Nine takes the low road – NRL over Cricket

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TTN: The Nine Network has paid $425m for 5 years of NSW-focussed NRL FTA broadcast rights, leaving no money in the bank for the $500m cricket rights. There is speculation that NRL’s gaming-related advertising revenue is too lucrative for Channel 9 to pass up. Channel 10 are set to swoop on the cricket.

See below for ‘The World Today’ transcript of the financial realities of broadcasting rights for both the Nine and Ten networks.

From the Australian Financial Review:

Hedge funds move to bowl Nine out of cricket TV rights

by AFR’s Ben Holgate

Key points

  • Ten bids $500 million for cricket’s media rights.
  • Nine’s key shareholders don’t want to match it.
  • The network has less than two weeks to respond.

The two US-based hedge funds that are Nine Entertainment Co’s key shareholders have indicated they do not want the TV broadcaster to match rival Ten Network’s audacious $500 million bid for the cricket media rights.

It is understood the hedge funds, Oaktree Capital and Apollo Management, formed the view that the cricket rights would be too expensive as the Nine board met in Los Angeles last week.

However, it is understood Oaktree and Apollo will not prevent Nine management from lodging a counter offer for the 2013-14 rights with Cricket Australia if it can mount convincing investment case.

The hedge funds have four directors on the nine-member board: Oaktree’s Edgar Lee and Rajath Shourie; and Apollo’s Kevin Crowe and Steve Martinez. The board also includes former federal treasurer Peter Costello.

Despite the hedge funds putting forward their opinion, the board has not yet made a decision on whether Nine should match Ten’s offer. Nine has last rights, due to its previous deal with Cricket Australia, and only has to match Ten’s bid. It has less than two weeks to respond to Ten’s offer.

It is understood Nine chief executive David Gyngell is agonising over a decision. Some observers believe he is emotionally tied to cricket, which has been broadcast on Nine for the past 36 years.

Bold move by Ten’s new chief

It is his first major test since the company completed a $3.4  billion recapitalisation earlier this year and the hedge funds took a dominant position on the share register.

Ten has bid about $500 million in cash plus an additional $50 million in contra advertising for the cricket rights.

It is a bold strategic move by Ten’s new chief executive, Hamish McLennan, who took over the reins at the struggling network in March.

His large bid has changed perceptions in the advertising industry of the beleaguered broadcaster, with media buyers saying Mr McLennan has indicated he is serious about turning around Ten’s fortunes.

It is understood the Ten board, which is led by chairman Lachlan Murdoch and includes mining magnate Gina Rinehart and fast-food king Jack Cowin, are bracing themselves for a possible $40 million annual loss if Ten acquires the cricket rights.

Ten is desperate to gain a major sports franchise to boost its poor ratings and sees cricket as a basis from which to rebuild the business.

Cricket has been seen as a summer fixture for Nine and was championed by the late Kerry Packer, a former owner of the network.

The predicament for Mr Gyngell is that Nine has about $700 million in new debt and faces a weak advertising market plus structural challenges for free-to-air TV brought about by digital technologies.

Reluctant to stump up more big money

Having already committed about $425 million in cash last year to acquire the NRL FTA TV broadcast rights over the next five years, a price for which Mr Gyngell admitted Nine was forced to go “to the edge”, the CEO is reluctant to have to stump up big money for another sporting franchise.

Ten’s bid represents a big premium to the $45 million a year Nine has paid under its old deal since 2005.

On the other hand, cricket brings in much-needed advertising revenue over the summer, a period which is generally quiet for TV ratings.

The sport has also provided Nine with a platform from which to launch new TV programs at the start of the year.

Moreover, Nine has said it plans to list on the ASX by the middle of next year. The absence of cricket on Nine’s programming schedule – for decades a regular fixture – might spook some potential investors over Nine’s ratings prospects.

READ NEXT: (Financial Review links)

Cricket rights ‘a dud deal’ for rivals Nine, Ten

Posted Fri May 10, 2013 1:03pm AEST

Listen to the live story here

The Nine Network’s decades long ties to cricket appear to be under threat, with the Ten Network working hard to win the broadcast rights deal. Australia’s major winter sports have all recently secured big money deals, but a former Nine executive says the network would be wise to let cricket go.

Transcript of the ABC’s ‘The World Today’

EMILY BOURKE: It’s called the sound of summer and for more than a generation cricket has also been the bedrock of Channel Nine’s programming schedule.

