SportBusiness.com

Given the huge global appeal of the FIFA World Cup, the scramble to acquire television rights to the tournament has hardly been surprising. France ‘98 attracted a worldwide audience of over 33 billion via a total of 227 outlets. But what’s perhaps more surprising is that as the June 2002 event in Japan and South Korea draws closer, a number of broadcasters bidding for rights are still some way from finalising their deals while others appear deadlocked.
After the collapse of FIFA’s marketing arm ISL earlier this year, German media giant Kirch Group took sole responsibility for selling the rights to the 2002 and 2006 events, accepting a £2.2 billion (EUR2.39bn) guarantee. This responsibility was handed to its sports rights and distribution arm Prisma. But despite having such an attractive product to sell, few deals have been straightforward. Indeed, giving the contract to Kirch has only served to create widespread antagonism in major television markets, which saw the decision as being based purely on greed.
Any TV company planning a rights bid faces a number of key considerations: the potential cost; the time zone involved and thus likely audience figure; whether the broadcaster is a terrestrial or satellite/pay-TV concern; and whether the bidding country has a team which is likely to qualify for the finals. Add to that the political considerations involved with each country’s bid and it soon becomes clear why acquiring television rights to an event as lucrative as the World Cup has become an increasingly complex issue. But the overriding concern among broadcasters is undoubtedly Kirch’s asking price.
Taking Europe as a first example, the ongoing saga being played out in the UK between Kirch and terrestrial broadcasters the BBC and ITV is no nearer an amicable solution. And the fundamental problem here is the price. The BBC and ITV have already had a £50million ($71.1m/EUR81.3m) joint bid rejected by Kirch and their efforts to agree any kind of deal are proving increasingly fruitless. Kirch, who paid $500m (EUR551.02m) for the European rights, are demanding a far higher sum - £175m ($248.9m/EUR284.5m), which according to the two broadcasters is 30 times what they paid to air the 1998 World Cup in France.
Understandably, Kirch is looking to sell the rights to the highest bidder. However, a deal with, for example, the financially stronger satellite broadcaster BSkyB would be in direct contravention of UK legislation forbidding satellite broadcasters from acquiring rights to the World Cup and other listed events.
The key to this long-running dispute may rest with a test case which saw the UK’s House of Lords uphold the Independent Television Authority’s (ITC) wish to stop London-based TV station TV Danmark from feeding coverage of the Danish national soccer team’s away matches back to satellite broadcasters in Denmark. This thereby sets a precedent that government-listed sporting events must remain accessible to the public through free-to-air terrestrial broadcasters.
But Tony Ghee of sports law firm Ashurst Morris Crisp says there is still a long way to go in the battle. “It’s not over yet,” he says. “The TV Danmark decision didn’t change anything. The ITC will have to determine what is a fair and reasonable price for the rights. Ultimately, it’s their decision, although it could even mean asking an outside agency like Octagon or Zenith to value them. But I certainly don’t rule out an auction at this stage.”
Another important point is that Kirch is under no obligation from FIFA to find a buyer for the UK rights and should a terrestrial broadcaster not meet the asking price, it may decide not to sell them at all. This being the case, Kirch will be expecting to more than make up the deficit in an agreement for the rights to the 2006 tournament to be held in Germany which represents the perfect time zone scheduling for European broadcasters - unlike the 2002 tournament which will see many games kicking off in Europe in the early morning.
In a further twist to the tale, the UK Office of Fair Trading (OFT) received a letter from Prisma in August complaining that the BBC and ITV are unfairly acting as a cartel because they ‘refuse to negotiate independently the rights for the 2002 World Cup’. Kirch then announced that it would auction the rights off to the highest bidder - inviting satellite and cable platforms to make a play for them. But whether this will happen is doubtful - Vic Wakeling, head of Sky Sports, has stated that Kirch has overvalued the rights and that BSkyB will not bid for them. Whether this is just an initial negotiation position remains to be seen.
Meanwhile, nothing is stopping BSkyB from becoming the principal purchaser of rights and then negotiating distribution to free-to-air television. This would serve to significantly strengthen the company’s position at the heart of football rights.
Should an OFT investigation uphold Prisma’s complaint, the broadcasters could face huge fines, representing ten percent of their turnover. But ITV’s director of business and legal affairs, Simon Johnson has described the claims as “ridiculous” while sources from both broadcasters argue that to operate as a cartel they would have to be negotiating jointly with other major UK football broadcasters, such as BSkyB and Channel 4. The OFT, meanwhile, has played down the significance of the complaint, saying ‘it should not be assumed that the complaints registered will lead to a full investigation’.
