The Goal Rush

On a flight back home to the U.S. in early February, Tom Hicks was passing the time with a dvd of the European Champions League football final of 2005. A ruthless trio of goals by AC Milan had looked to have killed the game before half-time, and Liverpool, Milan’s opponents, were out of sorts. But the second half was a different story. The English team fought their way back into the game, and Liverpool eventually snatched Europe’s top club competition in a dramatic penalty shoot-out.

For Liverpool fans, celebrating their club’s first European Cup for 21 years, the game was one for the ages. Reliving the spectacle at 35,000 feet, Hicks was entitled to think that he had even more invested in it. Hours earlier, the owner of the Dallas Stars ice hockey team and baseball’s Texas Rangers had agreed to buy Liverpool for $430 million with his partner, George Gillett, the money behind the Montreal Canadiens hockey franchise. The two Americans beat out Dubai International Capital, which had offered $300 million for the club. The takeover is now complete, and Hicks and Gillett are set to move to the next stage of the deal — building a brand-new arena for the 115-year-old team. “Liverpool has a history that’s at the very top,” says Hicks, who pledges to “make sure we keep a great thing going great.”

Right now, in sports, the English Premier League is just about the definition of a great thing. Backed by wealthy investors like Hicks, and tapping into a huge fan base all over the world, Premier League clubs have struck gold. Teams in English football’s top flight notched up around $2.5 billion in revenue last season, almost triple the level of a decade ago, making it the world’s richest football league by a country mile. New owners are piling in: foreign investors have snapped up four clubs in the past year — Liverpool, Portsmouth, Aston Villa and West Ham United — to add to the three which already had non-British owners. The rush isn’t over; in April, Stan Kroenke, owner of the Denver Nuggets basketball team and ice hockey’s Colorado Avalanche, increased his stake in Arsenal, of London, to more than 12%. The flood of money is paying dividends; three of the four semifinalists in this year’s Champions League are Premier League clubs. With interest swelling among faraway fans in Asia and beyond, backers of the Premier League can look forward to “a much brighter future of growth,” says Hicks.

If so, that would be one of the business world’s more improbable turnarounds. Less than 20 years ago, English football was known more for rabid fans and decrepit stadiums than for the sort of classy crowd that fills the suites at the stadiums of Chelsea and Manchester United. How did the local game of the English working class become a global business? And can it stay on top?

Before English football could take over the world, it had to sort itself out. And just as Liverpool’s change of ownership has come to epitomize the state of the Premier League now, so its fortunes two decades ago demonstrated the depths to which the English game had plummeted. Though a powerhouse on the field — its teams were champions of Europe four times between 1977 and 1984 — Liverpool’s fans had a reputation for being a dangerous disgrace. When some of them rioted at the 1985 European final in Brussels, 38 fans of the Italian team Juventus were killed. It would be five years before English teams were allowed to play again in European competitions. Back home, aging stadiums offered neither comfort nor safety; in 1989, 96 Liverpool fans were crushed to death on an over-crowded terrace at the Hillsborough Stadium in Sheffield. Financially, too, the game was a mess. Most top-flight team owners poured money into their local team in the hope of boosting their social standing, not its bottom line. Even Manchester United, English football’s most successful team in the last decade, was led through much of the ’60s and ’70s by an enterprising local butcher. (Not so these days: U.S. tycoon Malcolm Glazer, owner of the Tampa Bay Buccaneers National Football League franchise, swallowed the club in 2005.)

