman, “This fit is so good it is not funny. Not only does Anton come from a very wealthy family, but he was also educated in the area.”

Details of the deal are still sketchy, but it has been reported that TSI has bought 51% of the club immediately for £12.7 million with an obligation to purchase the remaining 49% for a further £12.3 million  by 30 September 2013. Continuity should be assured by Madejski remaining as chairman until at least 2014 with an invitation to become Life President if he decides to step down.

Madejski will be a tough act to follow. He has been chairman for over 20 years after buying the club in 1991, taking it from the brink of receivership and reviving the club’s fortunes. His commitment has been admirable, especially as he is not really a football man, once claiming, “I know squat about football.” Indeed, after relegation from the Premier League, he said that he would be “horrified rather than surprised” if he were to still be in charge in five years time.

Although a wealthy man by most people’s standards, having made serious money from selling Auto Trader magazine, he cannot compete with the big hitters at the highest level, “Football is really for the super rich. It is a rich man’s foible.” Furthermore, his companies have been badly hit by the recession, especially the collapse of the property market that necessitated the renegotiation of bank loans at Sackville Properties.

"Madejski - Johnny Was"

In truth, he has been willing to sell for a while. As far back as 2007, he said, “If there's some billionaire out there who thinks he could take the club to the next level, while respecting what it's is all about, then I'd be happy to pass on the baton.” However, although it was important that any buyers had “enormously deep pockets”, they had to be the right type of bidder, “'I've spent 20 years building this up and I'm not just going to sell it to some asset stripper or some consortium that will fall out and sell it all off in bits”, which gives some encouragement to sceptical supporters.

That said, there are inevitably concerns regarding any takeover, especially as there was a lengthy delay before TSI was allowed to complete the acquisition. Specifically, the football authorities were worried about exactly who was behind the investment and wanted to see proof of funds.

The real money in the Zingarevich family is with Anton’s father Boris, who is the founder of Ilim Pulp, a timber and paper business, and is the largest shareholder in Enerl, a New York based power company. Unhappy comparisons were drawn with Portsmouth, whose trail of woe included allegations that one-time owner Sacha Gaydamak was a mere front for his much richer father.

In addition, little was known about Chris Samuelson, the main TSI representative, beyond the fact that he was a director of Mutual Trust SA, a financial services firm based in Switzerland specialising in incorporating discreet investment vehicles in offshore jurisdictions. In such circumstances, it is natural that questions will be asked about whether the purchaser is “fit and proper”, particularly as the Zingarevich family pulled out of a bid to buy Everton in 2004 at the last minute. This time round, Samuelson assured fans that the deal would go ahead, “There’s no problem with the money. It will be a cash deal, not loans and not leveraged finance.”

"Just can't get McAnuff"

The acquisition was finally announced by Reading on 29 May in a statement that confirmed that it complied with all Premier League and Football League requirements. In fairness, the delay might simply be due to Reading’s promotion, which meant that both leagues wanted to review the transaction.

Madejski seems to have no doubts about the new kids in town, “I have no misgivings about their credentials or integrity. Anton ticks all the boxes and we’re lucky to have him.” Such a vote of confidence from a man as honourable as Madejski is heartening, though only time will tell whether Zingarevich merits this positive reference.

It is not known how much money Zingarevich has, though the Daily Mail reported that his family was worth £460 million. If that is correct, it would be interesting, because that would be a long way short of the billionaire that Madejski has been seeking for so long.

One thing that is not in doubt is their good timing, as they agreed to buy Reading at a very good price just before promotion to the far more lucrative Premier League was secured. As Madejski admitted, “The club is more valuable now, but I have struck a deal, and a deal is a deal.”

"Kaspars the friendly ghost"

In any case, although TSI have promised some financial support, Reading fans will be disappointed if they expect another Roman Abramovich. The new strategy is likely to be much the same as the business-like approach operated by the club in the past few years, albeit with a little “more fiscal help”, partly financed by the new owners, partly by the greater riches available in the Premier League. Madejski advised, “They’re not going to go at it like a bull in a china shop. It’s going to be done in a prudent, sensible way – the Reading way.”

That’s a reference to Reading’s two-pronged policy of ensuring the club’s financial stability, while still trying to give themselves a reasonable chance of achieving success on the pitch. In the past, Madejski has been unapologetic about focusing on long-term viability, as opposed to short-term gratification: “We will not gamble with our future, as some clubs in our position have done at great cost. Instead, we are attempting to develop a club with a strong infrastructure that is built on solid foundations.”

Although some fans have criticised the chairman for a perceived lack of ambition and reluctance to invest more in the squad, Madejski can point to the team’s successful record on the pitch in the past few seasons that “demonstrate we can run the club in a prudent manner, but still achieve historic results.” Indeed, the 11 best seasons in Reading’s history have all come under the stewardship of his board. Maybe even more could have been accomplished with more investment, but money is no guarantee of success.

Since Reading’s relegation from the Premier League in 2008, they have effectively been a selling club with net sales of £32 million in the transfer market (purchases £12 million, sales £44 million), a complete turnaround from the previous five years which had an aggregate net spend of £18 million. Even then, they were hardly the biggest spenders around, as seen by their record buy being just £2.5 million to secure the services of Emerse Faé from Nantes in 2007.

They have become masters at buying low and selling high, signing players for peanuts, but obtaining large fees for them in each of the last four years: 2008/09 Dave Kitson (Stoke City) £5.5 million, Nicky Shorey (Aston Villa) £3.5 million, Ibrahima Sonko (Stoke City) £2 million; 2009/10 Kevin Doyle (Wolves) £6.5 million, Stephen Hunt (Hull City) £3.5 million; 2010/11 Gylfi Sigurdsson (Hoffenheim) £6.5 million; 2011/12 Matt Mills (Leicester) £4.5 million, Shane Long (West Brom) £4.5 million plus add-ons. As most transfer fees are not disclosed, we have to exercise a degree of caution here with Madejski warning, “The sums of money broadcast in the media are nothing like the actual figures.”

Nevertheless, it is evident that selling players has been an important part of Reading’s strategy. As the 2011 annual report stated, “Player sales remained necessary to allow us to continue to run a competitive squad.” That may seem like a classic oxymoron, but it does make sense to the extent that the sale of one or two specific players for reasonably big money has financed the wage bill of those remaining.

