Held to ransom

BSkyB’s purchase of a 9.9 per cent stake in Chelsea Football Club last week was part of an elaborate pre-match warm-up for one of the biggest knock-out competitions in footballing history.

Sky has built its appeal on football over the past eight years. Now football’s giants are holding a gun to the head of one of the most powerful men in global media and there is little he can do about it. The battle to capture the world’s hottest broadcast property – the Premier League’s television rights – is likely to shape the media landscape for the next 25 years.

Sky supremo Rupert Murdoch faces the prospect of being forced to pay up to &£2bn for the live Premiership TV rights or sit back and watch as his arch rival, the Bill Gates-backed NTL, steals football’s crown jewels.

The current contract runs out at the end of next season, but the new deal must be finalised by this June. As the bidding begins for the TV and new media rights for the next five years, Sky knows it has to win the bulk of the contract, or face a severe erosion of its position in UK and global television. Sky without football would be like Unilever without Persil or Mars without its chocolate bars.

“Who knows what Super Rupert will do?” wonders Colm Feeney, broadcast director at Western International Media. “One thing’s for sure – without football rights, he wouldn’t have much of a business.”

And as former ITV chief executive Richard Eyre, now chief executive of Pearson Television, once commented: “Sky would kill to retain those Premiership rights.”

The 20 Premier League chairmen – hard-nosed businessmen such as Chelsea’s Ken Bates, Tottenham’s Alan Sugar and Leeds’ Peter Ridsdale – will enter the negotiations holding most of the aces. They know their games have the ability to attract global TV audiences. And they know Sky’s business will be under threat if it loses the right to screen them. This is a strong negotiating position for the chairmen, who are used to having a gun pointed at their own heads by football agents striking ever-more costly deals for star players.

Last week’s announcement that Sky was taking a stake in Chelsea is a sign that it is hedging its bets in case it loses its new TV rights bid. Sky now owns stakes of under ten per cent in Premiership clubs Chelsea, Leeds, Sunderland, Manchester United and first division Manchester City. The deals give Sky a grip on media rights for the clubs, particularly appropriate for use on the Internet.

Meanwhile, NTL has taken similar stakes in Newcastle and Aston Villa. Granada has a stake in Liverpool, and more could be on the way for both companies. So whoever fails to secure a top position in the Premiership rights deal will have a fall-back position.

When Sky bought the first exclusive live contract in 1992, English football was considered to be in terminal decline, an outdated institution going the way of the local pub and the Wimpy Bar. Sky rescued it with its &£304m injection for the exclusive live rights, forking out a further &£670m for the rights in 1996.

Sky’s marketing clout has turned the Premier League into a global spectacle. Top English games are now watched around the world, bringing in huge sums of money to Murdoch’s empire. Sky has invested about &£1bn in UK football through rights and production.

The Australian-born tycoon has built Sky on sporting events, and has been quoted as saying that “sport is the best collector of mass audiences”. But with UK football, the channel has brought to life a Frankenstein’s monster which is now threatening to destroy its creator.

The next TV rights deal will not offer the same level of exclusivity as the existing contract. The upsurge of new technology, such as the Internet and WAP mobile phones, means that even if Sky succeeds in securing the bulk of the rights, it will no longer be able to “possess” football as it has done for the past eight years. There have also been reports that clubs will retain rights for highlights and sell them off piecemeal. Either way, Murdoch is losing control of the ball.

Sky will be doomed if it loses the exclusive live rights, but there will be a price to pay even if it loses only some of the games. As one observer says: “Sky is seen as the natural home of live Premiership football. Consumers believe that if it’s live, it must be on Sky. If it loses that brand equity, it will suffer.”

Western International Media’s Feeney adds: “It will undoubtedly dilute the Sky proposition. Sky may get the rights to show the best matches but it is going to be a highly complex carve-up, a deal involving broadcast and the Internet, and no one knows what these rights are.”

