Wednesday, June 10, 2009

Did ESPN Know Setanta was Doomed?

Remember a few months back when the rights to broadcast English Premier League games was being negotiated. Many people figured ESPN was a shoo-in to score the rights and establish itself as the continent's primary football network. Then the news came in February that premium cable provider Setanta failed to hold on to its rights to broadcast a significant number of EPL matches; the EPL being the primary subscription driver for Setanta.

ESPN stayed quiet during that period, neither lamenting the outcome, nor promising an alternative. Setanta, meanwhile, won downgraded rights to two EPL packages that equal 23 matches per season for the next three years. SkySports, meanwhile, will broadcast 115.

With Setanta figuring on winning the massive EPL package and banking on close to two million subscribers, the Irish broadcaster went on an acquisition spree bidding for and winning the rights to broadcast everything from boxing to baseball, doing so on the assumption it would have all this EPL revenue.

Well, we all know Setanta is on life support and could be off the air today, by some accounts.

With the reduced EPL package, Setanta is nowhere near the number of subscribers it needs to sustain its books (up to 1 million shy, some have said) and investors are fleeing this sinking ship. Dark days indeed.


Well Misha Sher, business development director at Soccerex, was interviewed on Sirius by the boys at World Soccer Daily. He put forth the theory that ESPN was in the know.

"If you look at it now, it's very strange that ESPN did not have as big a role, though everyone expected them too. I think ESPN may have known something that the rest of us didn't," Sher said. "ESPN may have figured that if Setanta would only get one of the packages and Sky would get the rest, Setanta would be in a predicament. ESPN was sitting back waiting for the situation to play itself out."

If Setanta is taken into administration and/or goes off the air, the rights to its Premier League packages would have to be resold, and at a heavy discount, Sher speculated. ESPN, or Fox perhaps, would likely pick these up for a half of what Setanta paid. Fox already has secured the rights to the Champions League, so you have to figure ESPN swoops in for the EPL.

The Sher interview was a great recap of the whole Setanta mess. I recommend hitting up the iTunes store (search: World Soccer Daily podcast) and downloading it.

Having lost the Champions League, you have to figure ESPN is sharpening its claws for the EPL, and if it had some insider info on Sky winning the EPL packages away from Setanta, what a shrewd score for the WorldWide Leader in Sports.

Setanta, meanwhile, is a case study in building a flawed business model. The Irish company gambled heavily that it would win the EPL rights and began back-filling its offerings based on the assumption that advertising revenue from the EPL would backbone those investments.

"[Setanta] got into the market at a time when it was relatively easy to get money to acquire rights. And they weren't actually making money, just acquiring rights," Sher said. "When things were going well, the business plan was done under the assumption they could get [he guesses] 1.7 million subscribers. That hinged on being able to get certain rights, because if they didn't have certain rights, they would not be able to drive subscriptions.

"And when they missed out, everything went wrong. What this signaled to investors was that this business model was flawed. They can't guarantee x-amount of subscribers, and they can't get advertising as a result and everything falls flat on its face.

"Setanta acquired way too much, now they're looking at how they're going to hold on and manage all this? Companies backing them are not willing to put up money in their pockets for that reason. They would have done so by now if they felt Setanta could weather this storm. They have no confidence Setanta's business plan could sustain missing out on the Premier League rights."

Meanwhile, Setanta's downfall could also take down many mid-tier clubs in Scotland for example, that depend on broadcast rights for operating expenses. Sher explained that clubs buy players based on expected revenue from television rights, shirt sales etc. Without that revenue stream, some clubs are having to go into their own pockets to pay expenses, putting some of them in jeopardy as well. They will have to rely on the Scottish Premier League, for example, to sue Setanta's backers to recover the money.

It's ugly and sad. No one is spared in the global recession. When you mix a poor economy with an equally poor business plan, it's a lethal concoction. Just ask Setanta.

Subscribe to Starting Eleven

1 comment:

Anonymous said...

Personally I have no qualms about Setanta crashing and burning. They are badly run, a bit dishonest (I tried to cancel my subscription 4 months ago and they keep taking my money) and just mess the market up. Although Sky are a monopoly, adding Sky to the mixture has just made the payTV environment more complex and has done nothing to bring the prices down - competition, bah.