In the last four years, only three Championship clubs (Portsmouth, West Ham and Middlesbrough) spent less than Reading on transfers, though to be fair very few have splashed the cash with only ten clubs out of 24 reporting net spend. In fact, only three clubs (Leicester City, Hull City and Nottingham Forest) have spent more than £10 million (net) in that period and none of these has set the world alight.

It should also be noted that those with high net sales have been badly impacted by relegation from the Premier League. This is partly due to lower revenue, but is also down to some players wanting to move to play at a higher level, as was the case with Shane Long. Madejski explained, “The reason he left is he’s a Premier League player. Had we got promoted, he would be playing for Reading.”

That has not stopped some of the crowd urging Madejski to “spend some money”, though in rather more forceful terms, but to a degree Reading managers have become victims of their own success here. McDermott’s title winning side was built on a relative pittance, while in the past Madejski praised Steve Coppell for achieving “the minor miracle of obtaining such excellent results without having to invest huge sums in the transfer market.”

This thrifty stance has been reflected in Reading reporting profits in four out of the last five years, a rare feat in the cutthroat world of football. Very good profits of £13 million were made in the two Premier League seasons (£6.6 million in 2007 and £6.7 million in 2008), but this was largely used to invest in infrastructure and offset previous losses. These added up to £12 million in the two seasons before promotion, including a £6.5 million loss in 2006, when “the board made a conscious decision to invest heavily and push for promotion”, resulting in a record points total.

Following relegation, Reading still managed to make money in the seasons benefiting from parachute payments (£3.1 million in 2009 and £1.4 million in 2010), even though they admitted that in the first season they “went for broke and over-spent on the budget.” This can be seen by the wage bill in 2009 being twice as much as the last time they had been in the Championship just three years earlier, leading to a hefty operating loss of £12.5 million, only financed by substantial profits on player sales of £16.3 million.

This could not last, so the (football) wage bill was trimmed by 30% from £25.5 million to £18.1 million in 2010, reducing the operating loss to £2 million. Madejski noted, “People have to recognise that football is a business and you have to cut the coat according to the cloth. And if the cloth isn't there, it isn't there. Times are hard and we have to live within budgets.” This is particularly pertinent for Reading, whose revenue from football activities has fallen by around two-thirds from £52 million in the Premier League to £17 million last season in the Championship.

"Harte and soul"

Despite the focus on the financials, Reading made a loss of £5.4 million in 2011, which was £6.8 million worse than the 2010 profit of £1.4 million. In some ways, this is a good achievement, as they had to cope with the loss of a £12 million parachute payment, slightly offset by additional income from the play-off final. In spite of this hefty revenue reduction, costs remained at the same level, with the shortfall reduced by profits on player sales of £5.8 million.

In cash terms, this funded the £5.8 million loss (EBITDA – Earnings Before Interest, Taxation, Depreciation and Amortisation). In other words, the 2011 deficit was effectively attributable to non-cash, accounting items, namely depreciation on fixed assets and player amortisation (the annual expense of writing down transfer fees). That effectively left no money to spend. As Madejski put it, “If you look at our figures, you will see that keeping the show on the road, with all the expenses involved in football, you will see there's no heap of cash waiting to be spent.”

At this point, we should clarify Reading’s corporate structure. The profit and loss figures are from The Reading Football Club (Holdings) PLC, which is the parent company of The Reading Football Club Limited, which itself has two wholly owned subsidiaries, the Madejski Stadium Hotel Limited and the Reading FC Community Trust.

Revenue is boosted by the non-football activities with the hotel contributing £5.2 million and the Trust £0.7 million, leaving the pure football revenue as £17.2 million. Although the hotel was intended to provide a diversified revenue stream, it has been impacted by the poor economic climate and local competition, so has not yet delivered the goods, though it does generate some cash once depreciation is added back.

The important point to note is that these other activities make very little difference to the club’s bottom line, e.g. in 2011 the football club was responsible for £5.0 million of the total loss of £5.4 million for the holding company. Excluding interest payments, the hotel made a loss of £185,000, while the Trust reported a small profit of £29,000.

Of course, the vast majority of clubs in the Championship lose money with only three of the 24 contenders making money in 2010/11: Watford (and they would have reported a loss without a £13 million “inter-company debt waiver”), Scunthorpe United and Leeds United, and nine losing more than £10 million. This is partly a result of low TV money in England’s second tier, but also due to many clubs over-spending in order to reach the Premier League.

Reading’s £5.4 million loss places them in the top half of the profit table, but their record over time is one of the best in the Championship. To place it into perspective, another team that plays in blue and white hoped shirts, Queens Park Rangers, lost a massive £58 million in the three seasons before promotion, while Reading virtually broke even in the same period.

That said, there is little doubt that this has been achieved on the back of player sales. Excluding profit from player sales of £26 million between 2009 and 2011, Reading’s loss would have been £27 million.

For example, in 2009 the club reported a profit before tax of £3.1 million, but this would have been a £13.2 million loss without player sales. As the club explained in the 2009 annual report, “At the end of the financial year, we had to begin recouping the season’s losses”, hence the sale of Kevin Doyle on 30 June (the last day of the financial year). Matters were complicated that year, as the club also had to repay a £7.5 million overdraft on top of the £6.3 million cash loss (EBITDA £(5.5) million plus interest payments of £0.7 million), leading to even more sales than usual.

It was a similar story in 2011, when the reported loss of £5.4 million would have been £11.1 million without player sales, as Madejski explained, “Our budget was set with the intention of supporting the costs of the playing squad through player trading and we did so primarily with the sale of Gylfi Sigurdsson.” More of the same can be expected in 2012, as the money made from the sale of Mills and Long will (partly) compensate the almost inevitable operating loss.

Although many might consider Reading a “small” club, despite their recent progress, their revenue is actually not too bad at all. If we exclude the £15 million of parachute payments received by Burnley, Middlesbrough and Hull City, only five clubs generated more than Reading’s £17.2 million (from football activities) in 2010/11. Leeds United (£33 million) and Norwich City (£23 million) were a fair way ahead, but the other three clubs earned about the same as Reading: Derby County £18.1 million, Leicester City £18.4 million and Ipswich Town £17.2 million.

Incidentally, two of the clubs promoted to the top tier in 2010/11 had even lower turnover: QPR £16.2 million and Swansea City £11.7 million, so maybe Reading’s elevation this season should not come as too great a surprise.

