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The Spanish TV Rights Distribution System after the Royal Decree: An Introduction. By Luis Torres

On the first of May 2015, the Spanish Government finally signed the Royal Decree allowing the joint selling of the media rights of the Spanish top two football leagues. The Minister for Sport stated that the Decree will allow clubs to “pay their debts with the social security and the tax authorities and will enable the Spanish teams to compete with the biggest European Leagues in terms of revenues from the sale of media rights”.[1]Although the signing of the Royal Decree was supposed to close a very long debate and discussion between the relevant stakeholders, its aftermath shows that the Telenovela is not entirely over. 

This blog post will first provide the background story to the selling of media rights in Spain. It will, thereafter, analyse the main points of the Royal Decree and outline how the system will work in practice. Finally, the blog will shortly address the current frictions between the Spanish League (LFP) and the Spanish football federation (RFEF). 


I. The road to the royal decree 

The old individual selling system 

The individual selling model of media rights in Spain was adopted in the 1997/1998 season. The Spanish individualized marketing system required that the TV operators and the clubs sign individual agreements over the media rights for La Liga games. Obviously, not all the agreements were born equals. The two biggest clubs in Spain, Real Madrid and FC Barcelona, were soon deriving much more revenue from TV rights as the other clubs. Hence, it is not surprising that latter have been asking for a bigger share of the TV rights revenues since then. For the 2014/15 season, for example, Barcelona and Madrid earned 140 million € each, whereas Córdoba, Eibar and Deportivo la Coruña have only earned 17.5 million €. Even the last winner of La Liga (Atlético de Madrid) has received only 45 million € (3.1 times less than Barcelona and Madrid). Meanwhile, the overall sum paid by the operators to all the teams (MEDIAPRO Agency and PRISA Media Group) reached 742.5 million €/year for a three-year deal (2012/13 to 2014/15).[2] 

Due to the delay in approving the Royal Decree, some clubs (such as Barcelona) decided to sign an individual contract with a TV operator for the 2015/16 season. Consequently, it is unlikely that La Liga will be able to collectively sell its media rights for the next season. However, the new system should be in place for the 2016/17 season.  

Disagreements prior to the Royal Decree 

The negotiating process prior to signing the Royal Decree involved three main stakeholders: the Spanish Government (CSD –High Sports Council- and the Minister for Sport), the RFEF and, obviously, the LFP. The most difficult hurdle to overcome was the RFEF’s demand of a non-negotiable 2% share of the broadcasting revenues. Both the CSD and the LFP refused to budge and considered that the RFEF should not get more than 1%. The negotiations were especially tense as a consequence of a personal feud between the presidents of the main bodies involved.  

Why a Royal Decree? 

Notwithstanding the RFEF’s outspoken disapproval, the Royal Decree 5/2015 was adopted by the Council of Ministers on 30 April 2015 and was published in the Official Journal on the following day. In principle, a Royal Decree is only used for extraordinary and urgent matters and the Spanish Parliament must consolidate it in a law 30 days after its approval, which was done, last week. Nevertheless, one may question whether this was truly a matter of urgency requiring the introduction of a Royal decree. According to the explanatory memorandum of the Royal Decree it is justified on the basis of the public interest in securing a new system to commercialize the media rights. The justifications included in the Decree read as follows: 

“Concerning the media rights of professional football competitions, three reasons justify the need for an urgent response by the Government: first, the undisputed social relevance of professional sport, second, the repeated and unanimous demands to intervene from all parties involved and, finally, the need to promote competition in the market for the ‘pay-per-view’ television.”[3]

 

II. The new LFP’s media rights collective selling system 

The LFP’s media rights remain owned by the clubs. However, the football clubs are obliged to assign the right to commercialize them to the organizing bodies of the competition, i.e. the LFP (first and second division) and the RFEF (the cups).[4] 

The conditions for the joint selling of the media rights

In accordance with article 4 of the Royal Decree, the organising bodies will commercialize the media rights on an exclusive or non-exclusive basis.  Moreover, the procedure must be fair and equitable. The LFP and the RFEF will define the different packages commercialized in line with Article 4(4) of the Royal Decree.  These conditions will be attached by the organizing body into categories (‘packages’), depending whether it is on an exclusive basis or not, the time of the game and the duration (maximum 3 years), in accordance with the Article 4(4). The structure of the packages will be set out when the collective selling takes place.  

The specific distribution key of the revenues derived from the collective selling is enshrined in Article 5: 90% of the revenues will go to the first division clubs, and 10% to the second division clubs.   

Graph: Distribution of the money regarding the media rights of the first and second division:


 


Payments by the clubs after the distribution of revenue: The overdue debts to the Public Revenue and the indirect solidarity contributions.  

After receiving their share of revenue from the media rights, the clubs must first cover their overdue debts with the Spanish tax authorities. Indeed, Article 6(2) holds that “(t)he payment of overdue and payable debts owed to the ‘State Agency Tax Administration’ and the ‘General Treasury of the Social Security’ shall be considered on a preferential basis”. No club will be able to carry out the indirect solidarity payments foreseen by Article 6(1), if they do not reimburse their outstanding liabilities with the public authorities.

