Was goal ever in reach for Setanta?

International sports paybox faces financial ruin

LONDON — Two years ago, international sports paybox Setanta was riding high, circled by potential suitors ready to pony up a little under $2 billion for the firm.

Today Setanta, operating in the U.S., the U.K. and Ireland, faces financial ruin. Potential predators are hovering in the hope of capturing the outfit’s valuable sports rights at cut-rate prices if Setanta enters administration, the U.K. equivalent of Chapter 11.

Some say Setanta is a casualty of the financial downturn, but others believe more complex factors are at play.

Back in 2006, this David of the pay TV sports market took on the Goliath that is News Corp. satcaster BSkyB — and looked to be winning. It forked out £393 million ($642 million) for two packages of English Premier League soccer rights, some 42 games a season, breaking Sky Sport’s monopoly on live soccer.

It was, arguably, enough for Dublin-based Setanta to compete against Sky Sports.

But despite securing 1 million new subscribers on the back of the soccer deal, the figures didn’t add up. The company, formed by Michael O’Rourke and Leonard Ryan, relied on private equity and expensive debt. It raised an eye-opening $449 million from shareholders between January and November 2007.

Now Setanta is struggling to meet payments for the rights to show a slate that includes soccer, Premiership rugby union, the Professional Golfers’ Assn. Tour Stateside and Indian Premier League cricket.

The pay TV company needs $163.6 million to plug the funding gap created when it failed to retain its English Premier League soccer rights packages beyond 2010. It missed its deadline for handing over $5 million for coverage of Scottish Premier League soccer. And its next installment for English Premier League soccer is a reported $50 million.

Jeremy Darroch, CEO of arch-rival BSkyB, believes Setanta expanded its business too early. “The core issue is less about their ability to add subscriptions (and) more about the level of their costs and their profit-and-loss account,” he says.

There is a line of thought that Setanta never stood a chance against BSkyB.

“From day one, Setanta has been the underdog. Sometimes the underdog gets to bite back — but sometimes it gets flattened,” says ITV’s former director of television Simon Shaps. “Sky is a formidable machine, and in the end, Setanta found it impossible to match its marketing muscle and money.”

Dan Marks, outgoing CEO of BT Vision, who negotiated a deal to carry Setanta’s Premier League coverage on the telco’s TV platform, agrees with Shaps’ assessment. “There are tremendous obstacles to growth that flow from Sky’s dominance,” he says. “Setanta’s difficulties are an obvious and inevitable consequence of the uncompetitive nature of the U.K. pay TV business. This needs to be addressed by regulators.”

BSkyB’s Darroch, however, maintains there is room for a competitor under the current system.  

“The more sports broadcasters there are, the better for sport. It is competition and we welcome it,” Darroch says.

Steven Barnett, professor of communications at London’s Westminster U., feels BSkyB’s call to embrace competition is disingenuous.

“Setanta may have made one or two wrong business decisions,” he says, “but I don’t believe any start-up business has a chance in hell of taking on Sky unless there is the serious implementation of competition controls.”

U.K. regulator Ofcom has been conducting a review of the pay TV market for more than two years.

It would be ironic if the fall of Setanta turned out to be the trigger for regulators to address what BSkyB’s rivals and critics insist is a far from level playing field.