Football in the Digital Age – Chapter 8

8. Sneaking in through the back door? Media company interests and dual ownership of clubs

Adam Brown

This chapter outlines the main developments in the media ownership of English football clubs in the aftermath of BSkyB’s failed attempt to take over Manchester United, and highlights the dangers these pose for football. It focuses on two main concerns: firstly, media penetration of football clubs’ ownership; and secondly, the dual ownership of clubs.

The chapter argues that key decisions made by the Monopolies and Mergers Commission (MMC) and the Restrictive Practices Court (RPC) are in jeopardy because of moves made by broadcasting companies in the wake of these decisions to own stakes in clubs. Briefly, the judgement of the MMC was designed to protect competition within the pay TV sports market, and the RPC decision was that it is in the public interest to maintain the collective negotiation of TV rights and its concomitant redistribution of monies. Furthermore, I argue, those developments since the MMC ruling and the RPC outcome have also raised concerns over the dual ownership of clubs. These problems are exacerbated because it is media companies that are involved, but dual ownership per se is something that has been outlawed by football authorities here and across Europe.

The chapter concludes that only quick and robust action by competition authorities and the football authorities will protect football and the pay TV market from undue influence and unfair competition by certain companies. The government has shown itself to be prepared to call in competition authorities to protect competition in the pay TV field and it now needs to secure the progress already made. The football authorities have an obligation to uphold their own rules regarding the dual ownership of clubs by outlawing the integration of media companies into the ownership of more than one club. At a time when there is unprecedented interest in the regulation and governance of football, these developments pose a serious challenge to existing regulatory structures and, crucially, will test the efficacy of those structures.

1. Media Ownership

The two key decisions made in relation to the ownership of clubs and the negotiation of television rights this year were made by the Monopolies and Mergers Commission in April 1999 and the Restrictive Practices Court in July 1999. It is worth remembering what they said.

The MMC was asked by the Office of Fair Trading to investigate the merger of BSkyB and Manchester United. Their report was unequivocal in its opposition to the merger, a report that was subsequently accepted in full by the Secretary of State for Trade and Industry, Stephen Byers, on 9 April 1999. The MMC’s main areas of concern were fivefold. Firstly, that the merger would be anti-competitive in the pay TV market because it would give BSkyB an unfair advantage in the negotiation of Premier League and other TV rights. Secondly, the already dominant position of BSkyB and the market power of Manchester United would exacerbate such an advantage. Thirdly, any advantage that BSkyB might gain could not be overcome by the imposition of ‘Chinese walls’ (barriers to the flow of information such as between subsidiary and parent boards), non-exclusive deals or even exclusion from the rights negotiations. Fourthly, the merger would also damage the quality of British football by increasing the ‘wealth gap’ between richer and poorer clubs through a greater retention of TV revenue by the most popular clubs. And finally that the merger would give BSkyB additional influence over Premier League decisions which would be against the long-term interests of the game.1

Following complaints from cable TV operators, the Office of Fair Trading took the Premier League, BBC and BSkyB to the Restrictive Practices Court. This was on the grounds that the sale of live Premier League TV rights to BSkyB and the BBC was both collective and exclusive. The OFT believed that the Premier League was acting as a cartel in its sale of rights and as such was being anti-competitive; and that the ‘exclusive’ nature of the deal was restrictive in that it prevented other TV companies screening games which BSkyB chose not to.

After a nine-month court case, the judge, Mr Justice Ferris, ruled in favour of the Premier League. In this second landmark case, he again raised the ‘public interest’ concerns he had with the way football is financed through television. In particular he supported the notion that the collective sale of rights allowed for the redistribution of income in the game:

Indeed we see no need to differ from the view of the Football Task Force that, from the public point of view, it is desirable that resources generated by professional football should be invested to a greater extent than at present in the lower levels of the game. The removal of restrictions now under consideration would therefore deny to the public a benefit or advantage.

However, despite these unequivocal rulings, a number of matters remain unclear in relation to both cases. In his statement to the stock exchange on 9 April 1999, Stephen Byers acknowledged the MMC’s concern ‘about the scope for the competition authorities to examine mergers involving football clubs’. Primarily, most clubs fall below the £70 million threshold to be considered ‘qualifying mergers’, and existing regulations seem unclear about the partial purchase of clubs by media companies. Mr Byers announced that he would seek views on whether changes were needed in the guidelines so that other club mergers could be examined, with particular reference to public-interest concerns. No such changes were announced by the DTI during the time the developments outlined below happened.

In fact, no takeovers occurred in the wake of the MMC decision on BSkyB/Manchester United. Indeed, financial analysts believe that:

predictions that broadcasting companies would rush to snap up clubs to gain ownership of valuable media content have proved unfounded, not least because of regulatory hostility to such potentially anti-competitive deals. A few media groups have bought small stakes in some clubs but, beyond these, takeover interest has all but died.2

Of primary concern, therefore, is the question of whether the spate of media companies buying minority stakes in clubs in the wake of the MMC and RPC decisions do, in fact, raise many of the same problems which the MMC highlighted. The adequacy of the regulatory functions of both football and competition authorities to protect the long-term interests of the game is now being tested.