Of course, the major problem for Reading has been the declining revenue, which has fallen by £35 million from £52 million in the Premier League in 2008 to £17 million in the Championship in 2011. The majority of that (£26 million) hit them immediately in 2009 with the remainder coming two years later after the parachute payments ran out.

Clearly, the primary driver of the revenue decrease is television (falling from £34 million to £6 million), but the other revenue streams have also been adversely affected with match day income dropping from £11 million to £7 million and commercial revenue reducing from £7 million to £4 million.

The influence of television on a football club’s finances is undeniable and Reading are no exception. Relegation from the Premier League in 2007/08 led to an instant £19 million decrease with TV revenue falling from £33.7 million to £14.6 million, even though the fall was cushioned by annual parachute payments of around £12 million for the next two seasons.

When these stopped in 2010/11, the TV money slumped to £6.1 million. This mainly comprised the distributions made to all clubs in the Championship of £5.2 million, made up of a £2.5 million central distribution, a £2.2 million solidarity payment from the Premier League (up from £1.3 million the previous season) plus an additional £0.5 million as their share of the parachute payments for Newcastle and WBA, because they went straight back up to the top tier. The remaining TV money is for live broadcasts and progress in the cup competitions.

TV revenue in 2011/12 will be around the same level, but will shoot up next season, as each club in the Premier League receives around £40 million. The distribution methodology is fairly equitable with the top club (Manchester City) receiving around £61 million, while the bottom club (Wolves) gets £39 million. The lion’s share of the money is allocated equally to each club, which means 50% of the domestic rights (£13.8 million in 2011/12) and 100% of the overseas rights (£18.8 million). However, merit payments (25% of domestic rights) are worth £757,000 per place in the league table and facility fees (25% of domestic rights) depend on how many times each club is broadcast live.

Promotion is often seen as being worth an additional £90 million, which is a little misleading, as it is not all received in one fell swoop. It works like this: even if Reading do come straight back down, they would receive £40 million TV income plus £48 million parachute payments over the next four years (£16 million in each of the first two years, and £8 million in each of years three and four) plus additional gate receipts and better commercial deals. Of course, that calculation conveniently ignores the £5-6 million TV revenue already received in the Championship, but it’s still a magnificent prize.

The other point is that the club will surely eat into that higher revenue by increasing wages and other costs. As Madejski said, “It’s all very well getting to the Premier League, but you need deep investment to stay there.” Nevertheless, the net effect is still likely to be positive, as we can see from examining the three teams that were promoted to the Premier League in 2009/10. Newcastle United, WBA and Blackpool, all dramatically improved their operating profitability, even though wages increased.

Based on the match day income and commercial income received the last time Reading were in the Premier League, they can anticipate total revenue of around £58 million, which might seem like a huge sum after the £17 million in the Championship, but it is still relatively low for the top tier, e.g. only Blackpool and Wigan Athletic generated less revenue last season. For some context, Manchester United’s £331 million is more than five times their budget.

The recently announced three-year domestic TV deal starting in 2013/14 only emphasises the vast financial gulf between the two top divisions. Assuming a reasonable increase in the overseas deal, Premier League clubs can expect at least £20 million additional revenue a season. That makes it even more imperative to survive in the Premier League, especially as the Football League TV deal that kicks off in the 2012/13 season is actually 26% lower than the current contract.

Match day income of £7.3 million is pretty good for the Championship, though clubs like Manchester United and Arsenal generate as much as Reading achieve in a whole season in just two games. In fairness, in 2010/11 only Leeds United earned more revenue per fan (of the 10 Championship clubs with the highest attendances), as Reading took in more revenue than many clubs with higher crowds.

in last season’s promotion campaign, attendances climbed 9% to 19,219, the ninth highest in the Championship, though this was still some way short of the near 24,000 crowds achieved in the two Premier League seasons.

Having reduced ticket prices following relegation, Reading have hiked prices for next season with season tickets going up by 33% (though prices were frozen for those taking advantage of the early bird offer). Although many clubs have tried to beat the recession by keeping prices at the same level (or even reducing prices in the case of Wigan, West Brom and Sunderland), the increase for a promoted club is perfectly understandable and has not dented season ticket sales, which are approaching the 18,000 maximum.

In 1998 Reading moved from Elm Park to the Madejski Stadium, which is shared with the London Irish rugby union side, enjoying much support from the local council. It cost around £40 million, though this was partially offset by selling land from the old ground and around the new site. With a capacity just over 24,000, it is not particularly large for a Premier League club, though they have planning permission to extend to 38,000 and Zingarevich has promised, “If we stay up in the first year, then we will upgrade the stadium.”

The Royals will be looking to increase their commercial income in the Premier League from the £3.8 million in 2010/11. Even that includes £0.6 million commission from rugby matches, so there is plenty of room for improvement.

The current shirt sponsor is Waitrose, who have extended their deal to 2013, having replaced Kyocera in 2008. Financial details have not been divulged, though reported estimates include “a significant six-figure annual sum” and £1.5 million from various marketing publications, so we could assume an average of £1 million. This would be towards the lower end of Premier League deals and obviously significantly behind the £20 million deals for the leading clubs. Reading also have a long-term kit supplier deal with Puma that runs until 2013.

Those that argue that Reading have shown no ambition might be given pause for thought when they see a wages to turnover ratio of 106% in 2010/11. To place that into context, that’s nearly as much as big spending Manchester City’s 114%. Reading’s ratio deteriorated from the previous season’s 66%, as they held the wage bill at the same level, despite revenue plummeting more than £10 million after the parachute payment stopped. In fact, the wage cut of 41% (£13 million) since relegation is much less than the 67% (£34 million) revenue decline.

In fairness, nearly half the Championship clubs have a wages to turnover ratio over 100%, but Reading’s wage bill of £18.3 million is one of the most competitive in the division (sixth highest) and much the same as Norwich and Swansea (two of the promoted clubs that season). It may be even higher in 2011/12, assuming that bonuses were paid for winning the league.

However, it was still a lot lower than every Premier League club in 2010/11 with the exception of Blackpool, so is likely to shoot up in 2012/13. This will be one of Reading’s major challenges following promotion. As Madejski said, “Footballers are paid an extraordinary amount of money – that’s why football is struggling. I have been in the game for nearly 20 years as a chairman and all I’ve seen is this inextricable rise in players’ wages, which is where it all goes wrong.” Indeed, there has already been talk of signing Russian striker Pavel Pogrebnyak on £30,000 a week, which would make him the highest paid player in Reading’s history.

