La Liga: Why the Duopoly of FC Barcelona and Real Madrid is not down to TV revenue

Jornada One is out of the way, and the Big Two have taken their place at the top. Real Madrid won 6-0 away to Real Zaragoza, and Barcelona followed suit, registering a 5-0 victory over Villarreal. The results were not surprising, but the performances were.

Real Zaragoza capitulated after the first goal, and it was impossible to believe that Villarreal nearly walked away from the Camp Nou with a point in the corresponding fixture of last season. The gulf between the duopoly (of FC Barcelona and Real Madrid) and the rest is getting larger by the week, and La Liga fans everywhere are debating who is at fault for the current status quo.

Well, not debating over the reason; instead, fans everywhere have settled on the disproportional allocation of the TV revenue as the reason, and are contemplating what the best solution is.

Though have they jumped to the wrong conclusion? Just how bad is the current TV deal? More importantly: Are any of the solutions viable?

The latest figures released by Deloitte indicate the total revenue generated via broadcast rights in the English Premier League stands at a little over £1 billion (€1.15 billion). La Liga, according to the same firm, generates €788 million (£688 million). When Real Madrid and Barcelona account for 45% of the total figure, it is easy to see why fellow La Liga fans are frustrated.

But there are reasons why a new TV-deal has not already come to fruition

Reason One: More than one broadcaster

The level of disparity is mind-boggling, but the system in place in La Liga ensures that each club gets a fair representation of what it is worth. Barcelona and Real Madrid are awarded much more lucrative TV deals since they attract a larger audience than their competitors.

Therefore, one solution is to scrap the individual deals, and implement an-EPL style deal where money is shared more equally among the clubs, regardless of stature. In principle, this is a great idea; but in reality, near impossible to realize.

There are two companies with deals to broadcast La Liga football, Mediapro and Sogecable. In England, there are two broadcasters also: BSkyB and ESPN. However, the bulk of the matches are shown on BSkyB in a 5:1 ratio, meaning that for all intents and purposes, the English Premier League has one broadcaster.

The Premier League sells the television rights in packages, with each package containing 24 matches. As explained above, BSkyB own five of the six.

This is because BSkyB (with their financial muscle) outbid everyone else, with ESPN winning the remaining package by default, as no broadcaster can own all six packages. However, ESPN is broadcast to BSkyB customers. This singular deal is lauded as the best in the world, and the consensus is that both La Liga and Serie A should adopt a similar deal.

Unfortunately, with many broadcasters vying for the same deals, the economically smart thing to do is bid for individual teams. Separating the matches into packages rather than clubs would in theory reduce the gap, but would force the companies to bid higher and higher, and as Barcelona will attest, they [the broadcasters] don’t have the money. This forms my next reason.

Reason Two: The broadcasters have no money

Mediapro filed for bankruptcy in the summer of 2010, and a large chunk of the debt issues in Spanish Football is derived from Mediapro’s financial difficulties. Unless you want to eradicate Mediapro and Sogecable completely, the package deal is not viable. The reason for Barcelona’s debt is partly down to this Mediapro deal.

Deloitte say that broadcasting deals account for 44% of Barcelona’s total turnover. Mediapro could not meet their due payments in time, so the Blaugrana had to draw out a loan, thus creating long-term debt. This happened to many clubs, but unable to convince the banks of their financial solvency, many had to go without entirely, subsequently not paying the players. This led to a strike, and unbelievably, led to calls for a better TV deal.

From what?

The companies who would constitute the new deal are the exact same ones who cannot pay the clubs in the first place. A new deal would promise more money to each club, but it would not deliver the vast majority of it.

However, Sogecable (now called PRISA TV)is still paying its clubs. Real Madrid recorded a profit in the past financial year, and this was down to the TV revenue they actually received. As I alluded to earlier, Barcelona were forced into debt by Mediapro. Could Sogecable become the Spanish equivalent of BSkyB?

Highly doubtful.

Their operating income in 2007 (the earliest figures I could find) was €176.2 million (roughly 1/10 of BSkyB), and given the World Economic Crisis, one can only assume that Sogecable was hit just as hard as the rest of the world. Assuming that they have a similar operating income at this point in time, they could not afford to take on the TV deals for the rest of the league, let alone pay each team more than they currently stand to receive.

