The football season in Bulgaria has begun, and with it, a new contract for television rights has entered into force. The contract is for five seasons (until 2026), and the clubs, as announced by the Bulgarian Football Union (BFS) last year, will BGN earn 6.5 million each season. UEFA reports show that about 7% of the income of the First League teams in Bulgaria comes from television rights. All the leagues in the UEFA top 20 rely more heavily on television rights, with this comprising over half the budget in England. In Romania and Turkey, about 40% of the teams’ income comes from television rights, and for Greece and Poland, that figure is in the range of 20-25%. Given the level of interest and the number of matches that are broadcast live in Bulgaria, we can safely say that the income from TV rights is greatly underestimated.
The television rights contract in national football has been criticized repeatedly, mainly due to the lack of a real competitive procedure and the placement of clubs prior to a classification event. IME, with the support of the Friedrich Naumann Freedom Foundation, has present a special report - “The economics of football in Bulgaria" - with an emphasis on the organizational and commercial management of professional football in our country. In this article, we present the main points of the report pertaining to the management of television rights.
Who owns the rights?
In Article 27 of the Law on Physical Education and Sports, it is outlined that a licensed sports federation can have exclusive rights to advertising, radio and television distribution of all sports competitions organized by it, so long as it provides, on a contractual basis, a percentage of the proceeds to sports clubs participating in competitions. At the same time, Article 17 reads that sports clubs own the rights to advertisement, to television and to radio-based distribution of sports competitions organized by them in accordance with the procedure determined by the relevant sports federation. The key factor determining who owns the rights lies in the organization of a sports event.
Recent experience in Bulgarian football show that the consensus supports the exclusive rights of the BFS, that is, clubs do not have ownership of the rights of their championship matches and cannot look for different solutions other than what the BFS provides them with. The contract for television rights is thus most dependent on the BFS, meaning the interests of individual clubs are not always protected. When a job is done, the clubs sign an agreement on the distribution of funds, which is not directly related to the parameters of the television contract itself.
If we track the cash flow, then the main income stream is from television companies (the buyers) to clubs (the sellers in practical terms). In most European countries clubs are the copyright holders, that is, they are the source of the product. The collective sale of rights is a commercially reasonable decision, but it does not affect the ownership rights. The fact that collective legal management can bring a better contract and, possibly, greater security and balance between clubs does not mean that the federation should by law have a leading position above the interests of the clubs.
What are the management models?
The trade of TV rights in football relies on two main models. The first model has each club selling the rights to its home matches, and in some cases sharing the proceeds with the guest team. The second one has all the teams in the respective race / League combining their product and selling the rights together - usually through the organization of the clubs themselves. Almost all major European championships subscribe to the second model, that is, they sell collective television rights, with Spain being the most recent to go down that route. This most often happens through the professional league, instead of going through the federation.
Nevertheless, the collective sale of television rights has a few obstacles it needs to address. Combining a television product results in a single-seller model, and in practice, in the cartelization of the market. Such a cartel, while respecting the interests of individual clubs, benefits the seller, but calls into question factors related to the interests of the public. The body of literature on the social consequences of the collective sale of television rights in football is huge, expanding to address many arguments. What we find interesting is that the cartelization process not only violates the interests of the public, but also those of individual clubs.
The European framework - the competitive procedure and the rights of the clubs take the lead
The European Commission has also examined this issue in detail on numerous occasions, determining that the public benefits for consumers from the collective trade of TV rights outweigh the disadvantages. However, for this model to work, several very important principles should be observed:
- Partial separation of rights (separation of parties): a centralized offer of rights should not consist of one common package sold at one auction. TV rights must be available in multiple packages to avoid obstacles/market closing (market cornering);
- More than one buyer of rights (no single buyer obligation): the rule complements the separation of rights, ensuring that the packages (of which there should be at least two) will be sold to different companies;
- Competitive procedure and trade (competitive tendering): trade should be open and transparent to ensure a fair and competitive environment for all potential buyers of individual TV rights packages;
- Limitation of the contract duration (sun-setting): the contract must be of a limited duration and must automatically terminate after a certain period without any possibility of renewal. After the end of the period, a completely new competitive procedure should be carried out. The commission's practice currently contracts for television rights for a duration of up to three years;
- Open option for unused rights and parallel operation (fall-back option and parallel exploitation): to eliminate the restrictions of the cartel agreement, unused rights must be returned to individual clubs for parallel operation. Given that the club's home match is excluded from the live broadcast package, the club should be able to sell the rights to this match individually;
- Supervision of the competitive procedure (trustee management): the competitive procedure for the sale of television rights should be transparent, open, and subject to external control, including from interested clubs.
