ALL THE elements are present and correct for the perfect storm football story. The Scottish Premier League's broadcaster and major income generator, Setanta, is in trouble. Cash-flow problems do not just threaten its own existence, however. They could choke the financial support system for a number of the country's top clubs.
Grave fears have been raised by Setanta's inability to meet a £3 million payment due to the SPL a week ago. Grave enough for the governing body on Friday to elect to pay the sum to its clubs from emergency funds.
According to sources at the chann
el, there is no disguising that Setanta's viability is on the line. As has been reported, there is the possibility of Disney-owned US broadcaster ESPN, described as "business colleagues", stepping in. Setanta sold ESPN its NASN channel last year. However, the reality is that ESPN could wait until they go into administration before picking Setanta up for next to nothing. In that scenario, the SPL could be faced with receiving a "50p or 60p in the £1" dividend for its remaining contracts with the broadcaster, according to the Setanta source. As it stands, £13m is outstanding of the £54m, four-year SPL deal that concludes in 2011 – the date the £125m, four-year improved package was scheduled to begin. Those are sums that the more indebted members of the SPL could literally be banking on.
Setanta has a £100m funding gap. So far, private equity backers Doughty Hanson, Balderton Capital and Goldman Sachs have been reluctant to fill that beyond the £50m mark, even when their investment runs to half a billion pounds.
BSkyB has been mooted as providing the other £50m. It is understood to be in its interests to keep Setanta afloat for two reasons. It needs another broadcaster to share television rights to the English Premier League so that it does not come under the scrutiny of the monopolies commission. But it does not want that holder to be ESPN since the US firm has the muscle to make it serious rivals for the English football cash cow in the long term. Currently, Setanta holds two 23-game packages for the EPL. Its problems have been traced to the loss of one of those for the start of the 2010-11 season. But it is not that simple, according to an insider.
"Setanta is a good business that has excellent, high-end sporting rights," the source says. "By the end of our first season covering the SPL (in 2004-05] we had 90,000 subscribers. Now we have 1.2million on the Sky platform, two million on Virgin Media and several hundred thousand more on BT Vision. That is superb growth. The problem is this has been achieved through the credit route, and we now have a credit crunch.
"Investors have ploughed in capital that has gone on buying expensive rights, to be later recouped on subscriptions. But broadcasting rights is the sort of domain investors draw away from in the current climate. That leaves us like a sabre-tooth tiger who has only one fang."
Other analysts say Setanta has become toothless because it has been biting off more than it can chew in "front-loading" payments. The £3m due to the SPL this week, for instance, is a slice of next season's £13m, fourth-year share of the £54m deal. "In order to win contracts they have had to pay more for them, and pay earlier. This has lead to higher, high-risk costs and created the problems they are facing now," says David Glen, author of PricewaterhouseCoopers' annual Scottish football review.
Some associates of Setanta says it is a case of "if not when" it goes under. Yesterday's England World Cup qualifier against Khazikstan has been presented as potentially its last live football screening. A £35m sum is due to the EPL next week. It could be the tipping payment. However, within Setanta, they cling to the hope the £100m can be attracted to solve its cash-flow concerns, giving it breathing space to draw up a new business model. Emap chief executive Sir Robin Miller has been drafted in to make that happen. If it does, Setanta will need to renegotiate down rights. The company has already sought to reduce the SPL's future £125m contract to £100m.
"That would still represent growth and be a sensible compromise," says the company insider. "Setanta has been unfairly demonised this past week. All the stuff about players being denied bonuses and unable to go on holidays is a bit much. Setanta has been a good media partner for the Scottish game. I have read about the clubs turning down Sky to stay with us for the new deal, but it has to be asked how interested they really would have been in acquiring the SPL again. When SPL TV collapsed (in 2002] they didn't come back in. And their schedules are bursting with English football now. Where would the SPL fit?"
How some SPL clubs will fit into it without their largest single source of income is the question now being posed. There have been scare stories that three sides could go to the wall if the SPL does not have a live television contract for next year. Once costs are covered, the SPL shares £20m annually among its members. The Clydesdale Bank's sponsorship, and various other broadcasting and sponsorship deals account for one-third of that sum. Setanta accounts for two-thirds of it.
Yet, while that can amount to a quarter of a middling SPL club's entire turnover, top-flight teams in this country have not simply thrown themselves at the mercy of television money men. Ultimately, they may not be able to avoid that fate, but they have tried to do so. For the year ending June 2008, six clubs reduced their debts and three had no or little debt to speak of. The difficulty is that finances are so delicate when the squeeze is being felt all over. At a club such as Kilmarnock, any loss of earnings might have serious repercussions.
"Scottish clubs do not use broadcasting revenue to feed an addiction to higher costs and higher debt, as seems the obsession among clubs in England," says Glen. "Yet, the problem is that by trying to keep their costs under control they can dilute standards. That in turn can drive down attractiveness and revenue such as gate receipts, which could become a vicious circle. It doesn't help that bank managers are no longer able to look favourably on requests for 'tide over' facilities." Setanta know all about that.
