Unleashing Greatness: Why The Champions League Is A Game-Changer for Premier League Clubs

The Glory and Financial Rewards of the Champions League

The English Premier League is the most competitive football league in the world. It offers mind-boggling financial rewards for successful teams, and nightmare scenarios for those that are not.

These economic realities can be highlighted by two contrasting events: qualifying for the Champions League and the ignominy of relegation.

What are each outcome's financial implications, commercial opportunities, and long-term consequences? Understanding these economic dynamics is crucial for clubs aiming to maintain financial stability and competitiveness in an ever-evolving football landscape.

How is the money from the FA Premier League distributed?

Although the Premier League has several lucrative income streams, the lion's share comes from TV rights, both domestic and international. This may come as no surprise, but the way the funds are allocated might.

The FA (Football Association) keeps a percentage of the total income it receives for the day-to-day running of the organization. The balance is divided among all the divisions in the football league (Premier League, The Championship, League 1, and League 2).

However, not all divisions are created equal.

Premier League teams are more equal than the others and can expect to rake in approximately ten times more income from TV rights than a Championship team.

TV Rights and Commercial Deals

The Premier League has made a conscious effort to create a relatively even playing field when it comes to dishing out payments. As such, a percentage of TV rights and commercial ventures are divided equally among the individual teams. Last year that amounted to over $100 million(m) and is set to rise this year.

This is a smart move on behalf of the FA. If these payments were performance-based, the gulf between the top and bottom teams would grow even bigger and the Premier League would be dominated by seven teams (Manchester United, Manchester City, Liverpool, Chelsea, Tottenham, Arsenal, and Newcastle).

This would effectively turn it into a league within a league, which is not in the interests of the tradition of football in England or the broader fan base.

So a poor-performing Premier League team can take solace in the fact that they will receive this huge amount of money, regardless of how their season goes.

Merit Payments and Facility Fees

Merit payments are awarded for every position a team climbs in the table. The Premier League has penned a new international broadcast contract that will run from 2022 through 2025. While the old agreement was worth $5 billion, this new deal is worth $6.2 billion.

As a result of this increased revenue,bottom-placed Southampton will receive a $4.5m merit payment, about $2.4m more than Norwich, who finished bottom of the league last year. Manchester City will make $40m more for winning the league this year, compared to when they lifted the trophy last season.

Apart from the guaranteed earnings based on their league position, teams also receive a minimum of $12.5m in facilities fees, which are calculated on how many times a team's game is broadcast live. Larger clubs, with substantial fan bases, are in higher demand and have more opportunities to appear live.

During the 2020/21 season, for example, Liverpool, who finished in third place, received $44m in facility fees while Manchester City, the champions, received $41m.

Manchester City can expect to receive over $200m for the 2022/23 season. The bottom club, Southampton, will add around $145m to their war chest. They are going to need every cent.

The Irresistible Lure Of The Champions League

The Champions League has become the most prestigious competition in club football. For some clubs across Europe, qualifying for the group stages of the tournament has become more important than winning actual trophies.

The financial aspects of qualifying for the group stages help explain this trend. In the 2021/22 season, the 32 participating teams received a starting fee of over $15m. If a club is eliminated in the play-off stage, the final qualifying hurdle, they only earn $5m.

Coefficient shares are allocated to the 32 clubs based on their performances in European competitions over the past 10 years.

A total of $600m is divided among the clubs. The club ranked 32nd receives one share worth $1.15, while the club ranked 1st receives 32 shares, equivalent to €37m.

UEFA's (Union Of European Football Associations) market pool, amounts to $300m and is distributed among the participants. Half of this pool is based on the clubs' performances in their domestic competitions during the previous season, while the other half depends on the number of matches each club plays in the 2022-23 Champions League.

Additionally, clubs receive prize money for reaching different stages of the competition. In the 2021/22 season, they received $9.5 for reaching the round of 16 and $10 million for the quarter-finals. As the competition progresses a team will receive prize money of $12 million and $15 million for reaching the semi-finals and final respectively. The eventual winner will receive north of $20m.

There is a significant financial incentive in each match. Group stage wins earn $2.8m each, while a draw is rewarded with $930,000. This means that if the eventual Champions League winners win every game in the group stages, they will earn $68m in prize money, excluding coefficient shares and market pool money.

The price of success becomes increasingly pronounced as the Premier League continues to captivate global audiences and intensify its competitive nature. Clubs have to carefully manage their resources, balance their aspirations with the financial realities, and make shrewd decisions to secure their future.

The journey toward Champions League qualification or the battle to avoid relegation can redefine a club's financial landscape and have lasting implications for its sustainability. It must be very satisfying being the best team in Europe while adding over $100m dollars to the club's bank account.

I can’t wait for the new season to begin.