Similar problems to those in the UK have also emerged in Italy, with state terrestrial broadcaster RAI still some way from striking a deal. Prisma met with RAI executives last November but, with an asking price of $187m (EUR205.16m) failed to impress. RAI’s head of sport Giovanni Bruno claims that “as each day passes without agreement the whole technical and logistical operation at RAI for covering the World Cup is being put at risk.”
The likelihood, after both sides have completed their posturing, is that RAI and the merged TELE+/Stream platform, will acquire the rights with RAI carrying, minimally, the opening match, Italy’s games plus both semi-finals and the final.
In France, no single broadcaster is prepared to pay the asking price of $230m (EUR252.36m) for all 64 matches. “Negotiations are blocked,” says Charles Bietry, sports director at terrestrial platform France Television. “We are not ready to give in. At the rate it’s going, the World Cup could very well not be broadcast in France, with the exception of the national team’s matches. You can’t endanger a company’s finances just for the World Cup.”
Meanwhile, France’s sports minister Marie-George Buffet is reported in the French press to be preparing a missive to FIFA, expressing her “deepest concerns” over the stalemate. And financial newspaper La Tribune has also entered the fray by accusing Kirch of ‘blackmail’.
But Hartmut Schultz, a Munich-based spokesman for Kirch said talks with French stations are continuing. “I’m confident we’ll find a solution before the end of the year,” he said.
Jean Paul de la Fuente, CEO of sports media advisory firm Media Content, believes something akin to a battle of wits is being played out by the two sides: “It’s a simple negotiating issue,” he says. “The view that the buyer has is ‘we don’t want to pay as much’ and the view that Kirch has is ‘we want a load’. It’s a simple game of poker. It cannot be envisaged that the World Cup will not be shown on television and sooner or later the buyers will crack. It’s all about how long Kirch is willing to play the game of poker and how long the potential buyers want to play along.”
De la Fuente notes the importance of the fact that Kirch is under no obligation to sell the World Cup rights: “This means it can play the game all the way to the eve of the opening match,” he says. “Clearly for Kirch it’s a good thing to sell because, firstly, it can exploit the value and secondly it needs to get some money in to pay for the substantial guarantee it put up.”
So how does de la Fuente see the situation in the UK panning out?
“I think the UK is a bit of a red herring,” he says. “Before England qualify the debate is a bit false. If England qualify the position will change completely. I think BSkyB will come in. Its pronouncements so far are just meant to weaken the other side. It’s nothing to do with the real world. That’s about coming to terms on price. What these corporations have decided is that there’s no point getting over excited until we know whether England have qualifed. If they don’t, which now seems unlikely, you could very well see the tournament sold to a small channel for very little.”
And how does he feel about the situation elsewhere?
“There is no way, closer to the time that the French public will be told that the World Cup is not being shown,” he says. “The tide of public opinion will mean it has to. They will cancel their subscriptions otherwise.
“When you know what the buyer’s revenue is, you know the price you can charge. They’ve had it easy. Now it’s the real world. The World Cup is the world’s biggest event in terms of audience - it’s four times the size of the Olympics. Kirch is asking something that isn’t just plucked out of the air. It’s based on very accurate and detailed analysis of what TV companies can make in terms of revenue and profit from showing the tournament. It’s a simple process. Bullish statements will start to decline as the tournament approaches. The French sports director doesn’t want to be known as the guy who turned away the World Cup. Somebody else will buy it.”
Meanwhile, de la Fuente describes the concept of the Italians not being able to watch the World Cup as “farcical, the money will be found,” he says. “When they say they’re prepared to pay 50 it means they’ll pay about 100. Whatever it is will be a significant multiple on what was paid last time.”
The likelihood is that any eventual package will be split between Pay-TV and free-to-air broadcasters with the latter guaranteed the opening match, those of the French team, both semi-finals and the final. Such a move could pit TF1/France Television/Canal+ against M6 and TPS. Historically, TF1 acquired the rights from EBU and shared them with France Television. In 1998, for example, TF1 and France Television shared terrestrial coverage with Canal+ and TPS both carrying all 64 games live - again as a result of their EBU connections.
Kirch’s deal in Germany appears somewhat clearer. Joint free-to-air broadcast rights have been signed with ARD and ZDF. The two platforms, which have also been offered an option to acquire the 2006 rights, will show 24 live matches between them including the opening match, semi-final, final and all matches involving the German national team, assuming they qualify. They will also show a selected ‘match of the day’ on days Germany is not playing. The contract is worth $115m (EUR121.27m).
However, this formula has not been greeted with enthusiasm. Pay TV channel Premiere World is offering live coverage of the remaining 40 matches and highlights of 64, suggesting ARD and ZDF have paid too much for too little.
