Setanta in trouble

[Dunny]

Cash-strapped sports broadcaster Setanta could be forced into administration this week after failing to make payments due on TV rights, reports said.
Deloitte is on standby to act as administrator for the firm unless it agrees a last-minute rescue with its investors, the Sunday Times and the Sunday Telegraph said.
The Irish firm, which showed England's 4-0 World Cup win away to Kazakhstan on Saturday, is struggling to pay cash owed to football associations under its rights deals.
Setanta - which was unavailable for comment - has about 1.2 million customers but this is well below the 1.9 million it needs to break even, the Sunday Times says.
If the company fails to cut its rights payments or raise more cash from investors and falls into administration, it could trigger a fire-sale of TV rights, including the England national team's away qualifiers and FA Cup matches.
ITV and Setanta won the contract from the Football Association in 2007 before the recession hit, impacting on advertising revenues.
The FA is said to have rebuffed attempts by Setanta to reduce its £150 million share of the £425 million four-year deal by 25%.
Setanta also has rights to screen matches from the Barclays Premier League, which is awaiting a £35 million payment later this month, the Sunday Times said.
Last week it failed to pay the £3 million owed to the Scottish Premier League under the final instalment of this season's TV deal, and has until on Monday to come up with the cash.
It has also been seeking to cut the price of its current £125 million deal with the SPL. The SPL has agreed to pay the £3 million outstanding from its own funds to its 12 member clubs to ease the financial pressure.

[Dunny]