Note that the total wage bill at Reading was £20.5 million, including wages for the hotel and other companies, but that would not be a fair comparison with other teams, so I have used wages for the football club only.

Excluding salaries and amortisation, Other Costs for the football club are £5.7 million. Comparing that with other Championship clubs with high revenue (not benefiting from parachute payments), we can see that this is on the low side with Leeds, Leicester, QPR and Derby spending almost twice as much in this area.

Reading have reduced their debt from £45 million to £35 million in the last two years, mainly due to the repayment of a £7.5 million overdraft. The club has been hugely reliant on the chairman’s support, in the form of £26.3 million loans (up £0.5 million in 2011) at low interest rates. These comprise £17.1 million interest-free for the hotel and £9.2 million for the football club at 1% below the HSBC Bank base rate. Furthermore, £2.3 million of interest has merely been accrued, so not actually paid. In fact, Madejski has “never taken any money out of the club”, meaning nothing for directors’ fees or dividends either, only collecting £18,000 annual rent for the training ground.

Thanks to Madejski’s support, the remainder of the debt is fairly small, made up of £7.1 million bank loans and £1.4 million other loans (from Scottish and Newcastle PLC and Close Leasing Limited). Reading’s status here should not be under-estimated, given the situation at other clubs, as the Football League chairman, Greg Clarke said, “Debt's the biggest problem. If I had to list the 10 things about football that keep me awake at night, it would be debt one to 10. The level of debt is absolutely unsustainable.”

In fact, as Chris Samuelson from TSI said, “Reading is one of the few football clubs with a strong balance sheet” with net assets of £3.6 million. Although this is £5.4 million lower than the prior year, after the 2011 loss, in reality it is under-stated, as player values only have an accounting value of £3.2 million, while they are worth much more in the real world (£15.5 million per Transfermarkt).

In addition, liabilities include an £11.7 million deferred contribution from Salmon Harvester Properties Limited, the company that bought Elm Park, where the cash has been paid, leaving annual contributions released to the profit and loss account over the stadium’s expected life. The stadium is valued at £30 million, while the hotel is £23 million (no value for the training ground, as this is owned by Madejski).

In the last six years, the club has produced operating cash flow of £15.5 million, but £21.4 million was spent on infrastructure (hotel extension, conference centre, new pitch, training ground) and £3.2 million on interest payments, leaving a shortfall of around £10 million. This has been financed by player sales of £6.1 million and £8 million of new loans.

In the Premier League years, more cash was available, but it was “reinvested into the playing squad – particularly on player wages – and the infrastructure”, so there was no great surplus. After relegation in 2009 there is a clear switch to: (a) generating cash from player sales; (b) spending less on infrastructure. The loan repayment has also reduced interest payments from £0.6 million to £0.2 million.

Looking ahead, Reading’s top priority will obviously be Premier League survival. This will be a tough ask, especially as few players have experience in the top flight, but captain Jobi McAnuff said that they could draw inspiration from Norwich and Swansea, who did well enough with pretty much the same squads.

"Kébé - Jimmy, Jimmy"

That said, we can expect some loosening of the purse strings from the new owners, reinforced by the extra revenue from the Premier League, though they are unlikely to break the bank, as Madejski explained, “What I don’t want is people thinking Reading are an open cheque book. We will be as careful as we have been in the past. There will be a possibility to strengthen, but only in a sensible way.”

In this way, limited funding was made available in the January transfer window to bring in Jason Roberts, which was not much, but made a big difference. There has been press speculation that McDermott will be given a transfer kitty of £15 million this summer, but perhaps the most important point is that the club will now be able to retain its best players, which is a “hugely important step” according to the manager.

TSI have also spoken of their desire to continue focusing on the scouting network and the academy, which has been very successful in producing home grown talent, such as Alex Pearce and Simon Church, while developing the likes of Jem Karacan. Madejski has invested a lot in this area, including upgrading the training facilities. He also hired Nicky Hammond in 2003 as the club’s first director of football, a “very important” role according to McDermott. It is not clear how this will be affected by the introduction of the Elite Player Performance Plan (EPPP), though this is likely to hurt Reading’s ability to sell young stars to top clubs for large sums.

"Zingarevich - the Russians are coming"

If Reading are relegated, they will be confronted by the new Financial Fair Play (FFP) framework, which was approved by the Championship clubs in February. That will see the introduction of a breakeven model, requiring clubs to stay within pre-defined limits on losses, though that should not be too problematic for a club with their prudent philosophy.

Reading’s progress on the pitch, while keeping a tight hold on their finances, is encouraging to those who despair of the massive amounts of money thrown away in football. They have bucked the trend of buying success by adopting a sensible, long-term plan – that has worked.

Although there are still many questions about the new owners, there is no doubt that Madejski has handed over a club in excellent shape. Reading have much potential with a modern stadium located in the Thames Valley, one of the most affluent parts of the country, with little competition from neighbouring clubs. As Sir John said, “It is the end of one era, but the start of another.” His hope that this will “take Reading on to a different level and into Europe and beyond” might be a little optimistic, but only time will tell.

In The Premier League, The Sun Always Shines On TV

When Sergio Aguero crashed home the injury time winner to secure Manchester City’s Premier League title, he almost certainly gave little thought to the financial ramifications of his well taken goal, but it could be argued that this sublime moment provided the impetus for last week’s record television deal, which has climbed around 70% to £3 billion over the next three-year cycle. As the Premier League’s chief executive, Richard Scudamore, said, “We couldn’t have gone to market at a better time.”

The Premier League’s relentless publicity machine had already given the award for Best Season to the 2011/12 campaign for its “mix of wonderfully memorable matches, unbelievable drama and continuing excitement at both ends of the table”, but Aguero’s spectacular flash of inspiration delivered the cherry on the icing on the cake.

Scudamore’s revelation that the Premier League would be paid over £1 billion a season from 2013/14 was equally dramatic, leaving most seasoned observers of such deals open-mouthed with astonishment. Even the league’s head honcho was moved to say that he was “as surprised as anyone” that they could achieve such an enormous increase in these recessionary times.

