There are generally four revenue sources for clubs:
1. broadcast rights
2. sponsorship
3. ticket sales
4. merchandise sales.
Broadcast rights is income generated from selling the rights to distribute and air games to broadcast/media companies. How this works is, a broadcast/media company pays to acquire the license (or right) from the league operator to air a set of games on their channels. For example, Sky (a British media company) pays the English Premier League (EPL) to grant them permission to broadcast EPL games on their Sky Sports channel. Broadcasting income is one of the biggest source of revenue for clubs in most leagues, and is negotiated by the league. The league will sell the broadcasting rights to the highest bidder (yes, rights are sold based on a bidding process). The revenue gained from this is then distributed to all the clubs in the league. As this is a bidding process, the value of the broadcast rights follow the economic principle of supply and demand. The higher the demand, the higher the value. This means that, the higher the viewership, the higher the broadcasters are willing to pay. For the 2019-22 cycle, the EPL’s rights sold for £9.2 billion.
Sponsorship is income generated from clubs selling partnership opportunities. In this case, a company (the sponsor) pays to be officially associated with a club with the aim that this partnership will bear fruit for the company (usually in increased earnings or brand awareness). For example, Standard Chartered agreed to pay Liverpool Football Club £160 million in a four-year sponsorship agreement (so that’s £40 million a year). The more successful the club, the more it can demand from sponsors because successful clubs tend to have more fans, which allow sponsors more eyeballs to expand their brand and more wallets to increase their revenue.
Ticket sales is income generated from selling match-day tickets. Although different clubs price their tickets differently, the general rule is, the bigger your stadium capacity, the bigger your ticket sales will be. But, the key to high ticket sales lie in the sale of corporate boxes, which are allocated luxury seating area sold at a premium to corporate companies and the more affluent fans. This is why we see clubs either expanding their current stadium capacity or building new and bigger stadiums to include more corporate boxes.
Merchandise sales is income generated from selling merchandise to fans. The key to merchandise sales is the size of your international fan base. The reason being, the size of your local fan base is relatively fixed. If you are a team like Manchester United, your local fan base is made up from the population of the city of Manchester (who are not Manchester City fans of course). The only way your local fan base will grow is if the population of the city of Manchester grows. This concept applies to all clubs. Of course, some cities are bigger and more populated than others, but bigger cities are more likely have multiple top flight professional football clubs. London may be the most populated city in England, but it is also home to Arsenal, Chelsea, Tottenham Hotspur, and West Ham United to name a few.
This list represents the staple revenue sources for clubs. At the end of the day, the more successful the club, the more revenue it will generate. Successful clubs tend to be more appealing to sponsors, have bigger and newer stadiums and bigger international fan base. With regards to income from broadcast rights, in the EPL for example, one of the methods for distributing broadcast rights income is based on league positions, which means that the better club receives the larger share of the pie.
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