But the 1990s brought change. The official report into the carnage at Hillsborough mandated that top grounds had to be all seated by mid-1994; the government even offered millions of pounds to help pay for reconstruction. Out went crumbling terracing; in came safer seating and improved facilities that made fans feel more like spectators than animals. And as the game began rebuilding its domestic appeal, a handful of chairmen with a sharper eye for profits made a bold move. For years, the top teams had threatened to split from England’s four-tier, 120-year-old Football League, claiming that with a domestic game in the doldrums and top clubs impotent against Continental opposition, they needed a greater say over their own affairs — and the enhanced broadcast revenue they thought they could win. In 1992, England’s top clubs walked out of the Football League to form the Premier League, a commercially independent alliance able to hammer out its own TV deals on behalf of all its teams.Nobody went short. Sky, a satellite-TV broadcaster that is part of Rupert Murdoch’s media empire, forked out around $350 million to air the élite’s first five seasons in Britain. (Having previously struggled for both cash and viewers, Sky’s nascent business was given an enormous boost by snatching the football rights.) The game was transformed. For fans accustomed to the stodgy — albeit free — coverage offered by terrestrial channels, Sky’s whizzy stats and graphics brought football up to date, and made it much more entertaining. Fans were treated to fireworks and dancing girls at grounds. For football, says Simon Chadwick, co-director of the Birkbeck Sport Business Centre, part of the University of London, the 1990s “was a monumental decade — probably the most important since [the setting up of the Football League] in the 19th century.”

As player salaries have ballooned, talented foreign players have made a beeline for England; there are now more than 300 overseas players on Premier League clubs’ books. When the four top teams clashed one weekend in January — Liverpool against Chelsea, and Arsenal against Manchester United — players from 18 different countries, from Togo to Norway and Serbia to Brazil, took to the turf in those two games alone. Businesses have been keen to cozy up, too. Current league sponsor Barclays Bank recently committed $125 million in a new three-year deal, up 15% from its present agreement. As the presentation of the game changed, so did its fan base. Lured by the refurbished stadiums, Sky’s clever marketing and the arrival of better players, new bottoms occupied the Premier League’s shiny new seats. Among the converts were more women and those with cash. “It was clear the new fans were more affluent,” says John Williams, director of the Sir Norman Chester Centre for Football Research at the University of Leicester.

To see the new face of football, there’s no better place than Old Trafford, the home of Manchester United. The ground has been expanded three times in the last 12 years, and now holds 76,000 compared with just 44,000 in the early 1990s. There are two dozen suites hosting between 44 and 700 on a match day, and 164 boxes, costing between $34,000 and $300,000 each for a season. There’s fine dining — you can get smoked halibut and quails’ eggs with caviar in the Gallery. Even the canvasses on the restaurant’s walls are up for sale. There’s similar grandeur on offer at Chelsea’s Stamford Bridge stadium, too, where business leaders are escorted to their suite by glamorous women in sharp suits.

For all its success at home, it is the Premiership’s global reach that sets it apart from other sports leagues. That reflects good business sense. “We’re a small island with a relatively small population,” says Richard Scudamore, ceo of the Premier League. In Britain, “there’s going to be limited domestic growth” for teams. But while the indicators at home are “fairly maxed out” — match-day attendance, for instance, averages 92% across the League — Scudamore says that recruiting the legions of potential foreign fans offers “huge global scope.”

The nature of the game helps. Purists have often mocked the English style of football, but with its fast pace and all-action style, it is undeniably exciting — especially in markets where football is relatively novel. Ask Dittha Jumpakaeg, p.r. manager for the Liverpool Thailand Fan Club. The Bangkok local doesn’t remember exactly how old he was when he first watched Liverpool on TV, but he was hooked by the side’s dazzling control. “It seemed the other side never touched the ball,” he says. (They didn’t.) Germany’s Bundesliga occasionally aired in Thailand, Dittha says, but the German matches seemed slower, the players older. “Thais,” he adds, “like a fast-paced game.” (In 2004, then Thai Prime Minister Thaksin Shinawatra actually tried to buy into Liverpool.) Now some 41 million of Manchester United’s estimated 75 million fans worldwide are in Asia, according to MORI, and in a report for England’s Football Association this year, academics at Warwick Business School found that 14% of Chinese football fans polled said they owned a Manchester United shirt.

