Why isn’t escalating revenue improving quality in the English Premier League?

Measured by European success the English Premier league is on the wane. As @KristianJack explained, from 2004 to 2009 12 out of the 20 Champions League semi-finalists were from the Premier League. Yet over the following 6 seasons only 3 of 24 semi-finalists were English.

This apparent decline took place over a period when burgeoning TV prize money elevated even the most humble Premier League team to European fat-cat status. In Deloitte’s Football Money League (based on 2014/15 revenue) 17 of the top 30 teams are from the English Premier League – including Swansea City (26), Crystal Palace (28) and West Bromwich Albion (29). In modern domestic football there’s a strong relationship between a team’s success and its wage bill (as @MC_of_A showed here). But financial superiority hasn’t translated into relative European dominance for English teams; in fact the opposite is true. Why?

Measuring underperformance

Firstly, to better illustrate relative underperformance of Premier League teams, a way to objectively compare against European teams is needed. This could be difficult as teams play in different leagues. But fortunately an objective measure of European teams’ strength does exist in the form of the Euro Club Index (suggested by @SimonGleave on Twitter). This ranks European teams, based on their playing strengths at a particular point in time. So, to assess the under or over-performance of a team relative to its revenue, we can examine the difference between its Football Money Ranking and its Euro Club Index ranking. If Euro Club Index ranking is lower, then the team is underperforming.

wealth

The chart shows the top 30 teams in Deloitte’s Football Money League, ranked by revenue, and for each team the difference between its Euroclub index rank and its wealth rank. Note that the Euroclub index rank is at 22 January 2016, whilst wealth is measured for 2014/15, so there is a timing mismatch – but revenue in 2014/15 should strongly influence a team’s strength in January 2016.

For Europe’s top 10 richest clubs, wealth rank is very close to playing strength rank. Only Manchester United and Liverpool stand out, both sitting 16 places below their wealth rank. But the lower part of the table is mostly populated by Premier League teams, heavily financed by TV money, significantly underperforming their wealth rank. For example, Newcastle United (-133), Aston Villa (-171) and Sunderland (-121).

Every Premier League team in the Money League top 30 is performing below its wealth rank (Arsenal and Manchester City do best, only 1 place below). The average difference for all English league clubs is 46 places below (obviously heavily weighted by Newcastle, Villa and Sunderland’s performance). But for the 13 teams outside the Premier league the average difference is only 4 places below. And special mention should also go to Sevilla FC, Benfica, VfL Wolfsburg, FC Porto, Bayer Leverkusen, Valencia CF, Borussia Mönchengladbach, Villarreal CF, Zenit St. Petersburg and Athletic Club Bilbao – all in Euroclub’s top 25 but not in the top 30 Money List.

So there is evidence of underperformance by Premier League teams relative to their revenue. This fits into two main types. Firstly, the traditional Champions League candidates, the big 4 (or 5, or 6): Arsenal, Manchester City, Chelsea, Manchester United and to a lesser extent Spurs and Liverpool. They’re still in Europe’s top 25 but struggling to compete with the very best, and some (particularly Manchester United and Liverpool) suffering alarming declines. It’s too early to tell about Chelsea.

The second type of underperformance is for a broad group of established Premier League clubs that have enjoyed repeated years of TV funded bounty. But they’ve been unable to seriously compete for Champions League places or translate these riches into performance levels anywhere near those of some of their more impoverished European peers. This includes teams such as Everton, Stoke City, Swansea City, West Bromwich Albion, Newcastle, Sunderland and Aston Villa.

So what’s going on? What has changed since those heady years of English Champions League dominance prior to 2010? Are there factors that cause this group of clubs, isolated from the rest of the world in an ivory tower of ever increasing wealth, to use their revenue in ways that aren’t aligned to an objective of improving long-term playing strength?

There are structural characteristics of the English Premier league that encourage certain kinds of club behavior. In particular the guaranteed riches bestowed for just being in the league, which can transform a club regardless of its stature or history. But also the constant peril that the good-times could disappear through the relegation trap-door (albeit sweetened with parachute payments). For example, this year’s promoted Championship teams are reckoned to be in line for a minimum £230m boost to finances.

The changing face of ownership

The sheer size of the Premiership bounty is attracting professional investors to English football, as described in this Guardian article.

