I am going to guesstimate the cost to Crystal Palace of Lockdown. The lockdown was necessary and a shame that it didn’t start earlier to save more lives. I will be using information from the accounts and articles; all publicly available information but some behind a paywall to make these guesstimates. I have no insider knowledge. The guesstimate will be wrong but hopefully it will be in the right ballpark and I will contextualise the amount. Let’s start with TV money as it’s 80% of Palace’s turnover.
TV Money Domestic
Let's dig into more depth of that 80% figure from last seasons accounts. 60% of the TV money that season came from the domestic deal. With BT and SKY paying Palace £66.1 million for that 11th place finish. If the season wasn’t completed then BT and SKY would get a refund for the matches not broadcast. This is the first season of a new three-year deal. BT had eight Saturday early kicks left. This would work out to be £24.6 Million. With SKY it’s more complicated. They have got four packages with different amount of games remaining in most packages. The cost per game varies due to the package. Based on the SKY average amount per game it would be due £363.6 million from 39 games. This figure is wrong as each package has a different price and it’s not publicly available but it's based on the public figures. Amazon and BT’s second package has finished all their games for this season. If they had to give a full refund for games played after the restart it would total £388.1 million worth of domestic TV money. Even with completing the season it was reported in the Athletic that domestic rebate would be £223 million. This would mean that domestic TV money will be discounted by roughly 57% for the games after the restart.
How would this be allocated between the clubs if they need to refund BT and SKY. This could cause all sorts of trouble between the clubs. One way would be to divide the amount by the twenty clubs and reduce their TV money by that amount. This would be £19 million each if Project restart didn’t happen. But this isn’t how the TV money is earned by each club. It’s done by first removing amounts due to the football league, former teams (parachute payments), and other costs. Then 50% is an equal share, 25% based on league position, and finally 25% per league game on UKTV. Based on 11th place finish Palace would lose out on £18.1 million. This includes not playing three games live on TV. But this method is harsh on the football league as it reduces solidarity payment.
When the season can be completed then the refund is only £223 million. Split equally that would be a reduction of £11.2 million. But if they choose to split by the way it’s earned then it's a bit more complicated. As all remaining games are on UKTV; so 25% based on live games on UKTV doesn’t make sense. As all remaining games are broadcast. So I just split that equally and have estimated Palace finishing 14th would lose £10.2 million. As Palace are mid-table the method doesn’t make much difference but for the team finishing 20th. It would be an £8.6 million loss. So it’s worth arguing about. It would also change the value of each league position. Each position would increase the prize money by £1.3 million instead of £1.6 million for domestic TV money.
Sky
In the last set of accounts, SKY effectively paid Palace £53 million. That’s over a third of the club’s turnover comes from SKY. They are Palace’s biggest customer and if anything to SKY there will be a big impact on Palace and the Premier League. They might have some issues like most companies in the current situation. They have deferred the payment of the rebate to next season which indicates that they don't have a cash flow problem. In SKY’s last set of accounts for a full year, they had a turnover of £494 Million from advertising. It was reported in the Guardian that Channel 4 had a 50% reduction in advertising revenue at the start of lockdown. But SKYs model is different from Channel 4. As they provide more services and charge subscription fees. Advertising only accounts for 6% of SKY turnover. But a 50% reduction over 3 months would be £60 million. In the year ending 2018, they had a profit of £243 million. It’s possible as lockdown relaxes more this month there will be a boom in advertising. But that is looking unlikely as businesses are reducing capacity due to social distancing and there will be uncertainty due to risk of a second wave. Also as companies announce large numbers of redundancies this will have a knock-on effect on customers' spending. There is a risk that companies will not want to advertise as they will not get a return on the investment. But once they are back to full capacity companies and the government would want to advertise.
Rebate
If the season is completed and Sky will have more TV fixtures than their original deal. Then why is there a refund? 84% of SKYs income is from subscriptions. While the number of subscribers for the movies or entertainment packages would increase due to everyone being home. The lack of live sport would lead to drop off in subscriptions. Especially as there is a premium price of sports content. SKY has offered to pause the subscription to customers and commercial clients. This would include pubs. Pubs depending on size and location pay around £20k a year for sports. Reported in the Guardian that four months pause Sky would lose £700m and BT £228m in revenues. This estimate was taken from Enders anaylsis report.
With the season restarted in mid-June and hoping to finish the end of July. That’s only two months' worth of subscription. I am going to be one of those people that will only have SKY for two months before unsubscribing. If the season continued they would have received three months subscription. Also, next season will start in September or later. But a pub that has got social distancing will not have the volume of customers to see the benefit of having Sport on TV. It’s against government advice for fans to sing or shout in the pubs. Don’t know how that will be enforced. Which is not going to help the situation. It was reported in the Morning advertiser that BT will remain free for Pubs in July and have a 70% discount in August. This is when the Champions League will be broadcast. If I was a real journalist I would make some calls to find out about Sky but I think it’s unlikely they can charge full price.