"Scudamore - the deal is this big"

The basic facts of the deal are that Sky and BT have bought the domestic rights for the three years between 2013/14 and 2015/16 in a sealed bids tender. Sky have again retained the lion’s share winning 116 of the 154 matches (the maximum allowed to any broadcaster), but have had to shell out £2.3 billion, a 40% increase on the £1.6 billion they paid last time around.

The surprising new kids on the block are BT, who won the rights to 38 matches, around a quarter of the total on offer. They paid £738 million to replace ESPN, who only paid £159 million, though it should be noted that the home of Disney picked up the rights from the failed Setanta and they only covered 23 games. Interestingly, BT also have almost half of the “first pick” games, e.g. those featuring the leading clubs, which is the first time that Sky have not had all of them.

So the total received for live domestic rights adds up to £3 billion (or £1 billion a year), which represents an amazing 70% rise over the current £1.8 billion. That’s not the end of the story for the TV gravy train, as the BBC has also paid £180 million for highlights (a comparatively minor 4.5% increase on the current £172 million), producing a total of £3.2 billion for domestic rights.

On top of that, there is the money for overseas rights, which is currently worth £1.4 billion. Assuming some reasonable growth, a figure of £2 billion is not out of the question for the next deal, which would mean a total of £5.2 billion for the next cycle, i.e. a mighty £1.7 billion a year.

Even that figure does not include the money received for near-live, on-demand and internet clips, but that’s relatively small – at least in the context of the mega deals for live matches.

Although Scudamore employed typical English understatement when he described the latest deal as a “decent commercial increase”, the reality is that this is the envy of the world. While he may give the appearance of an arrogant blowhard, there is no doubt that Scudamore is a master of the deal. In fact, the growth in the Premier League’s TV rights is quite staggering, if you consider that the original domestic rights sold for less than £50 million a season back in 1992, while the latest contract brings in more than a billion.

Much of the growth is due to more games being televised. This amounted to a meagre 60 in the early days of the Sky revolution, but is now up to 154 in the latest deal, a 12% increase from the current 138. However, that does not explain all of the growth – far from it.

Perhaps the best way of highlighting the magnitude of the increase is to look at the amount paid per game, which has increased from the current £4.3 million to £6.5 million, working out to an astounding £73,000 per minute. Looked at another way, the £637,000 per match in the first Sky contract would pay for less than nine minutes at today’s rates.

The Premier League’s next rabbit out of the hat should be the sale of overseas rights, which will only be concluded in a few months. Deloitte think that these might go for even more than the domestic rights, which would imply them more than doubling from £1.4 billion to £3 billion. Scudamore himself noted, “I can see several chairmen saying, 'You’ve got 70% more on the domestic deals and we want the same from international’”, which would mean £2.4 billion from overseas rights.

My expectation is that there will certainly be an increase in some territories, notably North America, the Middle East and Asia, but I’m going to be more conservative in my calculations and go for an increase of around 40% to £2 billion (£667 million a season) for the rest of this analysis.

Many had believed that the value of the domestic rights had reached saturation point, as they had hardly grown at all in the last 2010-13 cycle, when overseas rights had driven virtually all of the increase (£0.8 billion of the £0.9 billion growth). This had resulted in overseas rights accounting for 42% of the total TV money, up from just 11% in 2000. This might not seem to be significant in the wider scheme of things (after all, who cares where the money comes from?), but it is important to smaller Premier League clubs, as overseas rights are distributed equally in contrast to the methodology used for domestic rights.

Indeed, if you look at the trend in TV rights since the formation of the Premier League, it is overseas fans that have been behind the explosive growth with the revenue more or less doubling each time that the rights are re-negotiated. Per season, that works out to 2001-04 £59 million, 2004-07 £108 million, 2007-10 £208 million and 2010-13 £479 million.

In contrast, domestic rights have stuttered, falling 18% in 2004-07 before surging 66% in 2007-10, then rising only 4% in 2010-13 before the latest 64% increase. Please note that the widely quoted 70% increase in domestic rights only refers to the live matches. Once the domestic highlights are also included, the total increase equates to 64%.

This massive rise is partly due to the tried and trusted economic law of supply and demand, as the previous tender process was effectively a two-horse race, only featuring Sky and a weak Setanta, while this time round there was much more meaningful competition for Murdoch’s empire with BT, ESPN and the threat of moneybags Al-Jazeera entering the race.

Of all people, Sir Alex Ferguson was one to argue that the rights to live football had been under-sold, when he suggested that broadcasters should pay more, “I don’t think we get enough money.” Even that wily old fox must have been impressed by the new domestic agreement, which is 25 times as much as the first Sky deal. In fact, assuming the overseas rights are sold for £2 billion, the overall TV rights have risen an incredible 3,300% in the 22 years since the Premier League came to pass.

"Sir Alex Ferguson - media visionary"

As with any deal, there will be winners and losers. Most obviously, the Premier League clubs will benefit from a substantial increase in revenue, though much of this will go on the players, either via higher wages or transfer fees (plus agents’ commission). Scudamore has often described this as a virtuous circle that allows English clubs to compete with their foreign counterparts, “The continued investment in playing talent and facilities made by the clubs is largely down to the revenue generated through the sale of our broadcast rights.”

However, every silver lining has a cloud and other clubs are likely to suffer, notably those in the Championship, as the revenue gap to the top flight further widens. Other sports might also be hit, as their television budgets are cut in order to fund the higher bill for football. Similarly, Sky subscribers may well be confronted by price rises.

In theory, clubs might soften that blow by using part of their new riches to reduce ticket prices, but I wouldn’t hold your breath on that one. There are also question marks over how big a slice of the pie will be allocated to developing grass roots football and the national team.

The smart money has to be on the Premier League clubs taking the vast majority of this windfall, as is the case with the current distribution of the league’s revenue. As it stands, a great deal of the TV money is shared equally: 50% of the domestic rights, which is worth £13.8 million to each club, and 100% of the overseas rights, worth £17.9 million to each club.

However, 50% of the domestic rights are allocated in a way that does favour the leading clubs. For these funds, 25% is for merit payments, determined by the club’s final league position with each place worth an additional £757,000; and 25% is paid in facility fees, based on how often a club is shown live on television, which benefits the top clubs that are broadcast more often.

