Listen and learn from ATP’s cautionary tale

We are told that learning from history is the only way that a society can improve. If you know your history, the theory goes, you will not make the same mistakes as your forefathers.

I mention this because it is one of the most prominent sentiments being expressed by those working in the sports marketing and rights industry at the moment. Mixed with a hint of “I told you so” and “thank God that wasn’t me” the industry is still coming to terms with the bankruptcy of ISMM – brought to its knees by its wholly owned subsidiary, the sports marketing agency ISL Worldwide.

There remains a sense of disbelief that ISL, one of the pioneers in European sports marketing, could disappear so quickly. But as is so often the case with such dramatic incidents, nobody is quite sure which lessons need to be learnt or who needs to be doing the learning to prevent them being repeated.

Although ISMM finally went bust with debts of $300m (&£214m) last month, the start of the road to the bankruptcy court in the Canton of Zug in Switzerland can be traced back to a deal struck in 1999. ISL guaranteed the Association of Tennis Professionals $120m (&£85m) a year for ten years from the sale of the worldwide media rights for its tournaments. What proved fatal, for ISL at least, was the payment guarantee in the contract which meant that even if the agency could not sell the rights, it had to meet the $120m a year guarantee.

By doing so it took on an incredible financial risk for a deal to sell an unproven tennis tour that does not include the world’s top tournaments – the four Grand Slam events. Nor is the tour guaranteed to have the likes of Pete Sampras and Andre Agassi always competing. By the time broadcasters made it clear that they did not agree with the ATP and ISL valuation it was too late.

The size of the deal stunned the sports business industry. If even half the people who now claim to have questioned its wisdom back in 1999 had said so at the time, ISL may not have got itself into this position. Hindsight, as always, is a wonderful thing.

But there are at least two things that should be learnt from the bankruptcy of one of the industry’s big players. Firstly, agencies should not be signing contracts that expose them to such high risk. It is now difficult to find anybody who will publicly admit signing such contracts. But they are out there, only not at the suicide level of money the ATP was guaranteed.

Secondly, and most importantly, the collapse of ISL should teach sports governing bodies that the best deal is not always the one worth the most money and that they must have realistic expectations. The ATP has been frantically trying to make commercial deals to reinforce its tour, still only in its second year, since it realised earlier this year that the wheels were coming off the ISL agreement. A smaller cheque which would not have crippled the agency would, in the longer run, have served the sport much better. Organisations need to think twice about going with the biggest offer and realise that sometimes it makes sense to take a more structured deal that places a more realistic value on their properties.

A number of sports including rugby have had to tussle with this issue recently. But watching the on-off negotiations between the horseracing world and the Go Racing consortium over the ten-year &£387m media rights deal last week, it was difficult to believe anything had been learnt.

However, the final resolution is a step in the right direction. Some of the racecourse owners remain convinced that they are being ripped off by the Go Racing consortium (made up of Channel 4, BSkyB and Arena Leisure) especially in the prickly area of valuing new media rights. The deal which has been trundling on for almost 12 months looked like collapsing when the British Horseracing Board announced at the last minute that the pre-race data on runners, riders and colours was not part of the original deal.

In the end the horseracing bodies struck a deal with the consortium that guarantees racing a substantial income – just as well because its Tote income will dry up in the near future – and the provision of the pre-race data has been guaranteed over an initial five-year contract which may be extended for a further five years.

This seems a sensible compromise in a world where expectations have been widely distorted by football. There is no other sport in the UK which can command such huge amounts of money. But even in football there is a growing feeling that the &£1.4bn that the Premiership clubs earn will come to be seen as the top of the market.

The repercussions from the ISL bankruptcy will continue for some time as creditors pick over the remains of the company which, among other contracts, was responsible for selling the rights to the 2002 South Korea/Japan football World Cup finals. Fifa, whose president Sepp Blatter has come under pressure to resign in the wake of the ISL collapse, is now pursuing legal action against a number of the company’s directors. It seems inevitable that other action to reclaim monies will follow.

Whether the lessons have been learnt will only come clear over time. Unfortunately the other thing that history has taught us is that, even if we do learn from the mistakes of out predecessors, we are well able to make a whole new set of mistakes of our own.

Tom O’Sullivan is sports page editor of the Financial Times