The rise and fall of Setanta and what it means for football


John Stepek, writing for MSN Money
June 12 2009
The rise and fall of Irish pay-TV group Setanta, founded in 1990 by Michael O'Rourke and Leonard Ryan, in many ways mirrors the story of the Irish economy.
Plucky young Celtic upstart spots a gap in the market and through a combination of nerve, hard work and rampant spending gets to the point where it's taking on the big boys at their own game. Then the downturn hits and suddenly all that profligacy doesn't look quite so smart.
The big difference between Setanta and the Irish economy is that Ireland will recover one day. Setanta may not be quite so lucky.
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What went wrong?
Setanta has run out of money, pure and simple. It's losing an estimated £100 million a year, has already missed one £3 million payment to teams in the Scottish Premier League (which the SPL has had to meet for the time being, out of its own funds) and owes money to the Football Association too.
But the big stumbling block is a £30 million payment due to the English Premier League on Monday. If it can't get the money together by then, it could be curtains.
Both Disney-owned sports network ESPN and telecoms group BT have turned down deals and rival BSkyB also knocked back requests for a lifeline, with chief executive Jeremy Darroch saying: "Our job is not to fund other companies."
A last-minute deal may still come through - the founders are in negotiations right now - but the company is basically as close to the abyss as you can get without going over.
The cheapest way to watch sport on TV
How has it come to this?
There are a number of issues, but Setanta's basic problem is that it doesn't have enough customers to be able to afford what it's agreed to shell out on sporting content.
This isn't an easy business. You need content to attract subscribers, but you need subscribers to make sure you can pay for content. It's a tough balance to strike and it seems Setanta hasn't quite got it right.
At the end of 2007, the group was contracted to spend £666 million on sports rights, including cricket, golf and rugby as well as football. Meanwhile, analysts reckon the group really needs 1.9 million direct subscribers to break even. It's only got 1.2 million.
It's also been suggested that the group overpaid for deals such as the £125 million it offered for Scottish Premier League games (for four years from 2010) or its rights to screen rugby union games. But ironically, the mortal blow for Setanta didn't come from paying too much for sporting rights. It was the result of attempting to pay too little for arguably the most important content of all - English Premier League matches.
These games are the main draw for British sports channel subscribers, which is why the dominant player BSkyB tends to pay so much for them. To make sure there's a bit of competition in the market, the games are broken up into six batches. Bidders can bid on each batch and no single broadcaster is allowed to own them all.
In 2006, Setanta won two batches and therefore the right to screen 46 Premier League matches a year. BSkyB got the other 92 matches. That deal lasts until the end of this season.
Earlier this year, bids were taken for the three years from the 2010/11 season. It was widely expected that the distribution of games would be unchanged. But in fact, BSkyB ended up outbidding Setanta, who for some reason (many blame their private equity backers) put in a recklessly low bid.
If it hadn't been for the competition rules, BSkyB would have ended up with all Premier League games. As it is, Setanta was left with one batch of 23 games, while BSkyB got the other 115.
The idea that you're going to lose half of your Premier League matches within a year is hardly an incentive to subscribe. So once this deal was lost, Setanta's business model was in real trouble. The recession only made things worse.
When winning isn't worth it
What does it mean for football?
Setanta has tried to negotiate cuts in the cost of the rights packages it has bought. But so far both the FA and the Premier League have knocked back any suggestions of a discount.
If the company does default, then its sporting rights are likely to return to the original owners who can resell them. Trouble is, in the current environment and with a big bidder knocked out, it seems unlikely that they'd get as much for them as Setanta paid, as Liverpool Univesity's Professor Tom Cannon told the BBC.
And as football clubs in particular tend to spend money like water, relying on the future income from TV rights, the rights resale could leave a hole in several balance sheets. Citibank's Marc Sugerman reckons the money fetched for the rights to some sporting events could "more than halve" from the levels Setanta paid.
This isn't that big a deal for the Premier League, which can probably find a buyer fairly easily without taking too much of a hit. It seems likely Disney's ESPN network would pick up at least one of the packages.
But the Scottish Premier League might have a lot more trouble and some of the smaller clubs could even face bankruptcy. Setanta is the sole broadcaster of live Scottish matches and no one else has shown much interest in buying them. BBC Scotland is one candidate, but hardly has the cash to splash around Setanta-style sums.
Is the recession driving clubs bust?
What can be done?
Not a lot, in short. Setanta might find someone to pull it out of the fire, although it seems unlikely that any external bidder would want to buy in now when it can probably get the assets it wants cheaper if the company goes into administration.
And even if it raises more money in the meantime, it's still stuck with the situation where it needs more subscribers but can offer less of the content they really want.
One option would be for Setanta to become a wholesaler of programmes - in other words, selling the right to screen matches and games to other suppliers such as BSkyB and BT Vision, rather than direct to subscribers. It already does this with Virgin Media. This would save money on marketing and allow it to reach a much wider audience.
But whatever happens, existing subscribers (the company has stopped taking on new ones) will be left in the dark as to the future for a while longer. After ITV Digital went bust, the administrators kept the channel running for around six months but there's no telling what will happen should Setanta go to the wall.
As for football itself - well, you might be hoping that the demise of Setanta spells the end for the oligarch-style wage bills of top-end English footballers. But in reality, as the record £80 million deal for Cristiano Ronaldo suggests, it's more likely to be the smaller teams that'll suffer as the money available dries up.
As long as it's the big games that people are most interested in watching, then that's where the money will gravitate and the "local" teams that everyone professes to love will have to fight for the scraps.
John Stepek is the editor of MoneyWeek


Related links

• The cheapest way to watch sport on TV
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• When winning isn't worth
• Is the recession driving clubs bust?
• Six companies thriving in recession

[Mosiah]

Does not look good for SportsMax!

[Hortical]

It neva mek any sense fi pay for Setanta, just fi get two extra Premiere League games a week. Mi dun pay a few dollars fi FSC, and their model was not sustainable. Dem would have to be the exclusive carrier of the Prem fi it to be worthwhile.

[HL]

I will miss Setanta a lot if they go in admin. Setanta is a helluva lot more than 2 EPL games/week...

Last year it was GOL TV...

[Peter R]

Are they connected ? I have an extra FLOW package that combines Setanta and Sportsmax...