Responding to the rights revolution

The new TV rights regulations for Spanish soccer will come into force in 2016. Real Madrid's response to their expected loss of revenue has been to kick-start a digital transformation.

Responding to the rights revolution

The recent passage of regulations over the future handling of TV rights and the distribution of income in Spanish soccer drew a significant backlash from the federation and players which, for a time, threatened bringing the professional game in Spain to an abrupt standstill.

The Spanish Football Federation (RFEF) and the players’ union, AFE, announced a strike to commence on May 16th 2015, which would have brought an end to the domestic season and taken out the final of the Copa del Rey, Spain’s national knock-out competition.

The refusal to complete the season, the AFE argued, was a necessary response in objection to the passing of the collective bargaining regulations which would produce an unacceptable split of money for players from lower-ranked clubs within the league system.

This new law was passed in April by the Spanish government and has the support of the Liga de Fútbol Profesional (LFP), the association which runs Spain’s top two professional Leagues – the Primera and Segunda divisions.

Set to come into force in 2016, the new regulations will apply to league games in the Spanish first and second divisions, in addition to games in the Copa del Rey and the Supercup.

LFP president Javier Tebas hit back against the strike with a counter punch by threatening legal action, suggesting the strike was set to cost as much as €50 million per missed matchday in lost revenues.

The strike was subsequently suspended by the Spanish High Court, pending a hearing on 17th June, meaning the season has been able to conclude as scheduled.

So what do the new regulations mean for the professional clubs in Spain?

The new regulations will replace the ‘rights of arena’ agreement which has traditionally allowed Spanish clubs to negotiate their own broadcasting rights independently. Instead, these rights will be negotiated collectively on behalf of the teams, bringing the system more in line with that in the Premier League in England and Serie A in Italy.

In a nutshell, this means that Real Madrid CF and FC Barcelona, the two overwhelming giants in Spanish football, will no longer be able to secure millions more in revenue due to their superior billing in the eyes of the broadcast providers.

Under the new system, the amount a club earns from the rights will be worked out on a ratio based on their results from the previous season, ranging between 4.5:1 and 3.5:1 depending on total broadcast.

For Real and Barcelona, the deal is undoubtedly a blow, but to the remainder of the 42 clubs in the top two tiers of Spanish professional soccer, many of whom were urging the governing bodies of the need to introduce a collective rights deal, the new rules will be largely welcomed and provide a semblance of balance to what was a grossly unequal system.

On a recent trip to the Spanish capital to chat to José Ángel Sánchez, the Real Madrid chief executive who has been at the club since 2000, SportsPro found out about how Los Blancos plan to negate the loss of revenue that the new TV rights regulations will likely produce.

Real Madrid were recently valued at US$3.26 billion by Forbes magazine, making them the richest club in the world. While the incoming collective bargaining rules may appear set to lessen their economic might, Sanchez is optimistic Real have the vision, enterprise and conviction to seek out new revenue streams and stay at the top.

“Well I think for the official competitions, the broadcasting rights will be managed by the regulators of the competitions - this is clear,” says Sanchez. “But we have room enough in game day and non-game day to provide premium content and content of value to people.”

This vision has taken form in the new Realmadrid App. Launched in May at Real’s Estadio Santiago Bernabeu by club president Florentino Perez in front of the star-studded squad of players, the app is the fruit of the club’s partnership with Microsoft – signed in November 2014.

The Real Madrid players joined president Florentino Perez on stage for the Realmadrid App launch.

“Everything that the club makes and the players do is of interest to our supporters,” Sanchez says. “And this is our content, we don't need any kind of rights to it. We just need imagination to provide the content people are looking for.

“So I understand the competition with La Liga will be very strong. The Champions League is very strong in their marketing, but there is room for the clubs because in the end the passion of the fans is with the clubs.

“People give their heart to the club and to the players. It is usually not the type of relationship you have with the organiser of a competition; it's not about La Liga, it's not an emotional property itself. But the clubs are. We understand that the quality of this relationship is our main point, it's our strength in this development.”

Gaining first-mover advantage in order to press ahead of rivals like Barcelona, Manchester United and Bayern Munich is something Sanchez believes is crucial to future success. The digital world is where the club seek to truly expand.

Cut-outs of the entire Los Blancos team enjoying the new app were in position to greet guests at the launch.

“Well the new audiovisual regulations for the national competitions is freezing the revenues that Real Madrid is going to have for this concept for the next, let's say three to six years,” suggests Sanchez. “So we cannot expect a growth for the club in this area. But this has always been B2B. We have sold the rights to a producer and a producer has produced a signal and taken the product to the fans. The digital transformation allows us to completely change this into an enormous B2C. So we can deliver our own premium content one by one to people around the planet. And it is just a matter of size.

“So we understand that the answer to this situation for our need of growth is transforming the business, basically through the digital world.”

Real’s attentions are now firmly focused on the digital world and Realmadrid App is at the very heart of the digital transformation they strive to bring about.