Nevertheless, the ratio from top to bottom earning clubs in terms of TV payments is much smaller in the Premier League at 1.6 compared to other leagues: Germany 2.0, France 3.5, Italy 4.2 and (most obviously) Spain 10.8. In this way, the top club in 2011/12 (Manchester City) earned £60.6 million, compared to £39.1 million for the bottom club (Wolverhampton Wanderers).

Scudamore was at pains to emphasise that this approach would continue, “The money is not just put into the hands of the top three or four clubs. The way this money is divided means our smallest clubs are able to compete and, on a match-to-match basis, take on the big clubs. In our league that happens more than anywhere else and as long as we can still have teams in the bottom three beating teams in the top three every season, then we have a compelling competition. And as long as that continues, people will continue to want to invest in buying that content.”

In other words, if it ain’t broke, don’t fix it. Taking Scudamore’s lead, we can fairly safely assume that the future deal will be treated the same way as now. If we apply the overall 64% increase in the domestic rights to that methodology, we can see that the bottom club’s revenue would be increased by £13 million to £52 million, while the top club’s revenue would grow by £26.7 million to £87.3 million.

This is broadly in line with Scudamore’s guidance that each club’s revenue would be at least £14 million higher, but I’m guessing that he simply applied the 70% increase for the live UK rights to get his (slightly lower) figure. Many have written that the new contract would mean that the bottom club in 2013/14 would receive as much as the top club now (£60.6 million), but we can see that this is not quite the case.

It should be noted that even if the percentage increase is the same for all clubs, the absolute increase would be larger for the leading clubs. So, even in the Premier League, the gap would widen between clubs: in 2011/12 the difference between top and bottom is £21.5 million, which would grow to £35.2 million in 2013/14.

If we continue with this logic for the overseas rights, which we have assumed will rise 39% to £2 billion, then the total increase in revenue would be even more: £34 million for the top club to £94.6 million, £20.3 million for the bottom club to £59.4 million. Due to the equal allocation of overseas rights, the gap between top and bottom would still be £35.2 million.

Of course, if the overseas rights come in at a higher figure, e.g. growing by the same amount (70%) as the UK live rights, then the sums would be even higher with the top club earning around £100 million and the bottom club receiving £65 million.

The Premier League was already comfortably the richest domestic league in terms of TV deals, but it is now miles ahead of its peers. At an exchange rate of 1.25, the Premier League deal will grow from €1.4 billion a year to €2.2 billion, which is more than twice as much as Serie A’s €1 billion and around three times as much the other leading leagues: Bundesliga €700 million, La Liga€655 million and Ligue Un€642 million. The principal reason for the disparity is the overseas rights, which are currently worth €0.6 billion a year in England (projected to grow to €0.8 billion), but are negligible everywhere else.

Some leagues have also managed to increase their TV deals, notably the Bundesliga, where the domestic deal for the four years through 2017 rose 52% from €410 million to €628 million and the overseas rights increased by the same rate to €72 million. The Bundesliga’s chief executive, Christian Seifert, was ecstatic, “ We didn’t expect results like this, it clearly exceeded our expectations”, but it paled into insignificance next to the Premier League.

Italy’s TV rights have also been growing since they returned to collective bargaining, but others have not been so fortunate. The French league’s new four-year domestic deal of €610 million with Qatar-backed Al-Jazeera is lower than the current €668 million, though their president considered this to be “more than satisfactory in the current economic climate.” In the same vein, the Scottish Premier League extended their agreement with Sky/ESPN until the 2016/17 season for a combined £16 million  year, an increase of just £3 million on the existing deal – and even that depends on four Old Firm matches a season, which must be under threat due to Rangers’ current crisis.

The rise in the Premier League’s TV rights has been so impressive that on its own its estimated €2.2 billion will be higher than the TOTAL revenue of every other league: Bundesliga€1.746 billion, La Liga€1.718 billion, Serie A€1.553 billion and Ligue Un €1,040 billion.

As yet another comparison, it is also higher than TV rights for the Champions League (£0.9 billion), the European Championships (£0.7 billion) and the World Cup (£1.5 billion), though obviously they feature far fewer matches.

The impact on individual clubs will be striking. Everyone knows that Real Madrid and Barcelona benefit from their individual TV deals in La Liga, which last season amounted to £112 million (€140 million) each. This was getting on for twice as much as the £60 million earned by England’s top two clubs, Manchester City and Manchester United, but the gap will close with the new deal, as I am estimating that this will increase to around £95 million.

It might even close altogether if: (a) the rise in overseas rights is more than the assumed 40%; (b) the Spanish giants come under pressure to adopt a collective deal. Nevertheless, this is still a giant step in the right direction for English clubs, as noted by Scudamore, “Our challenge under a collective selling model is to try to make sure that our top clubs are able to compete with the top clubs that have got an individual selling model. I am pleased that this will take our clubs up a notch closer to those clubs who benefit from that individual selling model, say in Spain.”

There is no doubt that this TV deal will improve the competitive position of English clubs. The last Money League produced by Deloitte had Manchester United in an impressive third position with £331 million revenue, but this was significantly lower than Real Madrid £433 million and Barcelona £407 million, but ceteris paribus this shortfall would be almost entirely eradicated by a combination of the extra TV money and the change in the exchange rate (as the Pound has strengthened from 1.11 to 1.25 Euros).

As a result of these changes, Madrid would still lead the pack with £384 million, but United’s revised £365 million would overtake Barcelona’s £361 million. Similarly, Arsenal and Chelsea, whose revenue would rise to just under £260 million, would be more or less the same level as Bayern Munich, despite the new German TV deal giving them £10 million more a season.

What will be interesting is to see whether this influx of new money into the Premier League changes clubs’ attitudes to European competition. Over the last two seasons, the four English clubs in the Champions League have earned on average around £32 million a season, though that has been boosted by Chelsea winning the trophy in 2011/12 and Manchester United reaching the final in 2010/11.

Next season’s new Champions League TV deal is reportedly worth an additional 21%, taking the average up to just under £40 million, so this is still worth getting excited about, especially if we add in gate receipts and higher payments from sponsors. However, the Europa League becomes an even less attractive proposition, paying out around £5 million, so English clubs might take it even less seriously than before.

The Champions League would still be a game changer, assuming that the Premier League payments remain reasonably equitable in nature, as can be seen by the graph above, which clearly shows the financial importance of Europe’s flagship tournament at the margin.

