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Deja View All Over Again?

4:30pm Thursday, 11th June 2009

The news this week that, by the time you read this, Setanta may well be in administration came as no surprise to many within the industry. Like so many businesses of all kinds recently, the model included extensive borrowing to acquire right at a time (just a few years ago) when money was cheap.

There were also some similarities with the collapse of ITV Digital in 2002 when the cost of rights payments at £350m, and the failure to sufficiently grow a viewer base for the service, meant disaster. The effects of ITVD's demise were widespread and significant, especially for the troubled Football League Clubs many of whom - in true tradition - had already spent large chunks of the money they thought they would collect from the deal. It led to serious financial problems for some, and discussions about wage caps which eventually bore fruit.

It also damaged the two owners of ITVD, Carlton and Granada, at a time when - like now - advertising revenues were falling. Even the government worried about the impact of the collapse on their drive for digital take up and their plans to cease analogue broadcasting by 2010. The stones thrown in these media ponds have many ripples.

So too with Setanta. Most vulnerable at first sight appear to be the Scottish PL clubs. The top half of the division were due to collect £600,000 each immediately the season finished, with the lower half expecting £100,000 each, from Setanta. But the payments were not made and, as expected, some clubs had already spent the money in advance and others were relying on the cash to keep them afloat. According to the Glasgow Herald, the SPL has had to rifle through the 'emergency fund' for around £3m to fill in the gap. And, if Setanta are no more, no one knows whether the values extracted from the last deal will hold up if &when the rights are re-auctioned.

The English PL are also awaiting a payment of £30m from Setanta, we understand. The PL may feel more confident than their Scots counterparts that, if Setanta do default, another auction of the final year's rights of the current deal (around £130m a year for 46 live games) - and of the package Setanta bought for the 2010 -2013 (23 games for £159m) - should bring in equivalent values.

The English FA must also be conducting their own emergency meetings in anticipation of the collapse of their deal with Setanta. The contract negotiated two years back with ITV and Setanta - a four year deal worth £425m, of which Setanta were due to pay £150m - was widely greeted as spectacular at the time (though some were surprised that the BBC/Sky rival bid didn't succeed). What happens to the FA's planned expenditure going forward if Setanta defaults?

Fortunately for the FA, it is understood that the deal with Setanta involved a payment profile strongly geared to the front end of the deal - and strong support for the remainder from equity partners of the TV company. It was negotiated by one of the most senior and experienced sports media men around, the then FA CEO, Brian Barwick, who had sat many times on the other side of the table, negotiating to buy rights for both the BBC and ITV. Consequently, the FA's exposure is nowhere near as great as the Football League's when ITV Digital went down.

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