EPL TV Rev Sharing Idea Could Work

Last week English Premier League (EPL) TV revenue figures showed how the league distributed the record $1.6B it brought in this season. The way I understand the system, each team receives a flat fee as part of the negotiated television contract. Then teams receive additional funds based on incentives, such as national television appearances and related success factors. Sports leagues don’t want to take lessons from the EPL to promote competitive balance or salary structure, given the top four teams annually dominate the league and buy the best players. However, if applied in a different manner the revenue sharing idea has merit.

Recently the NBA announced it would increase the amount of money in the revenue sharing pool next season. The league uses a complicated formula produced by McKinsey consulting to distribute money to teams that qualify. In other words, a team cannot simply cut costs, not try, then pocket the money. As revenue sharing becomes a more prominent part of almost every sport, these checks and balances are crucial.

Applying the NBA model to TV revenue is interesting. League’s could start by setting aside a percent of the annual broadcast revenue to be equally divided among teams. The remaining money would then be allocated based on an incentive program, in one of two ways.

The league could use an outside consultant, such as McKinsey, to create a complex formula that rates teams on a number of various metrics that take into account financial need, business model implementation, marketing success, and competitiveness, to name a few. The premise is to determine how much a team is doing with what it has to work with, and how well it’s executed. Based on this formula, teams are ranked, and receive a percentage of the remaining money.

A second way is to take the remaining league TV revenue, and split it into different categories. Put a certain percentage towards the financial need teams, another portion to marketing efforts, and so on. Then rank the teams based on each metric, and award a percent of the revenue for that metric to each team accordingly.

The goal is to reward teams that do well and punish teams that don’t. Obviously, it needs to go beyond a simple win-loss analysis. If both the Twins and Yankees earn playoff berths with 90 wins, the Twins should rank higher in earning the shared revenue because they will likely have done more with what they have to earn those wins than the Yankees. Likewise, if a team rolls out a new marketing campaign and sees a 10% increase at the gate as a result, they should be rewarded for the grassroots efforts. While a team in the NBA like Memphis that gave away its only superstar should not simply receive extra revenue because it divulged its greatest asset in a cost saving move.

Clearly, more analysis and research is required to develop the right system, but performance based incentives for shared revenue is one way to reward teams that need additional revenue and work hard for it, while avoiding hand outs.

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