There’s no business like the sports rights business and business is crazy!

Michael Hedges March 30, 2008

Broadcasters quiver at the mention of sports rights. They argue, deal and – always – pay. Recent signings show how competition and scarcity work that market magic to drive up the price.

The marketplace favors rights grantors with the certainty equal to other risings, be it the sun or the price of oil. Broadcasters can only brace up and bring out baskets of cash. For major television broadcasters rights fees to the right events are sailing into the stratosphere and the deals are only for the richest and most powerful.

Formula One (F1) executive Bernie Ecclestone invoked a mid-contract break clause in its UK rights contract with ITV to award Grand Prix rights to the BBC, negotiations taking but a few days. “There was an option and I had the option,” he said, quoted by The Daily Mail. “It was my option and I decided to cut loose from it.”

Sir Michael Grade, ITV chairman, appears not to have suffered as he re-routed the cash to the Champions League. The BBC takes over F1 broadcasts after the current 2008 season. It’s a five year deal at a cost of £200 million. ITV is extending its UEFA Champions League contract by three years for £180 million. Letting go was “a commercial decision,” said Grade, pointing out that F1’s internationally far-flung schedule produces only three races in prime-time.

Director of Sports Rights Dominic Coles promises a “Martini” approach when the BBC takes over F1 coverage in the UK. Every broadcaster seizing a new program franchise offers new and improved coverage. Viewers, arguably, will most appreciate the end to ad breaks. The BBC will offer the races live streamed on broadband, HD to follow.

Sky Italia, owned by News Corp, bought Italian rights to the 2010 Vancouver winter Olympics and 2012 London summer games, outbidding public broadcaster RAI and Mediaset, announced last month (February 26). Sky Italia bought exclusive coverage across all platforms. For the first time ever RAI will not have rights for Olympic Games broadcast coverage in Italy. Or, maybe they there’s another chapter to this story.

When the International Olympic Committee (IOC) cut its deal with the European Broadcasting Union (EBU) in 2004 for rights to the 2010 and 2012 Olympics RAI was excluded. Italian media rights were kept separate from the blanket rights bought by the EBU for its members, European public broadcasters, ultimately more than €600 million. RAI objected to the amount the IOC demanded as a guarantee. And, according to legend, RAI wanted an escape clause in case the 2012 games were awarded to a non-European country.

Sky Italia owns no free-to-air broadcast outlet in Italy. To whom will they sell those rights? At the moment, nobody’s talking except Sky Italia says it “intends” to sublet free-to-air rights, subject to market rates. Of course, it no bids approach that market rate Sky Italia will be free to hold all the rights and keep the Olympics on its pay channel.

And News Corp and Mediaset are talking about other sports deals. Mediaset reported (March 15) talks with Sky Italia about ‘sharing’ some of Mediaset’s pay-per-view product with Sky Italia’s satellite channel. Rupert and Silvio, together again; what a concept!

The Italian government passed a law last November changing the rules under which football media rights are sold. It was rather unprecedented, giving Italy’s Lega Calcio brokerage rights for all football TV deals. The objective, said sports minister Giovanna Melandri, is to more equitably share TV rights revenue with Italy’s smaller football teams. Italy’s bigger football teams, like Silvio Berlusconi’s AC Milan, cut TV rights deals directly with broadcasters, like Silvio Berlusconi’s Mediaset. The law would also ban sublicensing.

Sky Italy objected, and has taken its complaint to the European Commission competition office, because the new rules allow Italy’s football league to sell rights as a total package. Sky Italia, if effect, would be cut out of the bidding because of the rules written when it was created allow it only to bid for satellite rights. The office of the EU Competition Commissioner acknowledged receipt of News Corps complaint (March 14) but, so far, has had no comment.

They might want to act quickly, or not, because Mr. Berlusconi is widely expected to be returned to public office as Italy’s Prime Minister after April elections. At that point he’ll be able to draft any legislation he sees fit, enforcing what he likes and ignoring the rest. Plus, at least figuratively, he’ll also have authority over public broadcaster RAI. During Mr. Berlusconi’s previous reign the European Commission assiduously avoided any confrontation. Competition Commissioner Neelie Kroes has only a short window to make a point… or example.

German competition authorities have put football rights on hold as they question the deal between media legend Leo Kirch and the Bundesliga. Kirch, through KF15, acquired all marketing rights for €3 billion and the screaming began. Another Kirch owned company, Sirius, would produce, jointly with the league, all television coverage of all German football matches, selling them on to broadcasters.

"Central marketing of media rights has the same effect as controlling prices," said Bundeskartellamts (Federal Cartel Office) Chairman Ralph Langhoff. The biggest German football clubs have complained about their share of the TV rights money, currently distributed more or less equally. As a result, teams like four-time European champion Bayern Munich receive substantially less from television than clubs like Berlusconi’s AC Milan.

Saying the deal is unfair, current pay-per-view rights holder Premiere took its complaint to the Federal Cartel Office. Premiere’s largest shareholder is News Corp. The competition authority launched an inquiry earlier this month and has not, at this point, given any indication if or when it might make a ruling. Rights bids for the 2009 season are tentatively scheduled for April. Mr. Kirch obtained a €500 million bank guarantee and has offered a variety of concessions aimed at appeasing one and all.

Mediaset owns Italian broadcast rights to Formula One through the current season. RTL has held German F1 rights since 1991 and recently signed a 4 year renewal through 2011, without a local star in the mix. F1 television audiences in Germany dropped more than one-fifth after ace driver Michael Schumacher retired.

F1 being show business mixed with loud, high-powered machines, national hero drivers also drive up the value of broadcast rights. Spain’s ace F1 pilot Fernando Alonso is managed by a company owned by Flavio Briatore, who also owns Spanish F1 rights through a different company Stacort. Telecinco bought rights from Stacort year by year since 2003. The year before no Spanish broadcaster bid on F1 rights. That all changes after this season: La Sexta bought rights beginning with the 2009 season at about three times the rate Telecinco paid.

La Sexta and Spanish football club Valencia took on the Spanish football association (RFEF) over television rights two weeks ago. TV rights belong to pay-per-view broadcaster Audiovisual Sport. Imagine their surprise when national free-to-air channel La Sexta and two local channels broadcast a match between Valencia and Barcelona. La Sexta ignored the leagues demand not to broadcast that match or any other because they did not have the rights. The broadcaster quoted EU rules that allow free-to-air broadcasting of events of general interest.

The commonly accepted business model for broadcasters is based on time. Once that minute is gone, it’s gone forever. It’s similar for sports franchise holders: get the money now. It’s stress producing.

Competition authorities see all of that stress and hear about all that money. But they are lawyers, not psychologists. Rules are rules. Money rules, everything else is crazy.