In the months after the MMC and RPC decisions a number of developments occurred in relation to the media ownership of football clubs. NTL, who hold a 6% stake in Newcastle United, withdrew their takeover offer in the light of the MMC’s ruling in April 1999. However, they maintain their stake in the club. NTL are quite open about why they continue to hold their stake in Newcastle United. In an e-mail letter dated 27 October 1999, Bruce Randall, NTL’s public relations manager, outlined the reasons for their continued investment thus:

NTL is interested in gaining a seat at the negotiating table when it comes to television rights . . . We believe that entering into a partnership with Newcastle United is an excellent opportunity for us to enter the UK sports pay TV market . . . Clearly, media companies like ours taking stakes in football clubs puts them in a better position to be involved in screening top-level football in the UK.

The motives are crystal clear here: NTL see their investment in Newcastle as strategic in that it buys them something more than a return on their stock – it buys them a seat at the negotiating table for TV rights. This should set alarm bells ringing with those authorities that blocked BSkyB’s takeover of Manchester United on these grounds.

Granada Television bought a 10% stake in Liverpool – still a limited company – on 13 July 1999 for £22 million. ‘The deal,’ said The Guardian, ‘effectively earns the television company a seat in football rights negotiations,’ and a ‘senior Granada executive’ would be appointed to the board. The role in relation to TV rights negotiations, said chief executive Rick Parry, would be to ‘advise, guide and represent us’.3 Again, it is clear that this investment is not straightforward in that it has additional benefits and roles for Granada, primary of which is increasing their chances of accessing live football.

Having lost their bid to take over Manchester United, BSkyB maintained their 11.1% stake in the club. Due to the sale of shares by chief executive Martin Edwards in October, BSkyB are now by far the club’s biggest shareholder and they also maintain their one-third ownership of MUTV.

In August 1999 BSkyB announced that it was to take a stake in Leeds Sporting, the listed parent company of Leeds United. Following the approval of shareholders, 9.2% of Leeds was sold to BSkyB for £13.8 million on 11 October 1999. Central to the deal was the agreement that BSkyB would act as ‘media advisors’ for Leeds United and that they would take a huge 30% commission on any increase in revenue from television contracts over the next five years. Again the nature of the deal leaves no doubt as to BSkyB’s expectations to be centrally involved in the negotiations for TV rights.

In November 1999, BSkyB secured a similar deal with First Division leaders Manchester City who, like Liverpool, are not a listed company. Here BSkyB bought 9.9% for £7.5 million and they have a deal very similar to the Leeds one to act as media agents for the club, with similar remuneration. BSkyB’s role is not to invest in Manchester City merely for the possible long-term return that might give, but to place the company in a strategic position with regard to the negotiation of TV rights.

It is likely that further penetration of football club ownership by these and other media companies will occur – it is reported privately that a number of deals are already in progress. The current collective Premier League TV deal is due for renegotiation in 2001, with speculation already mounting about possible bids. Questions still remain over the nature of these negotiations – although the Premier League remains committed to collective negotiation; whether this happens and whether it allows non-exclusive deals to be made is uncertain. Thus, the developments outlined above suggest that media companies are positioning themselves to influence those negotiations. This threatens the free and open competition in the pay TV market as well as football’s ability to determine its own future and structures of finance. Furthermore, it is clear that BSkyB’s roles at Manchester City and Leeds United will be to negotiate media deals on behalf of each club. This places BSkyB at a clear and blatant advantage to other broadcasters in relation to the sale of those clubs’ TV rights. As the dominant shareholders in Manchester United and as partners in MUTV, BSkyB have a similarly powerful position in relation to that club’s negotiations, which, as the MMC have already highlighted, have an unusually powerful position in the market of pay TV Premier League football. Granada’s position as media agents at Liverpool and NTL’s openly stated reasons for investing in Newcastle United illustrate clearly that their aim is to secure access to screening live football of their respective clubs.

These factors mean that the ownership changes outlined pose a significant and serious threat to football and to competition within the UK pay TV market for a number of reasons. There are a number of scenarios. Were Manchester City to get promoted, BSkyB could have tie-ins with three clubs in the Premier League. This will significantly increase their ability to win future rights for Premier League matches, when, as the MMC concluded, they already enjoy great market power and any extension of this would be damaging to competition. It is perfectly possible that through purchasing stakes in yet more clubs, BSkyB could effectively ‘buy’ enough votes at the Premier League to block any other broadcaster getting the collective Premier League contract. Ironically, this would be achieved for considerably less than their attempted takeover of Manchester United. Even if no more stakes in clubs are taken, the broadcaster will have, through its stakes in Manchester United and Leeds, access to privileged information in relation to the sale of Premier League broadcasting rights. The same applies to NTL and Granada. As the MMC concluded, ‘no undertakings . . . could ever prevent the informal flows of information, nor would they prevent [the clubs] influencing the rights negotiations in advance of the formal negotiations’. The broadcast company could therefore gain competitive advantage over their rivals, whether ‘their’ clubs were part of the negotiations or not. That BSkyB and Granada have agreements to act as their clubs’ media agents, merely exacerbates this concern.

