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 Normally June is a quiet month in football. Players, at least those from the top divisions, go to sun themselves in exotic locations and even managers take a break, although they make sure they have their cell phone with them in case selling and buying opportunities arise.
However, this June has been unusually busy. Not only have we had an exceptional number of stories to post at www.footballeconomy.com but I was called to the Sky studios to talk about Ronaldo and asked to go on Radio 5 to talk about the collapse of Setanta. What is interesting about the Ronaldo story is how Real Madrid have managed to set some money out of Spanish books when the economy there has been particularly badly hit by the recession.
The collapse of Setanta as the ‘second force’ provider of live football on television was no great surprise. Viability required 1.9 million subscribers and they only managed to get 1.2 million. They have always lived in the shadow of BSkyB, giving Sky a fig leaf of competition law respectability, but the final blow was getting only one of the six live packages, and an inferior one, in the auction for the contract period from 2010.
ESPN, part of Walt Disney, stepped up to fill the gap and it seems that the Premiership have not lost out financially. ESPN will retail their programmes through Sky and possibly other platforms such as Virgin Media and BT Vision. What is not yet known is who will take on the Scottish Premier League coverage. It looks likely to be Sky, but the financial package will undoubtedly be less favourable than the generous one from Setanta. However, at least it looks as if SPL clubs will escape administration, with three thought to be in trouble if no new deal could be negotiated. The Conference also has to negotiate a replacement deal and it is also likely to be less favourable than the one they had with Setanta.
There was a sting in the tail for BSkyB, however. BSkyB's status in the pay-television market has come under threat after Ofcom outlined plans to force it to offer premium channels, including live football, to operators on rival platforms. The regulator also indicated that it would seek to toughen competition controls over auctions for rights to broadcast Premiership football. Ofcom proposes to force BSkyB to sell on the content of its premium channels to rival broadcasters at regulated prices to ensure competition. The plan could save Virgin Media, the only broadcaster that buys the content, up to 30 per cent. Since the wholesale market represents only 4 per cent of BSkyB's revenue, some analysts believed this would not have a dramatic effect on its business model. At the very worst, the proposals could shave £30m off earnings annually, according to Deutsche Bank. But some analysts believe that BSkyB could see higher revenues if Virgin Media sold more of BSkyB's premium programming. Under Ofcom's plans, the premium channels could become available on platforms such as Top-Up TV, BT Vision or other businesses.
The regulator also wants to ensure that the next Premiership auction complies with competition law. But the entrance of ESPN into the market has provided BSkyB with a potentially significant competitor. Richard Scudamore, the Premiership supremo, said 'We are surprised that Ofcom is seeking to revisit an issue that was addressed to the satisfaction of the European Commision. We will resist any measures that disincentivise media organisations from bidding for our rights.' The companies whose complaint led to the pay-TV review said this week's collapse of Setanta was proof of BSkyB's market power. BT Vision, Virgin Media and Top-Up TV said Setanta could not buy premium football rights at an affordable price because of competition from the satellite giant. But this argument cut no ice with Ofcom who said its role was not 'to enable weak entrants to earn short-term profits at Sky's expense.'
It could be argued that Ofcom's intervention represents a punishment for success. The Lombard column in the Financial Times commented, 'Sky emerged as a broadcasting powerhouse over the last two decades because it risked billions to acquire the rights to content such as Premier League football. It has since wielded these rights to good effect, using its superior programming to build its retail subscriber base and keep lesser rivals such as the now-defunct Setanta, at bay.' However, the column goes on to note that Sky's argument that it should continue to be rewarded for its risk-taking and innovation only goes so far. Sky's 70 per cent share of the pay-TV market gives it an incentive to restrict rivals' access to premium content. The real threat to Sky is not from losing revenues from its tiny wholesale business, but the risk of losing profitable premium subscribers to rivals. To date, Sky has hung on its customers by offering them phone and internet services as well. As a result customer churn has fallen from 13.7 per cent in 2006 to about 10 per cent last year. Even so, the Ofcom intervention could lead to important changes in market structure.
One of the longest running sagas in recent months has been that of finding a buyer for Southampton Football Club. The Pinnacle Consortium headed by Matt Le Tissier eventually withdrew, complaining about the refusal of the Football League to let them appeal against the club’s ten point deduction. However, doubts were expressed about the financial clout behind Pinnacle as its leading backer was revealed to be living with his parents in North London: his father was a cab driver and his mother had run a lingerie shop in Cockfosters called Pretty Things. The club was threatened with being wound up. However, just as I was writing this piece, a new bid came from a consortium headed by a Bradford businessman.
Once again non-league clubs have been hard hit by the recession. Fisher Athletic and Newcastle Blue Star have collapsed. Northwich Victoria and AFC Hornchurch are in administration. Folkestone Invicta, Farsley Celtic, Racing Club Warwick and Weymouth (again) are all in serious trouble. However, the supporters’ trust at Merthyr Tydfil put the club into administration, giving them a chance to buy it.
I’m off to Chile next week where I hope to see some live matches.
Wyn Grant is a regular contributor to Albion Road and also the publisher of footballeconomy.com, a website covering the business and economy of the game of football.
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