On next Thursday the 2014 World Cup will kick off in Sao Paulo. But next week will also see the FIFA members meeting on Tuesday and Wednesday at a much awaited FIFA congress. For this special occasion we decided to review FIFA’s financial reports over the last ten years. This post is the first of two, analysing the reports and highlighting the main economic trends at play at FIFA. First, we will study the revenue streams and their evolution along the 2003-2013 time span. In order to ensure an accurate comparison, we have adjusted the revenues to inflation, in order to provide a level playing field easing the comparative analysis over the years and types of revenues. Our first two graphs gather the main revenue streams into two comparative overviews. Graph 1 brings together the different types of revenues in absolute numbers, while Graph 2 lays down the share of each type of revenues for any given year (the others category covers a bundle of minor revenue streams not directly relevant to our analysis).

Graph 1: FIFA revenues in Millions of Dollars, 2003-2013 (adjusted for inflation).

Since 2003, FIFA’s total revenues have more than doubled, from 685 Million$ to 1406 Million$. Its constant growth over the last decade turned negative only in 2011 and 2012 due to a fallout in broadcasting revenues (see below Graph 4). In terms of economic power this means that FIFA has doubled its financial capacity within ten years.  It has succeeded in developing new income streams, while also consolidating its traditional source of revenue: broadcasting rights.

Key to FIFA’s continuous enrichment were the broadcasting revenues. From 2006 to 2010 they nearly doubled from 391 Million$ to 779 Million$. A huge 100% jump! Since this peak, revenues have settled for a more modest amount of around 600 Million$, but still much higher than at the turn of the century. In any given year the broadcasting revenues represent 40 to 50% of FIFA’s total revenues. Thus, one can understand the paramount importance of broadcasting rights for the economic stability and health of FIFA. The progressive bite of the revised TV without frontier directive of the EU (revised in 1997), enabling countries to define certain World Cup games as “major events” which therefore must be broadcasted freely, might explain the recent fall in broadcasting revenues. In this context, recent decisions of the EU Courts, in cases T-68/08, C‑205/11 P and  C‑204/11 P reinforce the rights of the Member States to make use of the “major events” listing, this could, on the long run, limit the rise of the broadcasting revenues for FIFA.

Graph 4: FIFA Broadcasting Revenues 2003-2013 (adjusted to Inflation)

The marketing rights (see graph 5) constitute the second leg of FIFA’s financial income stream. They have been constantly growing since 2003. From 168 Million$ in 2003 to 419 Million$ in 2013, reaching quasi 150% growth (at constant prices). In recent years, this has been a more dynamic revenue stream than broadcasting rights, but it has remained less important in absolute terms. It seems that the FIFA Partners Programme launched by FIFA, probably inspired by the TOP Programme created by the IOC, is a tremendous success. Nowadays, marketing rights constitute 30 to 35% of FIFA’s total revenues. Together, broadcasting revenues and marketing rights amount to a staggering 75 to 85% of FIFA’s total revenues. A share which remained more or less stable over the latest years (see Graph2).

Graph 5: FIFA Revenues from Marketing rights 2003-2013

The rather minor revenue streams are constituted by the FIFA hospitality rights, licensing and brand licensing revenues. Hospitality rights revenues (Graph 6) are a relic from the past. They derive from the profits made by MATCH Hospitality, the sole company authorised by FIFA to offer and guarantee exclusive hospitality packages for every match of the FIFA World Cup directly or through its appointed sales agents. With the competition of internet-based travel agencies and the evolution of the ticketing system of FIFA under the pressure of the European Commission, the revenues of match hospitality have been dwindling over the last 10 years.

Graph 6: FIFA Hospitality Rights Revenues 2003-2013 (adjusted for inflation)

The FIFA licensing programme (Graph 7) derives its revenues from fixed royalty payments and variable profit shares paid for the use of the FIFA brand. FIFA’s licensing programme covers a broad range of activities, including for example numismatic and philatelic collections and the more classical retail & merchandising. After a peak at the World Cup 2006 in Germany, where FIFA licensing brought in 51 Million$, licensing revenues have remained more or less stable averaging at 10 to 20 Million$ a year.

Graph 7: FIFA Licensing Revenues 2003-2013 (adjusted for inflation)

Another closely related, but distinct for accountancy purposes, income stream, is the one generated by brand licensing (Graph 8). Five companies dispose of a specific agreement with FIFA: Adidas, Electronic Arts, Hublot, Louis Vuitton and Panini. Each of these companies holds a licence to use the FIFA Brand Marks in the advertising, marketing, promotion and sale of its licensed products or programmes. These long-term licensing agreements bring in more and more money, from 5 Million$ in 2003, to 58 Million$ in 2013. The biggest jump for a category of FIFA revenues.  Its success is exemplified by the world-wide fame of the eponym Electronic Arts video game: FIFA. However, all three revenue streams amount to less than 10% of FIFA’s total revenues in 2013, the lion share is still constituted by the broadcasting rights.

Graph 8: FIFA Brand Licensing Revenues 2003-2013 (adjusted for inflation)

Conclusion: Get rich and die getting richer?

Economically the last 10 years have been a phenomenal success for FIFA. Its revenues have grown substantially and it has, to some extent, managed to diversify its revenue streams. Indeed, FIFA is less and less dependent on broadcasting revenues, while relying more and more on marketing and brand licensing income streams. This diversification appears judicious as the broadcasting market seem to be losing steam, especially in light of a public will, at least at the European level, to control and tame the monopoly of FIFA over the broadcasting of the World Cup. Thus, FIFA is in a paradoxical situation. It will enter its congress engulfed in an unending governance crisis, but financially it looks as profitable as ever. In some way the big leap forward of FIFA’s recent, and highly successful, commercialization might cause the existential crisis it is now confronted with. Indeed, all this fresh money influx may have destabilized even more a governance system prone to favour nepotism. Hence, the paradox might be that FIFA got rich and might die (at least as we know it) because of it. This is also connected to the way FIFA distributes the revenues it collects, which will be the focus point of the second part of this blog series.

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