The next issue is that sky has paid for the atmosphere at the stadium. Personally with if the ground is visibly empty it takes me out of the experience and makes me less interested. Although the seat covering has helped mask that feeling. I do feel sad there are moments that don't have an audience. I saw the highlights of Luton vs Reading.Yakou Méïté scored four goals. How much better of a moment would that have been for him if there were fans going mad. It’s possible that this would affect subscriptions as it's not the same.
Game Allocation
Premier League sold all but 5 games each game week, not including the last week of the season. These games have not been sold to UK tv companies. It looks like they tried to reduce the refund by giving out these games to existing broadcasters. I was a bit surprised that Amazon got four games as their deal was completed for this season. It was mentioned on the price of football podcast that this could be because next season may not have fans in the stadium. It could also be setting a president for next season if it starts behind closed doors. Until fans can attend they will split the games in this way. With BBC they had been paying for Match of the Day with that weekend's highlights. As there will be fewer weekends they have given them some games.
Sky will put there 25 extra games on their free view channel. Which makes it look like they will not be losing out from the original arrangement. But they pay a large premium for the first choice games and weekend timeslot. Premier League auction the timeslot and match choice. On average SKY pays over £9 million per game but BT for Saturday midday kickoff pays £3 million per game. That’s quite a drop due to time slot and game choice. Liverpool vs Everton was on free to air and this would have been a top pick. But you can spin this as promotional and build goodwill towards Sky. It could hook new fans to the premier league as it’s not behind a paywall. It will also mean some will not subscribe as they can watch it for free.
If this new method works then it’s possible that the Premier League will put out to tender the rest of the games. The 3pm saturday rule could be more underfreight. Before lockdown betting companies were streaming football in the UK at 3pm. This is against the FA’s rules. This could be a way to crawl back some of the money from the refund. But with the last package to BT only selling for £1.5 million per game. The broadcasters may not want to pay for more football when they already committed to large payments and not earning as much form games before. If another broadcaster comes undercuts both Sky and BT. They may not be happy about the added competition.
Another way the clubs could reduce the rebate is that they could do is increase the maximum time Manchester utd could be on TV. The audience figures for Manchester utd are much higher than any other team. There isn’t this rule in the FA Cup and Manchester Utd are televised every round. This should increase the revenue for the TV companies without changing much.
Foreign TV Money
This is the first season of a new method of sharing foreign TV rights. It was reported in Forbs that American owners were so upset about this they were looking to sell Palace. Any increase in Foreign TV money will now be split by the final position and not equally as before. As per the Athletic, there will be a refund of £107 Million to overseas TV companies. If split equally that would be £5.35 million each. But if they split it by position and Palace finished in 14th then it’s £3.5 million. The bottom-placed team would miss out on £0.51 Million. Same as domestic rights there will be some arguments at the Premier League which way this should be split. But unlike with Sky, it looks like the rebate will be paid this month. As reported in the Athletic.
What’s the reason for the refund? They are still broadcasting the same amount of matches. The issue is changing matches that would have been played at the weekend to a weekday. European football on a weekday is harder to sell to the international market. So for example Premier League midweek kicks offs 6 pm and 20:15 pm kickoffs. In New York that would be 1 pm and 3:15 pm; towards the end of the workday. In Hong Kong that would be 1 am and 3:15 am; watchable but difficult to get a large audience. This is not what they paid for; same as BT and Sky they rely on subscriptions
It’s possible that some of these broadcasters will have money issues. With the majority of sports on hold for months. The decrease or freeze in subscriptions will cause problems with cash flows. It’s possible that the Premier League will need to sell to other broadcasters. In the current environment it’s likely they will get less than deals agreed before lockdown. The latest domestic deal for German football is down 5%.
UPDATE: Premier league was agreed broadcast rebate will come off the clubs over future seasons and not 19/20 season. This should improve cash flow but they will still get the hit in the future.
Gate Receipts
Let’s look at the last five home games. These will be played behind closed doors. Using a quick and dirty model I can estimate a loss of £2.1 million from ticket money. Using the accounts from 2015 to 2018 worked out the average per attendee for home league games and for cup games home and away 0.4 per attendee. This had an average price of 20.76. Then using the average attendance for the last three times Palace played their opponents. This will be an underestimate as remaining games include Burnley, Chelsea, Tottenham, and Manchester Utd. In terms of corporate ticket pricing, I would assume that these would be three of the five top-grossing games. So the figure for £2.1 million is wrong. But it gives a ballpark figure to then look at. Eagle-eyed readers would notice that I have not used the 18-19 accounts. I did the calculation before the last set of accounts came out and didn't want to re-do the model.
Let’s try to give context to that £2.1 million. That’s 1.4% of the turnover from 2019s accounts. It’s about under two facility payments (Payment for a match being live on UK TV) or just over one league position. So it’s the kind hit that if Palace lost on the last day of the season and drop a league place. Worth adding that this much more of a problem for teams like West Ham that last season brought in £27 million from matchday revenue the complete season. Loosing the matchday revenue for five games will be more of a hit for them Palace. As they make more than double.