At the other end of the spectrum, the impact on clubs in the Championship should not be underestimated. There is already a sizeable gap in the TV revenue between England’s top two divisions, with most Championship clubs earning around £5 million a season, largely comprising a £2.5 million payment from the Football League and a £2.2 million payment from those generous folks at the Premier League, compared to the bottom club in the Premier League’s £39 million. Those clubs relegated from the top flight also benefit from parachute payments of £16 million.

So the current gap to the Premier League’s bottom club is £34 million or £19 million (with parachute payment). In the future, as we have seen, the bottom club in the Premier League could expect £59 million, but the money available to Championship clubs is still unclear. When this question was put to Scudamore, he was not particularly encouraging, “I don’t want to get drawn on that. That’s for the 20 clubs to decide. But there’s always a line of people around the block outside Gloucester Place looking for their share.”

Notwithstanding his elusive response, we can probably assume that the overall (estimated) 53% in TV rights would also be applied to solidarity payments, which would increase to £3.4 million, and parachute payments, up to £23 million. Unfortunately, the new Football League three-year Sky TV deal that kicks off in the 2012/13 season will be £69 million lower than the current contract at £195 million, which means a reduction of 26% (or £23 million) a season. This reflected what Football League chairman Greg Clarke called, “a challenging climate in which to negotiate television rights.” That would imply a reduction in the Football League distribution to £1.8 million.

So, from 2013/14 the majority of Championship clubs would receive £5.5 million, a thumping great £54 million lower than the bottom club in the Premier League. Even those clubs benefiting from a higher parachute payment would only get £29 million, though this would be more than five times as much as a “normal” Championship club. This runs the risk of creating a closed shop featuring the 20 in the top flight plus 5-6 yo-yo clubs.

The dangers for clubs in England’s second flight are obvious, as the urge to spend beyond their means might become unbearable, given that the size of the prize following promotion is even larger than before. Although this should be restrained by the implementation of Financial Fair Play regulations in the Championship from the 2012/13 season, they will be squeezed by the contrary impact of wage inflation trickling down from the top tier.

From the perspective of the lesser lights in the Premier League, the new deal is not all milk and honey either, as it places them under even more pressure to survive in the top flight, as QPR’s chief executive, Phil Beard admitted, “It does make it even more important not to be one of the three teams that don’t stay in the Premier League.”

TV money is critically important to their prospects. In 2010/11 television accounted for a staggering 70% or more of revenue at clubs like Wigan Athletic, Blackburn Rovers, Bolton Wanderers and West Bromwich Albion. Without this money, these clubs simply wouldn’t be able to compete and might even struggle to survive.

The new television deal brings more clubs into that category with over half of the Premier League earning more than 70% from this revenue stream. At the extreme, Wigan would earn an almost unbelievable 92% of their total income from TV in future  – they might as well let fans into the stadium for free, especially as they will be constantly messed about over kick-off times to suit television schedules. As the old saying goes, he who pays the piper calls the tune.

So these clubs will also be tempted to splash the cash in order to avoid the nightmare scenario of relegation. Parachute payments might cushion the impact, but it’s still a fearsome drop in revenue. Even those clubs with the foresight to include relegation clauses in their players’ wage contracts would suffer.

Very few things are certain in life, but it’s a fairly safe bet that the majority of the additional TV money will simply flow into players’ bank accounts. Since 2007 total Premier League revenue has grown 48% from £1.5 billion to £2.3 billion, but wages have increased at an even faster rate by 66% from £1 billion to £1.6 billion. In other words, 86% of the revenue growth of £740 million has simply fueled an increase in the wage bill of £640 million.

The important wages to turnover ratio has steadily risen from around 60% to a record 70% in 2010/11. To put that into context, this ratio was only 44% in 1992, the season before the advent of the Premier League, when revenue was £170 million and wages £75 million.

Even Scudamore was moved to comment on this danger, albeit as a secondary objective, “Priority number one is retain and attract top talent, but there ought to be a way of doing that while achieving sustainability. Some of it ought to be used to reduce losses.” The more cynical among you would undoubtedly argue that we’ve heard it all before, but there are some signs of a more sober approach taking hold, as eight Premier League clubs reported a profit in 2010/11. That might not be the most compelling endorsement, but it is twice the number of clubs that were profitable the season before.

Of course, the Premier League could address this issue full on, if they were to amend their current approach of distributing the vast majority of their revenue to the Premier League clubs. In 2010/11 nearly 80% (£953 million) of their total revenue of £1.2 billion was allocated to the clubs with only 8.6% (£105 million) in external payments, which is frankly derisory.

The Premier League argue that 14% (£167 million) of their money goes in external payments, but this includes £62 million of parachute payments, which seems a little disingenuous, not least because it could be argued that this exacerbates the problems for other Championship clubs.

In fairness, the Premier League has given more money in the last few years with solidarity payments to the Football League doubling from £11.2 million in 2008/09 to £22.4 million in 2009/10, and then rising again to £56.4 million in 2010/11. Other external payments include £12 million to the Football Foundation, £10.8 million to the Creating Chances programme, £17.3 million to the Professional Footballers’ Association, £2.9 million to Professional Game Match Officials, £0.5 million to the League Managers’ Association, £3.1 million to Football League youth development and £2 million to the Conference.

In this way, the Premier League have described themselves as the most redistributive league in Europe, but as we have seen, they are also by far the wealthiest. The feeling is that the solidarity payments are little more than the scraps from a rich man’s table and that the Premier League could (and should) do more. Thanks to their supreme negotiating skills, the opportunity is now there in spades to do exactly that, but it would be a brave man that gambled money on this happening.

Some of the additional money could also be used to boost the prospects of the national team, which older readers will remember was one of the original objectives behind the creation of the Premier League. That has not exactly worked out very well, considering the contrasting fortunes of the league with England’s brave lions.

The Premier League has already budgeted £300 million for the Elite Performance Player System (EPPP), the new approach to developing youth players at club academies, but this is deeply unpopular with clubs in the lower leagues, as it takes away another source of income for them.

Sir Trevor Brooking, the FA’s director of football development, says that the number of English players in the Premier League needs to double to 60-70% (like Spain), but the worry is that the greater spending power from the TV deal will only encourage clubs to seek instant gratification by acquiring the top talent from abroad. This is partly addressed by the Premier League’s homegrown player rule, but it is still a possibility.