One pointer to the outcome will be how the Football Association carves up its rights for the FA Cup and England home internationals. The FA’s recently appointed chief executive, Adam Crozier, has drafted in strategic media consultancy Sit-up.com to handle the negotiations (MW February 17).

The consultancy, launched by former ONdigital directors John Egan and Ashley Faull, will be putting a price on both the digital and broadcast rights. Sources suggest their value could climb from &£217m four years ago to more than &£350m this year. The FA will no doubt attempt to exploit every medium to get the highest price.

The main threat to Sky for the Premiership rights comes from cable operator NTL, in which Gates recently bought a &£300m stake. The struggle between NTL and Sky goes much deeper than the game of two halves – it will determine the future shape of media in the UK.

Sky reaches some 8.4 million homes in the UK, of which 3.9 million receive Sky Sports. They pay &£15 extra a month for the privilege, earning more than &£700m a year for Sky. The company has exploited this sports strategy to the full. But how many people would be willing to pay such a premium for the Ryder Cup, Rugby League and World Wrestling Federation, in the event that Sky loses the Premiership rights?

Meanwhile, cable has been taken up by 3.3 million households. Over 50 per cent of UK homes are “passed” by cable but actual take-up is still stuck at 25 per cent. NTL, which has aggressive expansion plans and is in the process of swallowing up Cable & Wireless, recognises that tying up the bulk of the rights would be an effective way to convert the nation to cable.

Many see Sky’s rumoured &£2bn pre-emptive bid as an attempt to frighten off the other broadcasters. But Gates, who could probably afford that amount out of his own pocket, is unlikely to be so easily scared off.

ONdigital says it is also interested in bidding for the rights, though it makes it clear it will first have to see the Premiership’s tender document. ONdigital owners Carlton and Granada may be short on the sort of cash needed, but a spokesman claims: “If we need the money, we will find it.”

More football coverage

Since the original Sky/Premiership tie-up, TV coverage of football has grown considerably. ONdigital and ITV share the Uefa Champions’ League, Channel 5 has managed to secure some Uefa Cup rights, and there is even radio coverage of live matches on BBC Radio 5 and Talk Sport. The new Premiership deal will lead to football spread across different broadcasters, and clubs negotiating their own secondary rights.

But the deal may not be restricted to TV. Sports marketing observers believe the broadcaster which wins the live TV rights could also demand to handle the headline marketing rights. The title deal, held by Bass Brewers’ brand Carling, also expires at the end of the 2001 season. Bass paid &£39m for the current contract.

One source says: “At the moment there are two brand names for the same thing – the FA Premier League and the Carling Premiership. If you are paying up to &£2bn for the broadcast rights, you would want exclusivity – you don’t want someone else’s brand overshadowing yours.”

The source believes the broadcaster could even take on the Premier League’s commercial activities. “TV companies have huge commercial experience. They could broker all the sponsorship deals – everything from perimeter boards to sampling rights in the grounds.”

This would leave the Premier League’s commercial department – which has to get approval from the powerful club chairmen for any marketing programme – with only the sticker collection and ball rights.

However, the move would be at odds with chief executive Richard Scudamore’s drive to build the Premiership’s commercial department. The league is currently seeking a head of marketing to succeed Stephen Pearson (MW February 17), who left almost a year ago. However, observers believe the recruitment drive may be designed to pre-empt the move to hand the marketing rights to a broadcaster.

Cash-driven chairmen

One insider says: “Ultimately, the chairmen are only interested in one thing – money. They recognise that Sky has turned the league into a global brand, but their loyalty lies with their wallets.”

The outcome of the Premiership TV rights negotiations will determine the future of football and the way it is consumed in the UK and beyond. BSkyB can argue that it helped rescue football from obscurity and that it has done much to build the sport in the UK. But if club chairmen can see no further than their profit margins, Sky should prepare for a rough ride when it sits down with them around the negotiating table.