Other European deals have been more successful. In Spain, a contract has been signed with pay-TV platform Via Digital for $183m (EUR201.74m). Antenna 3, an entertainment channel with very little sports output, remains favourite to carry, minimally, the opening match, Spain’s matches, plus both semi-finals and the final. Meanwhile, the rights packages for Malta, Finland, Slovenia, Cyprus and Holland have generated a further $40.8m (EUR45.35).
In Japan, the joint host of the tournament, digital DTH market leader Sky Perfect won the rights to host the event in March of last year. The platform will air all 64 games free to subscribers via a dedicated ten-channel service, a way to boost uptake in the face of growing competition from digital services.
However, a terrestrial consortium also has around 40 of the same matches. “I don’t know how Sky is planning to recover its investment,” says Marcus Luer at sports rights and marketing company Totalsports Asia. “I don’t think they will be able to generate a lot of new subscribers if there is so much football on free to air already.”
Luer outlines a somewhat less than ideal situation in the host country as the clock ticks down to the opening game. “The reaction in Japan is that they think the way the package is broken down is absolutely ludicrous. You’ve got 40 matches on terrestrial TV. Why would anybody in a country where football isn’t the number one sport even think about watching more football than is available on free TV? Will cable platforms ever recover that money? The only way would be to get more subscribers.
Until recently, the situation in Korea, the other host nation, was equally confused. However, in late August, Kirch reached an agreement with a group of Korean broadcasters for the domestic broadcasting rights to the next two tournaments in a deal believed to be in the region of $55-60m (EUR60.63-66.14m).
The Korean Television Pool consists of the public broadcasters KBS (Korea Broadcasting System) and MBC (Munwha Broadcasting Corporation) as well as the private TV-station SBS (Seoul Broadcasting System).
The South American scene is dominated by digital satellite service provider DirecTV Inc which has bought the Latin American broadcast rights to the tournaments in 2002 and 2006 in a deal valued at $400m (EUR438.64m). Under the agreement, Direct TV will have exclusive broadcasting rights in Argentina, Chile, Colombia, Mexico, Uruguay and Venezuela. It plans to resell rights to broadcasters for the opening, semi-final and final matches and will also resell rights for national team matches for each of the home countries.
In August, television distributor Venevision International was chosen by DirecTV to sub-license the rights. It will distribute all the rights to the tournament in Chile, Columbia and Uruguay and sub-license radio, closed-circuit and ad rights in Argentina, Mexico and Venezuela.
DirecTV has more than 1.4 million subscribers through 27 countries in the region including the lucrative Brazilian market. However, rival pay-TV platform Organizacoes Globo bought up the Brazilian rights for the next two tournaments in December 1999 for $500m (EUR548.07m) and is expected to distribute the matches among its broadcast channels which include Sky Brasil, of which Globo is a majority owner.
In the USA, Kirch remains in negotiation with host broadcasters. However, the US market is thought to be home to 35 million Hispanic population (12.5 percent of the total US population) with annual spending power of $3.5bn (EUR3.83bn) and a love of the game. Naturally, it has led to a flurry of activity by broadcasters seeking to reach this lucrative market. US Hispanic channel Univision has signed a deal for both the 2002 and 2006 World Cups in a contract worth $150m (EUR163.68m).
In South Africa, the national team’s qualification for the finals should inject new urgency into negotiations over TV rights which involve all of the major broadcasters - e.tv, SABC, and SuperSport.
The networks are looking at sharing the rights but have been unwilling to meet ISL’s original valuation of $10m (EUR10.98m) - a tenfold increase on the $1m (EUR1.1m) paid for France ‘98.
If the sharing plan comes to fruition, SuperSport would get all 42 games with e.tv and SABC televising 21 matches each. The terrestrials would show one semi-final each and then both air the final.
In Australia, the country’s Nine Network has won the rights for the tournament and will minimally transmit 16 of the 64 matches, including the opening match, both semi-finals and the final. The remaining 48 games have been priced on a round-by-round basis and are available to all free-to-air broadcasters.
However, in New Zealand a deal is far from signed and sealed. The nation’s commercial state-owned enterprise Television New Zealand has made a counter offer to that originally offered by ISL but the two parties are still some way from agreement.
It’s clear that the global picture with regard to rights deals is still far from settled. Although broadcasters in some countries tied up their contracts months or even years ago, Kirch has still to secure contracts with broadcasters in some of the football markets. Only time will tell whether the TV companies still holding out for a better price will eventually cave in to Kirch’s demands. But with no obligation to sell as time runs out, it seems the media giant holds the aces. Only when qualification for the finals is resolved will the saga be concluded. Until then, it seems the war of nerves is set to continue.