The NRL TV rights were a must-win for Nine and they came at an increased cost
by: Darren Davidson
From: The Australian
September 14, 2012 12:00AM
THE debt-laden Nine Network part-funded the $1 billion-plus NRL TV rights deal by striking an agreement with one of its lenders.
Nine's total debt stands at $3.8 billion, less $500 million if the sale of ACP Magazines is approved.
Nine's ability to bid competitively for the coveted free-to-air NRL rights with Kerry Stokes's Seven Network and an enthusiastic Ten Network was a concern for Goldman Sachs, which manages the debt. It wanted to protect its investment on the basis it would stand a better chance of getting a return if Nine retained the rights.
Instead of accepting interest from Nine on the high-yield debt, Goldman agreed to payment-in-kind. This meant Nine would pay interest in the form of additional high-yield debt, which increased the face value of the debt that must ultimately be repaid.
Crucially, the agreement enabled the cash to be retained in the Nine business as working capital, which was deployed to fund the NRL bid and hit programs such as The Voice and Howzat! The Kerry Packer Story.
At the time of the bid, sources close to Nine's private equity owners CVC Asia Pacific told The Australian it had "full knowledge" of the costs involved in the NRL bid, and was "supportive".
The increased cost of the new deal will turn the NRL from a profit-maker to a loss-maker at least during the first years of the five-year contract,.
It is estimated that Nine writes about $60 million a year in advertising against $40m that it is paying under the current deal.
But the rights were a must-win for the brand identity of Nine and it can generate revenue through other avenues.
The high costs explain why Nine chief executive David Gyngell said last month after winning the bid: "We all feel like losers today."