Tough final quarter in the battle for AFL rights
James Chessell
From: The Australian
April 04, 2011 12:00AM
AFL chief executive Andrew Demetriou was in a typically expansive mood a couple of weeks ago at Melbourne's Regent Theatre to launch the 2011 season.
"Never before has our agenda been so comprehensive. Never before has it been so bold. Never before has it been so important to the future of the game," he told the gathering, referring to a few weighty issues facing the code such as a new broadcast rights deal, a new collective bargaining agreement with the players and new teams in the Gold Coast and western Sydney.
But many guests were left scratching their heads when the room was shown a cartoon comedy modelled on the Australian Idol television program. The show starred AFL players and officials.
The central characters were Demetriou and his right-hand man, chief operating officer Gillon McLachlan. They leant their voices to the production, which went down like a lead balloon.
"Many thought it was tacky and self-indulgent," an official said. A senior free-to-air television executive said: "I have no idea why they thought that was a good idea."
In the grand scheme of Demetriou's agenda, the cartoon is insignificant, but it does point to frustrations about how the high-powered AFL sub-committee of Demetriou, McLachlan, chairman Mike Fitzpatrick and commissioner Chris Lynch is handling the negotiations for the 2012-16 broadcast rights.
Those expressing concern include people within the AFL who are worried too much power is in the hands of the committee. Meanwhile, free-to-air media executives mutter about "AFL arrogance" and describe the process as overly complicated. They grumble that the AFL is all over the place when it comes to folding the digital rights into the mix.
Seven executive chairman Kerry Stokes -- who still regards his dealings with the AFL over the development of the Docklands Stadium in the late 1990s as painful -- had a wry smile on his face when he said last week: "Never underestimate Andrew Demetriou and never underestimate the AFL's greed."
It's a view shared by his rivals in the free-to-air industry, who believe they are being asked to subsidise the AFL's expansion plans.
Of course, posturing and sledging are part of any set of broadcast rights negotiations. Even Demetriou's critics admit he has every right be hard-nosed. His job, after all, is to maximise the amount of money he can squeeze out of the networks. This is likely to be Demetriou's last rights deal and will help shape his legacy at the AFL.
The AFL may have wanted to complete negotiations before the season started but delays will be forgotten if it gets a big amount.
Demetriou's task was made easier for the previous five-year deal when Seven and Ten were forced to match an eleventh-hour, $780 million bid lobbed by the late Kerry Packer in December 2005.
This time, there may be frustration and delays partly due to regulatory uncertainty but as Citigroup's Justin Diddams noted, the setting of a price is "shaping up to be a rather orderly affair".
All this raises three main questions. Can the Nine Network steal the rights away from the incumbents, Seven and Ten? How many live games will Foxtel be able to broadcast? And will the sometimes-confusing treatment of online rights affect Demetriou's ability to get the $1 billion price he boldly predicted back in 2008?
The answer to the first question is simple. Nine's chances of beating Seven and Ten are slim. Nine chief executive Jeff Browne knows more about the process than most, having worked as the AFL's lawyer. He has played a smart game and last week emphasised his network's close relationship with Foxtel.
He hopes to offset his costs -- and boost the overall price -- by allowing Foxtel to simulcast live all four matches a round held by the free-to-air rights holder.
Simulcast rights for regular season and finals games are not part of the current deal and Foxtel believes it can attract new subscribers by showing every game (with the likely exception of the grand final).
The flipside of sharing games with Foxtel, of course, is that viewers could drift from free-to-air coverage to avoid ads and (in the case of Seven and Ten) delayed coverage for some games.
Browne's plan, in theory, could allow Nine to pay close to the same as what Seven and Ten now pay (about $90m a year) but increase the amount Foxtel would be willing to pay from $63m a year to closer to $100m.
This would give Demetriou a figure closer to the $200m he wants a year. Foxtel may be willing to pay more, given the new teams will create an extra game from next year, but matches featuring the Gold Coast and Greater Western Sydney will have less value. For all of Nine's flexibility with the structure of the bid, it is willing to pay less than Seven and Ten.
Nine already hold the rights to the 2012 NRL season -- the last year in its current deal with rugby league -- and the London Olympics. It is inconceivable a pugnacious television executive such as Seven boss David Leckie would let Nine secure the other major sporting competition for next year. Indeed, much of Nine's strategy is based on ensuring that Seven and Ten pay a sufficiently large sum that they cannot pay a decent price for the NRL.
If Seven and Ten win as expected, what happens to Foxtel (which is 25 per cent owned by News Ltd, publisher of The Australian)? While Leckie is a traditionalist who does not like sharing games with Foxtel, some observers say he is open to Foxtel simulcasting two games a round (excluding Friday night games) and some finals matches.
This means Seven and Ten will be willing to pay more but Foxtel will be keen to pay less.
Not that the free-to-air networks are going to pay over the odds. Diddams points out that Seven and Ten don't make money from the AFL directly and total audience is falling slightly as audiences fragment.
Yet the rights to a sport that still commands a mass audience provides a "halo" affect that is worth more than returns from advertisers. Seven's total viewer numbers were about 25 per cent lower in 2002-06 when it didn't have the AFL rights, according to Goldman Sachs.
The final question about online rights is a related issue. The free-to-air networks are all about securing an "exclusive window" to show matches. Any loss of exclusivity through simulcasts on pay-TV or Telstra's BigPond (the current digital rights holder) means they will pay less.
At this stage they have shown little interest in harmonising online rights with their bids, although they complain the AFL has not been clear on this issue.
It is an understandable short-term view -- there is little ad revenue to be made from those rights -- but digital rights will become more valuable as online broadcasting becomes widespread.
It remains to be seen, however, whether the AFL can get Telstra to stump up more than the $10-$15m a year it now pays for the digital rights, by allowing it to simulcast a game, for example, without reducing contributions from the free-to-air networks.
The new teams, which will result in 8 per cent more games next year, and inflation mean the AFL will get more than $780m but probably less than $1bn from the broadcasters.
Getting a genuine $1bn bid -- one that doesn't include large contra deals -- when you include the digital rights will depend on coming up with a clever structure that makes everyone relatively happy. This scenario seems a little way off, even at this late juncture.
