MEDIA: by Tim WallaceNews Weekly
Sport - how media moguls play to win
, June 1, 2002
Rupert Murdoch's game plan to take control of football around the world, in order to drive subscriber numbers for his global television interests, could lead to a victory of Pyrrhic proportions.
Announcing a $US909 million writedown in the value of three News Corp sporting rights deals in the US in February, he spoke dismissively of media companies' willingness to push fees for rights "beyond an economic level" - a criticism which, even if he included himself in it, was still a bit rich for Australian Financial Review
journalists Bernard O'Riordan and Neil Chenowith (a veteran Murdoch watcher).
They pointed out that it came "from the man who has been the largest single contributor to the financial bidding frenzy for sport in the past decade, whose lasting contribution to sports culture has been that whenever he is involved in negotiations for sports rights, the cost almost always doubles".
O'Riordan and Chenowith credit Murdoch's BSkyB satellite pay TV network with firing the opening salvo in the modern sports rights bidding war.
In 1992, BSkyB paid what was then considered the enormous sum of £76 million a year for the rights to the football competition being set up by Britain's top football clubs, the Premier League.
However, the flood of new subscriptions to BSkyB that followed covered most of the cost. Murdoch had seemingly found the goose that laid laid the golden egg - in the shape of a football.
Four years later, BSkyB won the rights again by paying £168.5 million a year. In 2000 it agreed to pay £370 million a year.
In Murdoch's adopted homeland, News Corp's Fox network bid $US395 million a season - almost double that of incumbent CBS - to secure a National Football League rights package in 1994.
Of this $1.58 billion package, Murdoch immediately sought to write off more than a third, which suggests the rights weren't, on at least one measure of 'economic value', worth the money Fox paid. But market share is what Murdoch wanted. Thus in 1998 the price doubled again.
The bidding war for sporting rights has been repeated around the world. In Italy, for example, digital broadcaster Stream, owned by News Corp, lost an estimated $US200 million last year, mainly because of expensive agreements with Italian football clubs, while rival pay-TV operation Telepiu, a subsidiary of Vivendi Universal, lost about $US300 million due to similar agreements.
This has been a bonanza of sorts for sport itself, at least in the case of Australian Rules. According to Kangaroos Football Club president Allen Aylett, in 1976 the turnover of the Victorian Football League and its associated clubs was $8 million. By the mid 1980s it was about $55 million; now the AFL turns over somewhere between $450 and $500 million.
Payments from the AFL to the clubs, meanwhile, have risen from $24 million a decade ago to $83 million last year, in anticipation of the deal struck between a consortium of Foxtel and Channels Nine and Ten, which has virtually tripled the AFL's revenue from the media.
The package gives the AFL $90 million plus $10 million in free advertising each year for the next five years, including $30 million a year from Foxtel for three exclusive games a week.
But all that extra cash has not ensured financial security for the clubs themselves. In 1998, in a deal brokered by Bill Kelty, the AFL and the players association agreed that 85 per cent of future increases in distributions from the AFL would flow to the players.
According to Age
business columnist Malcolm Maiden, this increased the upward pressure on individual player payments, which jumped from an average of $101,957 to $149,749 in four years, while starving the clubs of revenue. Thus, even with a $500 million deal that commits the league to a 16-club contest till 2006, senior AFL figures say financial pressure on weaker Victorian clubs, notably the Western Bulldogs, the Kangaroos, St Kilda and Melbourne, could force rationalisation before then.
If such pressures exist now, it can only be guessed what state the league will be reduced to when the tap gets turned off. The AFL might note that bidding wars require rival bidders to ensure the attendant riches that have flown its way of late.
But rivals to News Corp's pay-TV interests are fast departing the field or joining the club. Kerry Stoke's Seven Network, having lost its free-to-air and pay-TV AFL broadcast rights, has pulled the plug on its C7 Sport pay-TV operation, declaring it is no longer financially viable.
This follows the Optus/Foxtel program sharing deal, which awaits the approval of the Australian Competition and Consumer Commission, giving Optus access to all Foxtel content, including Fox Sports channels, and Foxtel effective control over Optus' programming.
The unhealthy dependence of sport on media money is exemplified by the fate of the British Football League, with up to 50 of the country's 72 first and second-division football clubs expected to fold after ITV Digital went into administration in April still owing the league £178 million. It's not the game it used to be.
- Tim Wallace is a freelance journalist - email@example.com