It is a well-known fact that Spanish football clubs have accumulated large amounts of debts over recent years. Indeed, at the end of the year 2013, the debt of the Spanish football amounted to 3.600 million € in total, with “around 700 million” to the public authorities. The Royal Decree is also aimed at tackling this longstanding debt “addiction” of many Spanish football clubs.                                             

Furthermore, in accordance with article 6(1) of the Decree, the clubs will have to make solidarity contributions to specific funds and Institutions promoting football and sport. These contributions will only be made after the obligatory contributions to the tax authorities have been paid. The five contributions include:

  1. 3.5% of the broadcasting revenues will be used to create a ‘Compensation Fund’ in order to assist relegated clubs from the first Division to the second and from the second division to the third division (in Spain known as the second division “B”). Out of the Compensation Fund, 90% will flow to the relegated clubs from the first Division and 10% to the relegated clubs from the second Division.

  2. 1% of the broadcasting revenues will go to the LFP for the purpose of promoting the League on the domestic and international market.

  3. 1% of the broadcasting revenues will go to the RFEF as a solidarity contribution to develop amateur football[5].

  4. Up to 1% of the broadcasting revenues will go to the Consejo Superior de Deportes (CSD), a Spanish Governmental body encouraging the development of sport in Spain. The goal of this contribution is to finance the social protection of high-level athletes (not just football players).

  5. A further 0,5% of the broadcasting revenues will go to the CSD, and shall be distributed in the following way:

    1. Aid to female football clubs participating in the Women’s First Division, covering social security contributions.

    2. Aid to football clubs participating in the Second Division “B”, in order to pay social security contributions.

    3. Aid to associations or unions of players (‘AFE’), referees, coaches and trainers. 


The Spanish cup and Supercup revenue-sharing criteria

The packages will be made according to the criteria similar to those applicable to the LFP’s media rights. The revenue generated by the RFEF’s competitions will be shared as follows (Article 8):

  1. 90% will be directly allocated to the LFP teams (first and second division). This money will be distributed to these clubs using similar criteria as for LFP Competitions. The revenue share depends on the results obtained by the teams in the cup. The distribution envisaged foresees 22%, for the winner; 16%, for the runner-up; 9%, for the semi-finalists; 6%, for the quarter-finalists; and 2,5%, for the clubs who got knocked-out the round of the last 16.

  2. 10% will be used for the promotion of lower (semi) professional football and amateur football, that is to say, for clubs who play in the cup but are not in first or second division.


III. The Problem with the Decree: RFEF and AFE’s Opposition 


The main beneficiaries, i.e. the clubs, are quite exultant after the publication of the Royal Decree. Nonetheless, two bodies believe that they are the principal losers of the distribution model adopted, namely the RFEF and AFE (Spanish Professional Footballer's Association). In fact, the RFEF and AFE’s discontent is such that they have threatened to organize a strike paralysing the last few games of the current season, should the Decree not be renegotiated.

RFEF

The RFEF wanted 2% of the total revenue for itself, but the Decree allocated to the RFEF only 1% of the total. , As discussed above, this share will be paid indirectly by the club as outlined in Article 6(1). This implies that the federation will get paid only once, and if, the clubs have serviced their overdue debts with the public authorities.

In addition to this, the Federation did not obtain any compensation for women’s football or (semi) professional football in lower divisions. The competence for supporting women’s football and lower professional football rests with the CSD even though it is the RFEF that is in charge of the organisation of the competitions. In other words the RFEF has no control over the money flowing into the competitions it is responsible for. 

AFE

The frustration expressed by AFE (Professional Footballer's Association) is also understandable. The players have not obtained a fixed share of the broadcasting revenues, as is the case in England (1.5%) or France (1.09%). Nevertheless, according to the Royal Decree, AFE will receive from the CSD a contribution of “up to 0.5%” (Article 6(1)(e), par. 3). Moreover, the players’ representatives claim they were unjustifiably excluded from the negotiations. Without the ability of partaking to the negotiations, they were unable to secure higher guarantees for the players regarding the payment of the salaries in the lower divisions of Spanish football. Given that many players do not receive their salaries on time in the lower Spanish divisions, this money would have been a potential solution to a chronicle problem.

The strike

In return, AFE (supported by elite players like Casillas, Xavi, Piqué or Ramos) threatened with a strike. For its part, RFEF suspended all the Spanish football competitions. In response to these moves, the LFP lodged a case against AFE in the Spanish Courts, requesting the suspension of the strike and the recognition of its illegality as it would lack a legitimate ground and would violate the existing collective bargaining agreement. 

The Audiencia Nacional (the National High Court in Spain) decided on 14 May in a preliminary decision to suspend the strike. This decision ensured that the last two games of the season and the final of the Copa del Rey will be played. The case is still pending and awaits a decision on the merits. The hearing will be held on 17 June. The parties have already commenced negotiations in order to reach an agreement before the hearing. But, given that the Royal Decree has been ratified by the Parliament, very few substantial changes to the system put in place by the Decree can be made. Thus, only minor peripheral adjustments are to be expected.  