These conditions are the result of three key decisions by the European Commission, which cover the collective management of television rights in the Champions League, the Premier League, and the Bundesliga. The first landmark decision concerning the Champions League case (2003) introduces most of these requirements, i.e., the partial separation of rights, competitive procedure, limitation of the duration of the contract and an open option of unused rights. Two other decisions, which relate to the collective management of rights of the Bundesliga (2005) and the Premier League (2006), support this structure and detail some requirements, adding a rule for buyer plurality and supervision of the competitive procedure.
The big leagues follow the rules and win; the Bulgarian model is flawed
The management of television rights in major European championships nowadays follows the outlined conditions. The television rights of the Premier League belong to the clubs themselves, who grant them for the collective management of the league. Big changes in this process are accepted by 2/3 of the clubs. The collective agreement is set for three years - the last one being for the period 2019-2022. It agrees on separate packages - a total of 200 matches are divided into different packages between Sky Sports (128 matches), BT Sport (52 matches) and Amazon Premier Video (20 matches). It remains possible to for the individual clubs to use some of the rights.
When comparing the above to the procedure for negotiating TV rights in the Bulgarian first league, it becomes evident that indicated conditions are not met. In the case of the Bulgarian championship, the leading role is played by the BFS, with no real competitive procedure; there is no supervision of the process; one common package is sold to a single buyer. All this means that neither the interests of the clubs nor those of the public are protected. Focusing public attention primarily on the subsequent distribution of funds actually side-lines the real problem of managing television rights in our country, which, in the absence of an adequate procedure, are in direct violation of the commercial and public balance.
The shortcomings of the Bulgarian model become evident when we compare it to the Romanian model. The initial conditions that ultimately dictate interest in our northern neighbour are similar to those that we have at home – a lack of success and problems faced by the leading teams, but a great and maintained interest in playing on the TV screen. The Romanian television rights contract for the 2019-2024 period is worth about 28.5 million EUR per season - almost 10 times higher than ours. The amount for each of the 16 teams in the Romanian League 1 varies from more than 3 million EUR per season for those ranking first, to about 1 million EUR per season for those coming last in the rankings. This is the only income that is growing during the difficult year of 2020, as in some clubs, the money from TV rights last year accounted for more than half of the budget. In practice, the lowest ranking club in Romania receives substantially more profit from TV rights than the champion in Bulgaria. The contract in Romania is signed by a Professional Football League, and matches are shown across several channels.
Time for change in Bulgaria
In the face of the European experience, and the successful examples we see in our region, it is safe to say that the Bulgarian model needs reform. Instead of a model in which the Federation owns television rights, ownership should be with sports clubs, giving them the ability to provide advertising rights for television and radio broadcasting of sports competitions organized by them to the respective federations or professional leagues, under conditions agreed between the respective clubs. The latter requires clarification of the texts in the Law on Physical Education and Sports, which currently removes the rights from clubs and gives them to the football union.
This is the legislative part - the other parts concern the clubs themselves and the adequate commercial management of the league. Clubs can provide collective management of the rights of a separate legal entity that manages the commercial issues of the league – this should not be the BFS, but a professional league of First League teams, as is practiced throughout Europe. The League conducts a competitive procedure to meet all the European conditions of best practice. The contract for television rights should be approved by the clubs, keeping the possibility for each club to use part of the rights, e.g., digital rights. This model protects the interests of both the public and the football clubs.
The TV rights factor is just one of the topics discussed in the IME report. It also discusses a comprehensive shift in the organization and management of football in our country, pertaining to the ownership of clubs, the role of the professional league, transparency and control mechanisms, restrictions on advertising and investment in infrastructure, among others.