"It's a whole new ball game"

Scudamore hopes that clubs will act responsibly, “We are entering a new era in football with financial fair play and with general attention to cost constraint. Therefore, I am really hoping that it will get invested in other things besides just playing talent, things like stadia infrastructure and youth development.”

This is a reference to UEFA’s FFP rules that mean that clubs will have to live within their means, i.e. break-even, if they wish to enter European competitions. At the very least, the increased money should help clubs to do that, assuming that it does not all go on player wages. As John W Henry said when he bought Liverpool, “With the FFP rules, it is really going to be revenue that drives how good your club can be in the future.”

It should be pointed out that the first monitoring period covers the two years 2011/12 and 2012/13, but the increased TV revenue only starts the following season in 2013/14, so this is not an immediate answer to any problems a club might have with FFP. That said, it will help them point towards their finances improving, which is an element taken into consideration by UEFA when reviewing a club’s finances.

As for the fans, the good news is that this deal should ensure that they will still have great players to watch every week, but that’s probably the end of it. It would be fantastic if the clubs used this windfall to reduce ticket prices, but that seems unlikely. Scudamore’s free market philosophy towards the clubs was encapsulated in his view that the extra money only “gives them more choices.”

"Platini - delighted at boost to English clubs' FFP prospects"

During the 20 years of the booming Premier League, ticket prices have risen by a gut-wrenching 1,100%, effectively pricing out those on lower income and youngsters. Although the stadiums are still largely full, football’s spectators have become a far more corporate, middle class group, moving ever further away from the community spirit still seen in Germany, where ticket prices are considerably lower.

At best, the new TV deal might prevent ticket price rises, which was a genuine possibility as an unfortunate side effect of FFP. What I would like to see is the Premier League allocate a portion of the money on the condition that it is used to subsidise a proportion of tickets, especially those made available to young people. To put that into terms that the marketing men will understand, this would be an investment in future customers.

Although Sky’s chief executive, Jeremy Darroch, claimed that “this is a good result for our customers”, the chances are that armchair fans will end up having to pay for this via a price increase in their monthly subscription, which they may not consider to be such a “good result.”

This raises the question of why the bids from the TV companies were so high? Scudamore answered this, “It was a very competitive process, which if you are selling is a very good thing.” As well as Sky, BT and ESPN duking it out, there was the threat of Al-Jazeera hanging over the proceedings, while one of the terrestrial channels (ITV or Channel 5) may have bid for one of the packages. Even Google and Apple were mentioned in dispatches at one stage.

"You take me up"

Whoever did actually bid, there were enough “highly credible bidders”, as Scudamore described them, to encourage Sky to step up to the plate and substantially raise their bid. It was imperative for Sky’s business model that they kept the TV rights. They simply cannot afford to lose live football, which is so vital to their revenue. Before they secured the rights in 1992, when they were famously urged by then Tottenham chairman Alan Sugar to blow ITV’s bid “out of the water”, they were really struggling and looked like they might go the way of the defunct BSB.

Since then, it’s been a “whole new ball game”, but Sky are now largely prisoners of their own success, as the name of the game now is to keep other broadcasters away form their prize asset. No wonder Sky chief executive Jeremy Darroch was so relieved that “Sky Sports remains the home of Premier League football” with Super Sunday and Monday Night Football.

Financially, the deal could still make sense for them, as they earn revenue not just from subscribers, but also from pub licences, advertising and a hefty sponsorship deal with Ford. They are also likely to offset much of the football increase by reducing their spend on other sports, which could be bad news for rugby and cricket.

"Everybody's happy nowadays"

For BT this is a strategic decision to use the power of content to push technology sales on their £2.5 billion fibre broadband network. A spokesman explained, “Football will drive our fibre business and give us a real opportunity to win new subscribers and sell more products to those customers.”

Many other companies have tried to make a dent in Sky’s dominant position and failed (On Digital and Setanta went bust, while ESPN have been left empty handed), but BT have an ace in the hole with nearly half of the first picks: “We’ve got the first match of the season and when you look at the kind of fixtures we’ll be able to show, they are the crown jewels. Fans of football will want to see those games.” BT are likely to provide a new sports channel on “as many platforms as possible.”

The financial possibilities offered by the Premier League is the main reason for the arrival of so many foreign owners, especially from America, e.g. the Glazers, Stan Kroenke, John W Henry and Randy Lerner. In contrast to sports franchises in the US, where they have to share all revenue received, including TV money, gate receipts and merchandising, in the Premier League they keep the vast majority of revenue earned. The other attractive aspect of the Premier League for American investors is its global appeal, which again is not something enjoyed by sports like baseball, basketball and American football.

Specifically on television, John W Henry said, “American owners understand media and the long-term global implications. They're going to want to reach their fans in the new media landscape. The Premier League was created in response to changing media. Audiences will drive leagues rather than the other way round.”

"John W Henry - the future's so bright, I gotta wear shades"

It is equally clear that foreign owners see great promise in online delivery, hence Stan Kroenke’s purchase of a 50% share in Arsenal Broadband long before he launched his takeover bid for the whole club. Indeed, the emergence of fast broadband networks might be the catalyst for clubs to launch their own channels to interact directly with their fans, though advances in technology could also provide a threat to revenue (via illegal internet streaming).

The other major threat to football’s huge TV revenue is regulatory, e.g. a pub landlady in Portsmouth won a case to allow her to use cheaper foreign satellite television services to watch Premier League football. However, to date the Premier League has proved very adroit at finding creative solutions to such challenges, so it would not be a great surprise if it found a way to maintain (or even grow) its revenue, e.g. selling rights on a pan-European basis.

Broadcasters will fight tooth and nail to keep their rights, because live football is essential to their business in the digital era. When Sky Deutschland substantially increased their bid for the Bundesliga rights, an analyst commented, “The price they paid is very high, but they had to fire from all barrels, because this is their killer app.” Across the pond, MLS commissioner, Don Garber, said, “Content is king and sports content is the king of kings.”

"Get your Yaya's out"

Closer to home, the astonishing increase in the value of the Premier League rights emphatically supports that argument. As Scudamore explained, “It has continued to wow audiences. It’s a compelling product. People want it. Broadcasters want to broadcast it. I’ve been five times round this block and every time people say the bubble has burst.”

The fear is that all this lovely money will simply further enrich the players at the expense of the fans, so let’s hope that the Premier League surprise everyone by using a large chunk for the good of the game. As Spike Lee said, “Do the right thing.”