Sky Sports to ESPN: Nice Try, Sucker! Or, Everything You Wanted to Know About Football Broadcasting Rights but Were Afraid to Ask.

Around these parts, we’ve been carefully following ESPN’s not-so-quiet moves to expand into the English Premier League (suck it, Barclays!). We certainly haven’t been the only ones to notice that Sportscenter has been covering more and more European football in its highlight package and on its score tickers. Then there is the prominent placement of “soccer” on the ESPN homepage, which directs you to soccernet (of course, we can debate the quality of soccernet’s news coverage, but that’s for another post). We’ve even heard rumors that ESPN planned to convert ESPN Classic into an all-football channel. Well, yesterday Sky Sports took a major step to curtail ESPN's moves into football.

After the jump, it's time for me to go into full-on sports business wonk-mode....



As far as I could tell, ESPN’s expansion strategy looked (note the past tense) like this: snag one or more of the British broadcasting packages that were coming up for bidding in order to expand into the British market, and then start incorporating more English football into the U.S. market. You see, the model that works quite well for Sky/FSC (both owned by Rupert Murdoch) and Setanta is simply to broadcast the same games in both markets using the same broadcasting team – it’s a cost-effective move, and is only possible because the U.S. and England are separated by a common language (as opposed to, say, broadcasting NBA games in China – you still need a separate broadcast team). Plus, it’s a win-win because it allows ESPN to start expanding more into Europe, where the network is newer and has a relatively poor reputation, by drawing in viewers with football.

The other piece of background you need to know is that the English Premier League divides the broadcasting rights into six packages. Essentially, by dividing up the broadcasting rights into separate packages, the Premier League increases the overall value by forcing broadcasters to bid against each other on multiple fronts. As things currently stand in the United Kingdom, Sky paid £1.3 billion for the rights to four packages through 2010. Each Sky package includes 23 games, and consists of the two Sunday games, the first-choice Saturday afternoon game and another "floating" game. Setanta owns the other two packages, which are slightly less valuable overall and include the Saturday evening game and the Monday night game. Bids for the 2010-13 British package were due last week, and the bidding on the U.S. rights (along with the rest of the world) is expected to start once the British rights are settled.

Okay, so far so good. And this brings us to yesterday, when Sky decided they’d like to keep things the way they are, thank you very much, and were indeed re-awarded their four existing packages by the Premier League. As the Financial Times reports, for the league to shut down the bidding so soon after the bids were submitted indicates that Sky must have made a “really good knockout offer.” And, the Daily Mail reports that the bid was for an amazing £1.7 billion, which is a huge chunk of money considering the global recession.

If you take nothing else away from this story, it’s that the Premier League is in great shape financially and you can expect clubs to continue to splash out lots more cash on transfers and salaries given the large guaranteed income from T.V. rights.

As for the remaining two packages that are currently owned by Setanta, the Premier League has opened up another round of bidding. The Independent surmises this can mean one of three scenarios: (1) the bids were below what the league was expecting; (2) Setanta has a major rival and the league wants to encourage a bidding war; or (3) Setanta and ESPN were bidding together in anticipation of a possible merger. In my mind, this is where things get very interesting, because no one really knows for sure what’s going on behind the scenes. But, if I’m ESPN, I’m looking at two things: First, that Saturday evening package probably makes the most the sense for U.S. broadcasting because the games air at 12:30 p.m. on the East Coast. Second, although Setanta and ESPN have denied they are in talks, a merger makes a lot of sense if ESPN is still serious about expanding in both Europe and the U.S.

At the same time, Sky has demonstrated that they aren’t afraid to spend a large sum of money to retain their British broadcasting rights because their entire network essentially revolves around football. Sky might be willing to spend even more money and essentially stranglehold its competitors out of the market.

So, this is a still-unfolding story. To me, it is one of the more fascinating things to happen on the business-side of football because it gives a window into all the machinations that occur but are rarely seen. There’s simply way too much money involved for any of these decisions to happen at anything less than a fever pitch.

Update: Just saw on, appropriately enough, Sky Sports News that the European Union prohibits one broadcaster from having a monopoly on all games. So, that changes things a bit -- Sky likely can't bid on those last two packages, meaning it's Setanta v. ESPN for the remaining games. This also helps explain why the EPL divides up the broadcasting rights in the first place. More info here. Again, stay tuned.... we'll try to stay on top of this story.