Conclusion

In my opinion, there are two key aspects that must be kept in mind. First, the duty to pay overdue debts to the public Authorities. This mandatory requirement cannot be found in any other countries and is clearly linked with the specific problems that exist in Spanish football with regard to the clubs’ indebtedness and the enmeshment of local politicians in their management. On the other hand, the other key change introduced by the Royal Decree will be that La Liga will be in a position to negotiate a much hoped for gigantic TV deal with the broadcasters. A deal, which will not exclusively benefit Real Madrid and FC Barcelona. The economic gap between these two teams and the rest of the pack was growing bigger and bigger over the last years. With the new system in place, this gap is poised to be reduced. Nevertheless, the distribution method still heavily favours the status-quo. The traditionally large clubs are rewarded for having a large number of supporters, and for their past performances. Hence, it is still virtually impossible for a smaller Spanish clubs to become, over a short time span, one of the top-earning clubs in La Liga.



[1] IUSPORT: “Aprobado el Real Decreto-Ley de los derechos audiovisuales del fútbol”

http://iusport.com/not/6713/aprobado-el-real-decreto-ley-de-los-derechos-audiovisuales-del-futbol/

[2] MARCA, “Así será el reparto del dinero televisivo”, available at http://www.marca.com/2015/05/01/futbol/1430467483.html

[3] RD 5/2015, Explanatory Memorandum.

[4] Article 2 RD 5/2015.

[5] This percentage may be expanded by agreement

Comments (3) -

  • Marca Espana

    6/23/2015 1:20:22 PM | Reply

    Interesting that the article fails to even mention that the new and "fairer" revenue sharing system will not be applicable until at least 2022 since the royal decree's transitional disposition provides that Barca and Real will continue to earn as much as they have been earning for at least six seasons. Smoke and mirrors but not a lot of change for the next six years. Our Spanish friends may have hoped that nobody would read the small print...

    For a more complete take on the new decree, I suggest reading the following article published by The Independent.

    www.independent.co.uk/.../...tv-deal-10243057.html

  • Luis Torres

    6/23/2015 3:56:16 PM | Reply

    Thanks for the comment. You are right to point out that Real Madrid and FC Barcelona will continue to earn as much as they earned this season (2014/15) for the next six years. However, it is important to take into account that the revenue sharing favours the status quo. This is a formal way to state that RM and FCB are not going to suffer a disadvantage when the time to share the money comes.
    The second transitional provision (pages 15-16 of the Decree) will only jeopardise the applicability of new collective selling system if LaLiga sells the TV rights for a total amount which is less than the amount for which they are sold now individually by the clubs themselves. However, provided that the amount of money paid for the collective rights is bound to increase, the scenario that you sketch is, in my opinion, hypothetical.
    This provision, and specifically its point b), assures that if any club receives an amount lower than the amount received this season (2014/15) with the individual selling system, the other clubs will have to “compensate” this club. In other words, the clubs that are receiving a higher amount through the new collective selling system, will have to give this positive income to clubs which receive a lower amount.
    To conclude, and taking into account the amount that La Liga is expected to receive for the collective selling (at least €1,000M per season for the upcoming years), the situation you are exposing is merely hypothetical.
    Nonetheless, you are right, both RM and FCB will receive at least the same amount as this season, in a way similar as all the other clubs, who will also receive at least the same amount as this season.

    • Marca Espana

      6/24/2015 12:19:15 PM | Reply

      Apologies but the numbers just do not add up. If La Liga were to sell its TV rights for the €1,000M that you mention (i.e. €900M for the first division and €100M for the second division), Real's and Barca's calculation would be as follows:

      - €22.5M which is 1/20 of the common pool
      - €37M of the merit pool for Barca. Real a bit less, about €34M since it has had worse results during the last few seasons
      - €45M of the support pool (which is capped at 20% for each club and it is likely that, since they are fully in control of the committee that decides how this is calculated, Real and Barca will pay themselves the maximum)

      This means that if the new "fairer" system would be applicable (i.e. in the absence of the transitional disposition) Barca would be entitled to €104M and Real to €101M instead of the €140M that they earned during the 2014/5 season.

      Just by way of comparison Rayo Vallecano's earnings would increase from €18M during the 2014/5 season to approx €34M
      (€22,5M common pool + €6M + €5,5M support) if they were calculated under the new "fairer" system.

      Unfortunately and by virtue of the feudal privilege provided to Real and Barca by the transitional disposition, "mighty" Rayo will be obliged by law to give up part of this increase to "compensate" poor Real and Barca for their loss to ensure that they keep on earning at least €140M until at least 2022.

      This means that the rest of the vassal clubs will have to pay their El Clasico lords as much as €75M annually to fund their European expansion.

      Crony capitalism at its absolute best. Fortunately we are fully aware by now that the juicy bits of any law related to Real & Barca are always to be found in the additional/transitional dispositions. The preamble and the first part of the laws ("PLCs are a great form of incorporation", "We have created a fair system to distribute the TV rights", etc.) shall be ignored.

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