Of course, translating an Asian fan base into revenue isn’t simple. Club shirts are easy to counterfeit. Wander down traffic-choked Sukhumvit Road in Bangkok, and toy-shop owner Sombat Jingrap will sell you a knockoff Arsenal, Liverpool or Manchester United shirt for $25. (You’ll have to get in line — he offloads 300 in a good month.) The real thing can cost three times that. Some clubs have outsourced shirt sales. In return for giving Nike its global kit merchandising rights, Manchester United gets an annual royalty fee; last season the club netted more than $40 million from the deal.Adding an Asian player to the ranks can help. Four Premiership teams now have Chinese players on their books, and since welcoming South Korea’s Park Ji Sung into their line-up in 2005, Manchester United have become big in Seoul. Three-quarters of South Korea’s football fans see the club as their favorite European side, according to Birkbeck, and more than 650,000 South Koreans have signed up for a club-branded credit or debit card since their launch a year ago. By launching local-language websites, teams can tailor marketing to fit an individual country, drumming up local advertising and sponsorship revenue. As part of its lofty pledge to become the world’s biggest club by 2014, Chelsea, owned by Russian billionaire Roman Abramovich, launched a Mandarin website in January in conjunction with Sina, China’s leading portal; in late March, the club unveiled another aimed at South Korea. The London team is also playing benefactor. Apart from hosting the Chinese Olympic football team in London in February, the club sponsors the Asian Football Confederation’s Vision Asia project to develop grassroots leagues across China. Next summer, Chelsea will embark on its first-ever tour of China.

Those preseason tours can be pure gold, giving sponsors the chance to exploit target markets. When Manchester United goes to Malaysia, Korea, Japan and China this summer, shirt sponsor AIG will be with the team every minute. That will go some way to repaying the $28 million a year the U.S. insurance behemoth agreed to pay to slap its logo on the club jersey for four years — more than 50% higher than the amount previously paid to sponsor the club by cell-phone operator Vodafone. When one shareholder wondered why AIG would spend so much on the U.K., a relatively modest part of its empire, ceo Martin Sullivan explained: “I am not buying the U.K. I am buying Asia.”

The Premiership’s triple play — losing the hooligans, luring big money at home, expanding overseas — has made it the envy of other sports leagues. In the 2005-06 season, estimated revenue hit $2.5 billion, much more than that of any other league in Europe. The Premiership still lags behind major U.S. leagues like the National Basketball Association (NBA) or the National Football League (NFL) — the latter earned more than $6 billion in 2005-06. But with only 20 clubs competing in the English league, average club takings are already more than in the NBA. There’s more to come. For each of the three seasons of a new broadcast deal that begins later this year, domestic TV rights for the Premier League fetched $1.1 billion, compared with just $680 million for the deal that expires this summer. Taking Britain’s smaller population into account, the League, under the new deal, will generate 50% more domestic broadcasting revenue per head than the NFL, and eight times that of the NBA, according to consultants Deloitte.

Increasingly, that TV revenue is going to come from outside the U.K. The Premiership had a weekly global TV audience of 78 million last season, with broadcasters such as the Fox Soccer Channel in the U.S. and pccw in Hong Kong clamoring for a piece of the action. TV deals that put even the smaller Premier League sides on screens from Shanghai to Chicago are “a fantastic impetus to all clubs,” reckons Dan Jones, a partner at Deloitte’s Sports Business Group. Foreign channels covering more than 200 countries together stumped up $1.23 billion to air the league for the three seasons beginning 2007-08, paying just shy of double the current amount and contributing a quarter of the Premier League’s central income. Scudamore told Time that he thinks overseas rights will soon be worth half of that collective pot. Such figures make American sports tycoons green; overall, foreign markets account for less than 5% of the NFL’s revenue, and even for the NBA, a true global brand, overseas media rights amount to just $130 million a year.

But no sensible business leader is starry-eyed about sports. A few miles outside Birmingham, at Aston Villa’s training ground, new owner Randy Lerner is setting out his vision for the club. From the slightly scruffy facilities to the club’s balance sheet, this is no Manchester United or Chelsea. For the $142 million the boss of the NFL’s Cleveland Browns’ paid for Villa in August, Lerner got last season’s 16th-best team in England, complete with tumbling revenue and attendance. So while he spies an “untapped market,” he means Birmingham, not Beijing. Compared with other Premier League clubs, he tells a handful of reporters in a rare sit-down with the press, “we have a different geography and a different set of expectations.”