This marks the end of a trend in English football team ownership from local philanthropic businessman to local millionaire benefactor to overseas billionaire to professional sports investment groups (often US based). The latter obviously come with a hard-headed commercial approach to managing their investment. This isn’t a bad thing, but it inevitably means that clubs prioritise remaining in the Premier League above anything else.

All consuming prioritisation

This ensures that all forms of cup competition (possibly other than Champions League) are low priority for Premier League clubs. Teams often appear to strive to get eliminated from the Europa league. For example, this season, Southampton lost to Danish club Midtjylland in the first play-off round, and West Ham were knocked out by Romanian club Astra Giurgiu in the third qualifying round. Both Southampton and West Ham are good Premier League teams, in 22nd and 20th position in the Deloitte Money league. But Europa League progress was clearly of low priority to both clubs, despite a Champions League place on offer for the competition winners. Contrast this with Spain’s Sevilla, not present in the Money list top 30, but winners of the Europa league over the past 2 seasons.

Premier league clubs display the same attitude to domestic cup competitions, usually making multiple changes for FA cup and League cup ties, despite these competitions being the only realistic chance of winning a trophy for all but the top Premier League teams. The low priority placed on cup competitions is a direct consequence of the imbalance in financial reward. It’s far easier for clubs in other leagues to prioritise cup competitions when the economic pressures are not as severe – either because the league isn’t as competitive or prize money is more balanced.

Short-termism

High financial reward coupled with relegation threat also probably causes short-term thinking by premier league clubs. This manifests in two main ways. Firstly, managerial change – when teams play badly, even if only over a short period, club owners are under increased pressure to make changes. The most obvious (and lazy?) action is a change of manager.

This BBC article shows that a record number of managers we sacked in the first half of this season in England (although Premier League managers fared better than those of lower leagues). 4 of the bottom 8 Premier League clubs have changed their manager this season (twice for Swansea). Such frequent managerial change often leads to more player transfers and tactical changes – so is rarely conducive to long term stability and planning and is usually inefficient.

The second common example of short term thinking is reckless player acquisition. It must be tempting for club owners to spend £ millions on players, just because they can. And there’s no better way to demonstrate ambition than a high profile (and high cost) transfer. But when player acquisition is poorly planned and inconsistent, it’s unlikely to lead to improved playing strength.

In most cases Premier League prize money would be better spent on long term investment (e.g. youth development coupled with strategic transfers), but the external pressures make this pathway difficult to follow. Poorer clubs in European leagues often don’t have this choice, but prosper by allocating limited resources in a more strategic and efficient way.

Farewell to top players

The pressures that encourage short-termism can perhaps explain the underperformance of middle and lower premier league teams, but why have the top 4-6 struggled so much in Europe since 2010, when they are never really under true threat of relegation? One reason is that the very top world players no-longer ply their trade in the Premier League. The last English based players to feature in the Ballon d’Or top 3 were Cristiano Ronaldo and Fernando Torres in 2008.

The top 2 Spanish clubs are also top 2 in Deloitte’s money league, so possibly they now have the financial power to outspend the top Premier League teams. Also continued European success may now make them a more attractive proposition. But it’s difficult to resolve why this had changed so much in the last 8 years. One possible reason, unrelated to football, could be the increase in the highest rate of UK tax to 50% between 2010 and 2013. This certainly coincided with the decline of English teams, but it’s difficult to believe it’s a major factor when players have access to the best advisers to manage tax affairs.

Where is this going to end up?

Even though there is strong evidence of Premier League clubs’ underperformance in recent years, the league continues to be hugely popular – people are prepared to pay big money to watch it on TV, which is why prize money remains so high. One key element of Premier League football that makes it so popular is that clubs so clearly care, they want to win, which why it’s so competitive. Liverpool’s 5-4 victory against Norwich encapsulated the Premier League in one match – crazy, competitive, unpredictable, questionable quality; but crucially a genuine desire to win as exemplified by Jurgen Klopp’s glasses breaking celebration with his players.

One possible consequence of the continued prize money inflation and trend towards professional investors is an eventual move to a closed league (either domestic or European) without relegation, because there’s nothing investors dislike more than uncertainty. But that path would be foolhardy for both the investors and their clubs because they’d lose that key competitive element that makes the Premier League so attractive.

Meanwhile this season is revealing indications of further shifts in the outcome of the Premier League’s unique circumstances – with a rise of smaller clubs (particularly Leicester City), the likely relegation of established Premier League ever-present Aston Villa and the strange case of Chelsea. The Premier League remains exciting – even if its teams are currently punching below their financial weight.

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