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Victory Through Harmony

By Phil Gregory

You may not be familiar with the name Karen Murphy, but I imagine you soon might be. I saw on BBC news last week that Ms Murphy has had her first victory in her war in the European Courts, a story with ramifications for football generally. I did plan on getting this article together sooner but the fallout from the Newcastle game took precedence for obvious reasons.

If you’re not familiar with the back-story of the case, it’s not especially complicated. In a nutshell, a Portsmouth-based pub landlady decided to use a satellite decoder to get the football in her pub from a Greek provider, Nova, at a fraction of the cost of that offered by Sky and ESPN (who hold the domestic rights for the UK.) The Premier League took her to court and argued that she was breaking the law, whereas she herself claimed that the status quo was contrary to EU rules on the freedom to provide services across borders.

That brings us to the events last week, where an advocate of the European Court of Justice said the current situation breached EU laws.  While her opinion isn’t the end of the matter – after all it isn’t legally binding – advocate’s rulings are followed in the majority of cases. The issue itself is the fact that the current system restricts free movement of services, and this is only allowed under EU law on the grounds of public health, security or morality. I can’t see how the TV companies can argue any of those, so it seems a pretty straightforward case that she should win.

Now Ms Murphy is arguing that she should be able to use any provider, but at the moment that is “illegal” according to the Premier League, hence the case has gone to European Court.

The fact that it is “illegal” to use another country’s broadcaster to watch football in the UK means the Premier League can go round selling to European countries individually. This maximises the value of the rights, but the key point here is that it limits competition for the rights to purely the bidding for the various packages. Once I’ve bought a package of matches for the UK market, I have the sole ability to sell those games on TV: no other company can compete with that product; they can only offer different packages.

I’m an economist so a monopoly situation strikes me as daft, something that is not in the interests of consumers. Monopolies are very rarely good for consumers, as firms with such a powerful position exploit it by setting excessively high prices. This gives them easy profits, and they get lazy and the product itself deteriorates. Fair, unfettered competition on the other hand would lead to both better and cheaper products, as firms are forced to innovate to make their product better as well as reducing the price to beat their competitors.

To apply  that  to football then, the situation we have in the UK is one where you can only buy live football from one provider, and  Sky  Sports is expensive given you don’t even get 3pm games.  Yet people pay the high prices due to the lack of other options.  As for quality, well. I think most of the public is united in their despair at pundits (even before Keys and Gray did their bit) whether they are showing their lack of knowledge of the rules of the game or sticking to the tried and tested clichés. Sky have got comfortable, and haven’t acted on the customer’s desire for pundits with brains, offering pertinent analysis (French TV gets Arsène Wenger, we get Jamie Redknapp…). We end up with “do me a favour, love”, and pay through the nose for it.

So if Mrs Murphy wins this case (which seems highly likely now) we’ll see foreign broadcasters moving into the domestic TV market to the benefit of the customer. I personally wouldn’t pay the prices for Sky Sports, but once this is all declared legal I’ll be first in line to get my foreign subscription. The increase in competition will in turn push down Sky’s prices as they attempt to win their customers back, which could have the knock-on effect of reducing the amount they decide to pay for the domestic TV rights at the next negotiation. With the current television deal running to the end of the 2012-13 season nothing will change just yet, but a possible fall in the value of domestic rights would have many clubs concerned.

Now, the Premier League themselves are quite clearly not happy with this situation. A spokesperson argued that they “believe in competition on a territory by territory basis. There is nothing to stop other broadcasters within the UK, Greece, Italy or right across Europe going in and challenging for those rights”. That’s quite a telling quote if you ask me. The Premier League is quite happy for more firms to bid for the packages within a country, which makes perfect sense as it raises the value of the packages. As we saw earlier though, that is simply more competition to see who gets to create a monopoly on those rights, which isn’t competition at all in my book. Mr Premier League spokesman just wants other countries to bid for the packages and drive their value up, not actual competition with the benefits it brings.

He then went on to talk about the emergence of a few large broadcasters over the European Union, taking advantage of the free market to sell their product to many different countries. Mr Spokesperson said that that would “eat away at the principles of cultural diversity, enshrined in European law” Again quite an interesting quote: surely the free market that his territory-by-territory selling process violates is just as big a principle of the EU. Must try harder next time, Premier League.

He was critical of the possible development of a pan-European company, claiming it would reduce competition as there would be only the one company. I’m not convinced by this reasoning: creation of a free market for televised football would allow various foreign broadcasters to tap into new markets, immediately increasing competition. The best would expand via competing versus other companies, lowering the price of subscription football across the EU.  Whether eventually one company would come to dominate European football subscriptions remains to be seen: competition, innovation and regulation (when required via competition authorities) have meant that other industries haven’t turned into monopolies over time, so why would the market for football subscriptions?

As for the value of international rights, I don’t think we’ll see much change if truth be told. Yes, the elimination of territory-by-territory selling would lower the value of the EU share of the international rights but these don’t constitute very much of the total for the international rights themselves. Strong domestic leagues in the wealthiest EU nations means that interest is lower than in say China or the USA. Any fall in the value of the EU part of the rights would likely be more than compensated for by the anticipated growth of the other areas of the international rights.

On the whole, the biggest potential change is going to come from any increase in competition in the domestic rights market. Greater competition would reduce the amount we pay for our subscriptions, but it would pose problems for a lot of clubs. To get a feel for this, look at the “TV revenue as a percentage of turnover” table in this article I wrote a little while ago. With the recent increase in the TV deal, the percentages will have risen across the board – it wouldn’t surprise me if 95% of Blackpool’s revenues are coming from broadcasting money, for example, and Wigan’s percentage will be in the 90s now too. A concern would be that a falling TV deal would reduce the amount of money going to the grass-roots as it is calculated as a rising percentages of the money past certain nominal limits. Oh well, how about they get rid of the awful system of parachute payments and give the money to the grass roots instead?

Meanwhile going back a previous economics issue we covered, Fanshare, if you want to know more about that topic there’s a BBC website article on it here

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