You’ve got to have Plan B

Michael Hedges August 27, 2008

Everybody loves huge sports deals. Sports leagues and franchise holders love television, probably more than anything… after money. But mix big sports with big TV and, well, other things happen. You need plan B.

If unconfirmed German media reports are correct, the goldmine deal between the German football league and broadcaster Leo Kirch is completely dead. Competition authorities asked for a compromise that was clearly a step in the wrong direction.

Last week the Deutsche Fußball Liga (DFL) decided to take a different strategy for maximizing its media revenue. Visualize the tears as €3 billion seemed to vanish. That’s the sum Mr. Kirch’s company Sirius offered in a deal to sell back all possible forms of television to broadcasters and, well, anybody. The DFL liked it because they’d keep complete control over football media. And the money, that was just for fun. Right!

But the German competition authority Bundeskartellamt didn’t like the idea of so much control over football on TV. They studied it. They still didn’t like it. The German public TV network ARD didn’t like it either because – under the proposed new deal – highlights wouldn’t be available to them until late in the evening, long after the highly rated football hightlights show. You can see how this progressed… or not.

The DFL will go to plan B in a month or two.

But Leo Kirch keeps reaching for the gold. According to a Bloomberg report (August 26) EM.Sport Media – partly owned by Mr. Kirch – is negotiating for a majority stake in Highlight Communications, the Swiss company owning Team Holding. And, yes, it’s all connected to football.

Team Holding has marketing rights to UEFA European Champions League broadcast content through 2011. The quirk in the contract allows UEFA to break that contract if the 50% ownership threshold is passed. EM.Sport Media already owns 47.3% of Highlight, according to Bloomberg.

EM.Sports Media owns the free-to-air sports TV channel DSF and the Sport.1 website. Mr. Kirch owns 17% of EM.Sports Media. The company announced Q2 profits 17 times above the same period year on year. And they are ditching their loss making childrens’ TV division EM.Entertainment.

An analogy can be made between those holding sports rights and music rights. What once were called ‘record companies’ fell on hard times when the Web let all those pesky downloaders download at will… without checking out at what were once called ‘record stores’. Then the dastardly Apple demon brought on the iPod and iTunes, driving prices into the range people – remember them? – might pay. All that was left in the accountants’ playbook was further fleecing broadcasters. And that hasn’t even worked out very well.

The similarity ends, sort of, as broadcasters just can’t get enough sports, and the accompanying advertising. So far, they’ll pay anything… so long as the ad money keeps flowing. The sports rights holders – teams and leagues – look to the horizon and see metaphysical joy (big money) at launching their own channels, cutting out broadcasters (and all other media) entirely.

Regulators will not entirely cede popular programming content – like sports – to pay-TV. EC rules set specific guidelines for free-to-air television content ‘in the national interest’. Competition authorities, nationally and at the European level, see cartels as they are.

Rights holders will continue to look for Plan B… or Plan C.