On the face of it, there’s still a stark difference in financial power the lower down the Premier League table you go. According to Deloitte’s 2006 Annual Review of Football Finance, the top five earners in the 2004-05 season — Manchester United, Chelsea, Liverpool, Arsenal and Newcastle United — accounted for almost half of both revenue and salary costs. And though average club revenue hit $124 million in 2004-05, the ratio of revenue at the richest club to that of the poorest is 4.7:1, well over twice the NFL’s rate and almost double the NBA’s. While income from TV rights in the NFL is split evenly between all 32 teams, half of domestic rights in the Premier League are divided according to the number of times a team is aired and its final league position. The result: the top club pockets almost twice the amount that the bottom team does — and only the top few clubs access money-spinning European club competition the following season. In the U.S. there are mechanisms such as salary caps in place to ensure a competitive balance, but there’s no sign of anything like that in the Premiership. “What we have is almost like a two-tier league structure,” says Birkbeck’s Chadwick: “Those that can win the Premier League, and those that won’t.”

That may not matter as much as you might think. Though only four different teams have won the Premier League since 1992, most fans seem unperturbed by a lack of competitiveness. Midway through a survey of thousands of supporters, Birkbeck’s Chadwick says top-flight followers still consider the league “exciting and unpredictable.” And financial prospects for smaller teams are brightening. More of them are now profitable, according to the Deloitte report. These days, “to be the 10th or 12th club in the best league is still good,” says Chris Lee, head of Professional Sports Business at Barclays, which acts as banker for half of the Premier League’s clubs. “Not all clubs are making a profit, but there’s not so much of an excuse now.”

Profitability would no doubt be helped if clubs could bring wages under control. Over the past decade, according to Deloitte, Premier League wages rose an average of 20% a year. Top earners like Chelsea’s Michael Ballack and Thierry Henry of Arsenal reportedly pocket around $12.5 million each year. But in 2004-05, for the first time since 1992, total wages dipped, and the ratio of wages to revenue is lower than it is in most of the other big European leagues. Clubs threatened with relegation out of the Premiership (three teams are dropped each year, and three added) are wising up to performance-related pay schemes. From next season, even the worst team will net around $54 million in media and TV revenue, almost as much as the $60 million that Chelsea took home for winning the league last year. And relegated teams get “parachute payments” that soften the blow of tumbling down a division.

With that kind of stability, building a brand in Asia and other foreign markets may not seem such a stretch, even for relatively small clubs. Despite losing money last season, Sheffield United bought China’s Chengdu Five Bull football team (and duly renamed the side the Blades, to match the English club’s moniker). Since then, United has opened a city-center bar and retail outlet at the stadium. Analysts are impressed. “If a club hasn’t got a high profile or heaps of cash, building relationships in the local market is a cost-effective way to build brand awareness and suit longer-term Asian sensibilities,” says Geoffrey Gold, ceo of Football Dynamics Asia, the Jakarta-based consultants.

To lend a bigger hand to mid- or low-placed sides like Villa and Sheffield, the Premier League could learn from the NBA. Rather than basketball teams marketing themselves individually, the NBA represents the collective interest of the league when it sells itself in places like China. “The NBA has the vision, focus and drive that the [Premier League] doesn’t,” says Terry Rhoads, general manager of Shanghai’s Zou Marketing, who has advised both the NFL and the NBA on selling to China. “The [Premier League] clubs are taking the lead and there’s no coordinated effort. Right now it’s like the children leading the parents when it should be the other way around.” Scudamore dismisses the comparison. The NBA, he says, “doesn’t have global brands as clubs.” Because it boasts legendary teams like Manchester United, he thinks, the Premier League has “a very different model.”

Closer to home, fans at Old Trafford stadium are grappling with marketing of a different kind. Even when there’s no game on, there are plenty of ways to part a fan from his cash. You can join a tour party — as 200,000 fans do each year, paying $20 for the privilege. You can hit the Manchester United megastore, and look at anything from jewelry to lacy garters. It’s not what the cloth-cap and meat-pie fans of yore would have bought. But then, the English Premier League left behind the world of those supporters long ago.