But with a new broadcast deal being negotiated, the Ten Network is trying to steal the prize from Nine ahead of this year’s double Ashes series.

The stakes are high for both networks, but also for Cricket Australia itself.

Simon Frazer has the story.

(Sound of Channel Nine cricket theme)

SIMON FRAZER: It’s a theme tune that’s evoked summer days on the couch for more than three decades.

Nine’s association with cricket and the mythology of how Kerry Packer got it there runs so deep, the network last year ran a mini-series about it.

(Extract from Howzat mini-series)

KERRY PACKER: How much do you want?

AUSTRALIAN CRICKET BOARD OFFICIAL: We’ve already sold the television rights.

KERRY PACKER: I’ll give you $1.5 million. Come on, gentlemen.

(End of extract)

SIMON FRAZER: Now there’s a new fight for the rights but this one is being fought behind closed doors in a high stakes game between Nine and the Ten Network.

Added to the mix is court action being taken by Cricket Australia against Nine, reportedly in an effort to take the rights away from their long-time home.

Former Nine executive Glenn Dyer, who’s now a media and business write for Crikey, says there’s irony to this battle when compared with Kerry Packer’s fight for the rights in the 1970s.

GLENN DYER: As a result of those events there was quite a nasty legal action launched by the Packer camp against the then Australian Cricket Board from memory and Packer won. There’s a peace deal and he got the cricket rights.

SIMON FRAZER: Some of those linked to today’s fight also have close links to the past.

James Packer is a major shareholder in the Ten Network, while Nine boss David Gyngell also hails from a family that’s been involved with the network from its inception.

Media analyst Steve Allen, from Fusion Strategy, says Mr Gyngell will not want the rights lost on his watch, but doesn’t have money to burn.

STEVE ALLEN: He’d be on a very short leash and overbidding for sports rights would not be something these venture capitalists would want to head down the path of.

SIMON FRAZER: And what about James Packer and his role at Ten?

STEVE ALLEN: We don’t think that he would be partaking in this in any way. He’d have a point of view about it but James Packer’s quite pragmatic so he’d be on the side of don’t overpay. If the others want to overpay and they can’t make money, that’s their problem.

SIMON FRAZER: Fairfax newspapers are today reporting that Ten has tabled an offer worth half a billion dollars over five years.

At that price, Glen Dyer says Nine should give the game away.

GLENN DYER: If Nine does lose it, that will be the most sensible decision that a TV network has made because the half a billion, if that’s true, that Ten is reported to be offering, that’s $100 million a year in cash and contra. There’ll be a section for on-screen ads and things like that. That’s a ridiculous amount of money for a sport that depends upon one event every four years and that’s the Ashes tour here in Australia.

SIMON FRAZER: Steve Allen says the rights are worthy of a fight, even though some have suggested the revenues from cricket may not cover the cost.

STEVE ALLEN: They’re very important to both. Ten’s position probably overshadows Nine because Ten doesn’t have a major sport presently. It had some coverage in AFL in years gone by but it chose not to pursue that under the then management and the then strategy set by the board.

SIMON FRAZER: Would it make any sense to bid so much that you actually are in essence losing money directly on the broadcast deal?

STEVE ALLEN: From a Ten perspective it makes a little bit of sense in as much as they’re in a parlous position in ratings overall. They’re not in a good position in the market, they’re not in a good position with regard to advertiser and media buyer attitudes to the network and they need to lift their game and the only way they can lift their game is with programming.

SIMON FRAZER: As for the stakes for cricket itself, it’s believed the sticking point between Nine and Cricket Australia is over broadcasting domestic games on free-to-air television.

There’s been some speculation that may be a trigger for Cricket Australia to strip Nine of the rights despite its first right refusal clause.

Glenn Dyer says the rumoured price makes no more sense for Ten than it does for Nine.

GLENN DYER: Ten I know operates at a loss during summer so why they want to do this when they could actually use the half a billion if they can get their hands on it to invest in new programs for their prime time schedule which is shot to bits and which makes them money and would make them a genuine competitor to Seven and Nine next year and the year after, why they’d want to do this.

This is very easy old fashioned television and it’s dumb.

SIMON FRAZER: The World Today has contacted several commentators and former players over what cricket needs from the new deal, but those who responded preferred to comment only on what’s happening on the field.

EMILY BOURKE: Simon Frazer with that report.