Sports-TV rights are getting so expensive, and they remain
so integral to snaring pay TV viewers, that more deals such as last week's $1 billion
bid for the Manchester United soccer team by British Sky Broadcasting are inevitable,
Fox Sports' $350 million deal for Major League
Baseball's Los Angeles Dodgers this past March looked like chump change after Sky,
another News Corp. majority-owned unit, made what was believed to be the highest bid ever
for a sports team. Sky's bid was approved by Manchester United's board of
directors, and it awaits shareholder and regulatory approval.
"It's the same type of deal, essentially. These
deals are defensive, but really, it just boils down to buying Manchester United TV rights
forever. The cost is only going to go up," said Jay Stuart, a sports-TV expert and
editorial director of London-based publications SporTVision and Sports TV Report.
Stuart added, "I think that Murdoch's feeling is,
'Let's get in now and get ourselves a position. It can't cost us more down
the line than it's going to cost us now.'"
Unlike some sports teams owned by U.S. TV-industry players
such as Cablevision Systems Corp., Turner Broadcasting System Inc. and Comcast Corp.,
Sky's Manchester United bid involves buying one of the best-known sporting brands in
the world. Fans of the team -- called the Red Army -- number 100 million worldwide through
its Supporters Association. The club has 17,000 Web sites dedicated to it.
In Britain, the Sky/Manchester deal spurred fears that
future key soccer matches will wind up being shown exclusively on Sky through
pay-per-view, or that the times of the matches in Europe will be changed to make U.S.
telecasts more valuable -- both of which Sky denied.
Sky CEO Mark Booth maintained, "Our interest is 100
percent aligned with those of Manchester United fans."
It's unclear what effect the deal will have on Fox
Sports in the United States. Fox Sports World is distributing a series of English Premier
League games -- including Manchester United -- on a PPV basis through the 1998-99 season.
Fox's purchase of Manchester United could provide the
company with more PPV-soccer product going forward, although it was unclear at press time
whether the deal included U.S. television rights, according to sources close to the
Representatives from Fox Sports World and Fox Sports Net
were not available for comment at press time.
The deal is likely to serve as a litmus test for TV
companies and regulators all over the world. It seems inevitable that the purchase will be
referred to Britain's feared Mergers and Monopolies Commission, which could drag the
deal through as much as one year of regulatory review, during which time the wisdom of TV
companies owning key sports teams and the whole business of sports-TV rights would be
"It's never a good idea when they start looking
around at the people who did the deal," Stuart said. The danger of the regulatory
review is seen as one factor that kept Manchester United's stock trading at around
216 pence ($3.55) per share -- well below the cash/stock offer price of 240p ($3.96).
The man in charge of the regulatory reins in the near
future is Peter Mandelson, Britain's trade and industry secretary. It is well-known
that Mandelson is friends with Elisabeth Murdoch, managing director of Sky Networks and
Rupert Murdoch's daughter.
At first, it was unclear last week whether Mandelson would
have to recluse himself from reviewing the deal, but he was later cleared by lawyers at
Britain's Department of Trade and Industry. He vowed to fully investigate the deal,
and ultimately, it is up to him whether to refer it for full review.
While digesting the political angles of the bid, some were
still finding the final price hardest to swallow, even though the Sky bid had been
expected for several days. That's because the bid price was 51 percent higher than
the level that Manchester United's shares were trading at before rumors of the talks
In the final stage of negotiation, Sky wound up increasing
its bid by about 10 percent, or $100 million.
The deal values Manchester United at £623.4 million ($1
billion), with Sky's offer consisting of 0.2537 new Sky shares and 120p ($1.88) in
cash for each Manchester United share. According to the market capitalizations of
Britain's seven other English Premier League soccer clubs, Sky could have bought all
of those teams for less than what it will pay for Manchester United.
Sky expects the acquisition of Manchester United to be
modestly dilutive to earnings for the fiscal years ending June 30, 1999, and June 30,
2000, and earnings-neutral thereafter. While the price that Sky paid might seem high now,
analysts said, some developments could greatly enhance the value of the team over time.
Sky's all-important rights to English Premier League
soccer expire in 2001, and, as a result of the deal, Sky will be represented essentially
on both sides of the talks, much in the same way that Murdoch and other key TV players
have positioned themselves in the United States. Also, PPV rights will become more
important during those negotiations than in the past.
Moreover, the value of the team could get a healthy boost
from ongoing discussions about Europe forming a soccer "superleague," with
representation from some of its best teams. An English team would be a key component in
that league, and Manchester United would be high up on the list. The sales of new
superleague TV rights could generate tremendous revenue.
"The value [of Manchester United] can only be
bigger," Stuart said. "I think that's the assumption."
The team is so popular in Britain that long before the
deal, Sky had signed a pact to premiere MUTV Oct. 1 -- an entire premium channel (six
hours per day) devoted to Manchester United.
Stuart believes that MUTV will be the first of other
team-dedicated TV channels in the digital age. "There's a good possibility that
this is the route that the market is going to start to follow," he said.