For a singular deal to occur there would have to be a new company with financial muscle like BSkyB (perhaps even BSkyB itself).

Reason Three: It would come at the expense of Spain’s UEFA co-efficient

Any change in the much-maligned TV deal would come at the expense of Real Madrid and FC Barcelona. The system in place in England sees the best-paid team receive less than Valencia and Atletico Madrid, and such a change would immediately impact on the "Big Two". Slashing their broadcasting revenue in half would result in drastic changes, and would likely reverse the direction of transfers.

Currently, it is fair to say that no club is safe from Barcelona and Real Madrid. Arsenal captains Cesc Fabregas and Thierry Henry have moved to the Catalan club, while star players of years gone by for Manchester United have moved to Real Madrid (Cristiano Ronaldo and David Beckham). Any decrease in broadcasting revenue would ensure that the best English clubs had the financial power, and ultimately, this would provide success on the European stage.

This success would strengthen England’s world-best UEFA co-efficient; and negatively affect the Spanish one. This could lead to less UEFA Champions League places for La Liga, and the gap would be lessened in Spain, but a new gap would be created between Spain and England. Making the Spanish FA choose between a competitive league, and European success would be foolhardy.

While drastic, this collective deal could affect Spain’s co-efficient, and destroying the league’s foreign marketability by forgoing quality challengers for quantity will reduce potential all-round income.

Reason Four: Increased money is not a guarantee for success

Currently earning €62.2 million from broadcasting is Atletico Madrid, which places them at 19^th in the world (see page 33). Being honest, Villarreal, Malaga, Sevilla are not likely to increase their respective TV-revenue to match even this benchmark. A collective deal would bring around €30-40 million in total for each of those sides, which is an improvement, but remains below the total Atletico currently generate.

Atletico Madrid did not challenge Barcelona or Real Madrid last season. In fact, they finished 34 points off second-place. Despite the money, they did not get close, so is it naive to think that other clubs would?

Yes, Barcelona and Madrid still get double of what Atletico did, but let’s be honest, the motivation for joining Real Madrid and FC Barcelona is not money. Cesc Fabregas took a pay cut. Javier Mascherano did as well. While it is hard to find examples of Real Madrid players doing the same, the main draw is the prestige and the almost guaranteed challenge for trophies, year in and year out.

Despite the financial incentive, many players have and would join the top two for the honour of wearing the famous shirt. It guarantees that their legacy will be remembered, improves their C.V. and gives them something to tell their grandchildren. Either Atletico should be doing better, or money does not guarantee anything, bringing me onto my next point...

Reason Five: Mismanagement of clubs outside the "Big Two"

Debt levels in La Liga have reached a collective €3.5 billion. That is higher than the Premier League, and any other league in the world. Despite the low turnover, clubs are clearly spending money they do not have. Valencia have debts of over €500 million; how does this happen?

Clearly, Spanish clubs are in need of a crash course in how to run a business.

Debt levels are getting higher by the day, and more importantly, interest-rates, are steadily increasing. However, eight clubs do not have a shirt sponsor. The easiest way to make money – and to build a world-wide brand – neglected, and for what? More debt of course!

Valencia have also decided to half-build a new stadium, the main source of their extra-ordinary debt, wasting upwards of €300 million. With clubs threatening to field weakened teams against Barca and Madrid, the marketability goes down the toilet. Who wants to watch a team that lost by five or more goals to their "challengers"?

Proposing a new TV deal is all well and good, but I fear that even that would be wasted with this incompetence.

Villarreal’s current TV-deal puts them level (give or take €100-200k) with Schalke and only €3 million behind Bayern Munich. The Bundesliga side pride themselves on financial solvency, and are reaping the rewards, though this financial well-being does not come through astronomical TV income. Other ways, such as reduced ticket prices to bring more fans, emphasis on youth development and efficient, cost-effective management negate the smaller income, and provide a product that is burgeoning.

I am not saying that Villarreal should reach the semi-finals of the Champions League like Schalke, but financial responsibility does not have to come at the cost of competitiveness.

Perhaps it is not the TV deal that needs a drastic change, but the upper echelons of the Spanish board-rooms do.