I have not taken into account the fans that will choose to give the money back to the club in the above figure. It’s difficult to estimate how many fans would give the money to the club or give it to the foundation or ask for a refund. Personally I don't know what I will choose. I have seen a poll for FYP they have 20% would give the money to the club. Polls may not be accurate but neither is the 2.1 million in the first place.
This is not taking into account the other ways Palace makes money on a match day. Tourists or overseas fans will come to the games and spend a lot in the club shop. If I was traveling a long distance I would want to watch Palace vs a larger team. So as the games against the larger teams have been canceled. It's reasonable to assume that club has missed out on more tourists. Part of the trip would be buying some tat and a shirt from the shop near the ground. They generally spend more per trip as people spend more holiday than a day out.
Parish has stated in a club statement that all match day staff will be paid in full for the suspension of the league. Which is good and honourable. Palace will still incur the cost of hosting the games excluding cost of food and drink that wasn’t ordered before the lockdown.
Selhurst isn’t just for football it will also be closed for venue hire for events including school proms, Beer festival, local business networking events and weddings. As well as the end of season football tournaments. All these events would be canceled. Not sure how much cash is generated from these events. But Selhurst park will be used for drive in cinema so should get some income from that.
Sponsorship
In last season accounts, Palace made more from sponsorship and advertising than gate receipts. Back in 15-16, it was £4.3 million and last season grew to £10.8 million. In an interview last year sportsbusiness.com did with commercial director Barry Webber. They credited this to short term contracts and deals tailored to the customers. Looking to up-sell and get repeat business. Without fans in the stadiums and general uncertainty for business, there will be a reduction in sponsorship. There might be an uplift in UK viewership with some games on free view. It's unlikely that will increase the price of pitch-side advertising just due to companies not spending on advertising.
Normally now would be their busiest time of the year. It must be quite hard to sell advertising deals when we don’t when fans will return to stadiums or if there is a second wave and the season would have to stop. Would they negotiate a discount due to the stoppage this season to keep a good relationship. Would a company delay any decision until they are fully operational.
So to estimate this and the rest of the revenue factors. I have taken the UK broadcast refund percentage and times it by three months worth of revenue. Just to show that there will be an effect on the income across the board.
Finance cost
So again my total guesstimate. Based on public information and nothing outside the public domain. With no insider knowledge. That could be completely wide of the mark. Has Palace income dropping from what they would have earned by £21 million. That’s a drop of 13% income. Based on last year's numbers it’s similar to the drop in the Premier League of 11 places. It’s similar to bringing in four players on a free and paying them 100k a week each. Then none of them playing. Or another example if Palace paid £8 million with £2 million bonus/agent fees for a player on £200k a week on a one year deal. That then broke their leg in preseason. Ultimately this is a big hit but not as big as a relegation.
Type | Amount (£million) | Notes |
Domestic TV | 11.2 | (equal share) |
International TV | 5.35 | (equal share) |
Gate money | 1.68 | (reduced by 20%) |
Sponsorship and advertising | 1.6 | (Based on broadcast discount for 3 months) |
Other commercial activities | 1 | (Based on broadcast discount for 3 months) |
Other income | 0.3 | (Based on broadcast discount for 3 months) |
Total | 21.2 |
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Recently Palace has only had a profit in the years that Palace sells players. Yannick £6 million and Aaron £5 million. But the other year losses of 6 million and 33 million. Palace have relied on player sales to make a profit. This was caused by overspending the transfer market and a high wage bill. Net transfer spends in 17-18 Palace was 5th in Europe and 12th the season before that. The cost of those high spending years comes off the P&L as you use up the players' contracts. As you're buying the players to play over 4 or 5 seasons. It's only fair that cost is spread over those seasons. As of the end of last season, the net book value was 80.7 million. Net book is the value that have yet to go onto the P&L. To put another way we got drunk on overspending and we have been hungover for a couple of seasons. Palace should be coming out of the hangover stage.
Harris co-founder of Apollo Global Management and Blitzer an executive at Blackstone group. These companies' business is investing customers' money by buying companies and running them more efficiently. They look for companies with high debt, underperforming, or undervalued. Then sell them when the time is right after improving there value. At the moment the market price of players will be lower. Due to other leagues being more reliant on gate receipts. For example, Brentford 57% of there income is from TV and Leeds 18%. In France, they have canceled their season. Even teams like Tottenham who has Champions League rebates for TV and higher gate receipts as well. There will be fewer clubs buying players and more clubs looking to sell to improve their finances. There will be some good value players out there to buy. Currently, Blizter and Harris are rumored to be looking at buying Mets (MLB). They are not scared to invest in these uncertain times. So they might think now is the time to invest in the playing staff to find players that can be sold for a profit in later seasons or just to secure a top-flight football. Or just to find value. Like transfers for established Premier League players for low transfer fees; Cahill, Ayew, and MacCarthy are all examples of Palace finding value. Would not surprise me if this offseason Palace sign allot of players and then after the financial recovery sign only a few players.
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