How are Broadcasting Rights Revenue Split Amongst Franchises?

In the previous article, we have already seen the importance of broadcasting revenue. We also know what the shortcomings of broadcasting revenue are. However, in this article, we will have a closer look at a bigger problem which is how the revenue generated by the sale of broadcasting rights should be split between various stakeholders.

It is important to note that the broadcasting rights are owned by the entire league. This means that the franchises as well as the franchisors have some stake in the money which is generated by selling broadcasting rights.

However, in many parts of the world, certain stakeholders benefit more from the sale of these rights as compared to other stakeholders.

It is a known fact that larger football clubs such as Real Madrid and Barcelona are granted between 10% to 15% of the overall broadcasting rights in European football leagues. There are some experts who believe that this distribution is justified whereas others do not believe so.

Hence, the question arises about how should these revenues be split. Should all franchises be allowed to share the revenues equally? Should some franchises be granted more money than others? Should the broadcast rights even be sold collectively or whether individual franchises should be allowed to sell their own broadcasting rights?

In this article, we will have a closer look at some of these issues as well as how they impact the distribution of broadcasting revenue amongst the various stakeholders.

Why Collective Selling of Broadcasting Rights?

Many franchises and stakeholders across the world believe that the collective selling of broadcasting rights of any sporting event creates many problems from an economic point of view. This is because the collective sale of broadcasting rights raises the issue of how the money should be distributed.

Instead, if the respective franchises were allowed to sell their individual rights on their own, they would be able to generate a better economic value. There were lawsuits filed against the NFL in courts within the United States in order to ensure that the sale of broadcasting rights is decentralized.

However, the American courts have ruled that the entire league should be considered to be a single economic unit. Hence, if every franchise tries to negotiate at their level, there will be more competition and the bargaining power of the league will get reduced. Also, the broadcast needs to be of the same quality so that the end-user experience is not altered. It is for this reason that broadcasting rights are generally sold collectively.

Distribution of Revenue from Broadcasting Revenues

It is important to note that there is no set formula that is followed all across the world with regard to the distribution of broadcasting revenues. It is an individualized agreement that is drawn up after taking multiple factors into consideration.

The number of sports franchises, their relative status as well as their bargaining power are taken into account while deciding how the revenue from broadcasting rights needs to be split. Some of the factors which are taken into account while deciding the revenue split have been mentioned below:

• Equal Share: In most sports leagues, a certain percentage of the overall broadcasting revenue is kept for equal distribution amongst all the members of the league.

  For example, in the English Premier League, about 50% of the overall revenue generated from the domestic sale of broadcasting rights is distributed equally amongst all market participants. This is done to ensure that all teams participating in the league, no matter how small or big, do receive a minimum share of the revenues.

• Merit Performance: In many leagues across the world, a certain percentage of the revenues derived from the sale of broadcasting revenues are distributed based on the performance. This means that this revenue will be distributed based on the standing of the team at the end of the league.

  It is common for leagues to provide extra incentives to the teams that finish in the top four positions. This is done to ensure that the profit motive of the franchises and the winning motive of the teams ends up being reconciled.

• Club Status: In many parts of the world, the financial and social status of the club is also taken into account while deciding the share of revenue.

  For instance, clubs that have been consistently performing well and have been drawing in large audiences for a longer period of time (for example five years) are paid a larger share as compared to the clubs which have recently started playing and have no real fan following.

• Number of Broadcasts: In the English Premier League, teams are paid something called a “facility fee”. This is the fee paid to the teams based on the number of times their matches get broadcasted. This is because broadcasters only play matches for teams that have a high degree of popularity. Hence, a higher number of broadcasts translates into higher popularity and hence has the potential for higher profits.

The fact of the matter is that deriving the economic value of a broadcast is almost impossible. Some viewers watch every match, others watch only when a certain team is involved regardless of the opponent whereas certain others only watch when two teams are involved.

It is very difficult to ascertain the cause of the increased viewership. It is for this reason that factors like the ones mentioned above are taken as an approximation to try to distribute the revenue in a manner that is equitable and acceptable to all.