Premier League audio-visual rights hit record high
On 13 June 2012, the Football Association Premier League ("FAPL") announced that Sky and BT had secured the domestic rights to screen live Premier League matches from August 2013 to June 2016. FAPL will receive a record £3.018bn for the rights, or around £6.6m per game.
The dramatic finale to the 2011/12 season is believed to be a contributing factor to the significant increase in value, with both the Premier League title and relegation battle being decided with virtually the last kick of the campaign. However, it may be that FAPL’s modifications to its tender process, together with the continuing opportunities to increase value through collective selling, have also played a significant part in securing an increase in royalties of around 70%.
FAPL tender process
Under the existing deal which expires next year, Sky holds the rights to five out of six "packages" of 23 matches. This means that a secondary broadcaster, ESPN, was able to secure the rights to the remaining package of games. A similar structure has been adopted since 2007 after the European Commission ("Commission") raised concerns over Sky’s dominance in the market for the broadcasts. FAPL offered commitments to the Commission to divide the rights up in this way, to introduce a degree of competition into the market and ensure that no broadcaster would hold a monopoly. FAPL must employ an equivalent selling method until 2013, when FAPL’s commitments expire.
FAPL chose to modify the new tender process slightly, the result of which may be welcome news to the Commission. FAPL divided the 154 available matches into seven packages; five lots of 26 matches, and two lots of 12. FAPL specified that no individual broadcaster could obtain the rights to more than five of the packages, or to more than 116 games. Sky obtained four of the 26-game packages and one from the 12-game group, with BT winning the remaining two packages (a total of 38 games).
It appears that this system was designed to encourage small scale market entry from operators that had not considered bidding for the rights before, and it appears to have been successful. On 12 June it was announced that the auction process was being extended, amid rumours that there was a serious challenge to Sky’s commanding position by a credible new bidder, in addition to considerable interest in the two smaller rights packages.
The amendment to the deal’s structure seems to have appealed to a number of disparate bidders; a major operator (always likely to be Sky) would be able to claim the vast majority of the games to confirm (or establish) its position as the major player in the market. However, the fact that the maximum that one player could hold was 75% of the games meant there was also considerable scope for a new entrant (such as free-to-air broadcasters BBC and ITV) to make an impact, or for ESPN to increase its existing footprint without having to engage in a bidding war with Sky. The smaller packages may also have tempted major players in neighbouring markets, such as Google and Apple, to dip a toe in the water.
Although FAPL has not released the details of the unsuccessful bidders it has suggested that this has been a highly competitive process, which would go a long way to explaining the staggering increase in value.
Collective selling
In addition to highlighting the value that can be realised by formulating highly competitive tender processes, however, the deals also emphasise the crucial role of collective selling. Like many other major European leagues, FAPL “pools” together the broadcasting (and many other) rights owned by participating clubs so that they can be offered to licensees collectively.
The potentially divisive effect of selling collectively may be obvious; the more powerful clubs might consider that the revenues they could obtain by selling their valuable rights individually would trump the share they would receive of an overall royalty pot. This reflects the current thinking in Spain, where Real Madrid and Barcelona oppose collective selling on the basis that their rights are worth so much more than any share they might receive from selling collectively with other La Liga clubs.
However, this is fast becoming an isolated exception, as it is widely recognised that collective selling brings such benefits to licensees that the total value of the rights bought collectively can significantly exceed the total value of rights sold on an individual basis. Since most commercial exploitation of sporting rights seeks to tap into the competition that exists between participating clubs or players, exploitation is often of limited value unless the involvement of all participants is secured.
Not only does collective selling eliminate significant transaction costs of negotiating numerous individual deals, it also eliminates the risk that huge investment could be made in incrementally obtaining rights only for the remaining rightsholders to play hardball over the last vital pieces of the puzzle. Licensees are prepared to pay a considerable premium to avoid this problem; UEFA, for example, has estimated that moving to a collective selling model for European Championship qualifying games would almost double what has been previously recouped through individual sales.
Sharing the wealth
Various models exist for the distribution of collectively-generated revenues, which seek to strike the appropriate balance between the conflicting interests at play. FAPL, for example, divides its broadcast revenues into three pots; a basic fund in which each club takes an equal share, a merit fund which rewards league performance, and a facilities fund to compensate clubs for the costs they incur through allowing live broadcasts to take place from their stadia. This approach is designed to reflect the fact that without the smaller clubs the Premier League would be a lesser product, and to ensure that all clubs are compensated accordingly. In the long term this should encourage a more balanced and competitive league.
Regardless of individual views on the merits of this particular model one thing seems certain; following Wednesday’s announcement each Premier League club can look forward to receiving its piece of a very large pie.
Lawyers Robert Vidal, Richard Craig, Louisa Penny