However, such agreements also raise a conflict of interest in that, in BSkyB’s case, the leading broadcaster of live football will effectively be negotiating with itself, and, extraordinarily, be paying itself commission. In this there will be a clear conflict of interest for the broadcaster: their chief concern will be to get TV rights for as little as possible while their role as clubs’ agents will be to get as much as possible for these rights (for which they will then be paying themselves commission). In such a scenario, the clubs (fans, players, managers and shareholders) will be put at a disadvantage. Whether rights are sold collectively or individually, the adverse effect on competition of having leading broadcasters acting on behalf of clubs will be detrimental to the clubs. There is also the danger that there may soon be enough broadcast companies with stakes in football clubs who see their best interests served through the individual sale of TV rights to use their voting power at the Premier League to prevent a collective deal, against the long-term interests of the game and its customers as highlighted by the RPC judgement.

There is a secondary concern, to do with the ownership of stakes by media companies in more than one club. If Manchester City win promotion, BSkyB would own stakes in three clubs in the Premier League in the 2000–2001 season; they will certainly hold stakes in three clubs competing in the FA Cup and League Cup. Such a situation appears to be against the rules of the football authorities (see Section 2, below) and as such should be dealt with by their regulatory structures, as would be the case whatever kind of company it involved.

However, dual ownership of clubs by media companies (as opposed to other companies) raises additional concerns about competition within the football market, which should be of interest to the competition authorities. Problems of dual ownership are exacerbated when it comes to media companies because of television’s strategic importance in terms of football’s finance and the horizontal and vertical integration of the two. If one media company has an undue interest in more than one club a number of problems may occur, including favouritism for clubs they own in terms of numbers of matches screened, arrangement of fixtures, reporting of games and disciplinary factors. There may also be restrictions on access to players and other staff for other media companies and platforms. There could be a gradual erosion of the collective and redistributive function of the Premier League, exacerbating the ‘wealth gap’ problems of which the MMC made special mention in their report. Media companies would have guaranteed access to matches at clubs in which they have an interest, which are not covered by existing, or future, collective agreements (e.g. Champions League and UEFA Cup). The more clubs, the bigger the section of the market they could secure through ownership, rather than through fair competition in the sale of rights. Suspicion may also arise over the validity of results involving clubs owned in part by the same media company.

Media Ownership – Summary  The MMC ruled that BSkyB’s purchase of Manchester United would give BSkyB an unfair advantage over their competitors in terms of access to Premier League TV rights, which would be detrimental to competition in the pay TV market as a whole and which would adversely affect the health of British football. BSkyB’s ‘Plan B’, therefore, has been to gain strategic roles within clubs without leaving themselves open to the scrutiny of the competition authorities: coming in quietly through the back door, rather than the front.

The role of other media companies pursuing similar strategies does not lessen the effect of this. It increases the threat to the collective negotiation of Premier League TV rights. This collective and redistributive function was upheld in the public interest after a lengthy court case but now needs further safeguarding.

It is clear that the strategic nature of the stock purchases at both floated and private companies raises many of the same concerns as the BSkyB/Manchester United merger. They are deliberately and explicitly designed to increase the ability of those companies to secure TV rights. The warnings in the MMC’s report, it appears, still need to be heeded. Nicholas Finney, a retired member of the MMC panel which ruled against the BSkyB takeover of Manchester United, and who also writes in this book, has said that further action is needed by the authorities in order to adequately confront the threat to competition which these purchases represent.

Furthermore, following the RPC decision, it was widely recognised by commentators that the judge’s support for collective and exclusive selling of Premier League TV rights was by no means a guarantee that the new TV deal, in 2001, would be based on these lines. It was recognised that pressure from television companies and the desire of a minority of top clubs to increase their share of the money from TV deals could lead to a breakdown of the collective arrangements. This threat to the public interest exists anyway, but it is increased hugely with the trend in the part-ownership of clubs that we have highlighted here.

In almost every scenario, the public interest, competition within the pay TV market and the good of football – which Justice Ferris, the MMC and the Trade Secretary all upheld earlier this year – will be jeopardised. The Office of Fair Trading and the Department of Trade and Industry should act quickly to prevent any further part-purchases of football clubs by media companies. Media companies who currently have stakes in football clubs should be forced to divest themselves of those shares.

2. Dual Ownership

Dual ownership by media companies is an issue dominated by BSkyB in English football. BSkyB now own 9.9% of Manchester United plc, who wholly own Manchester United Football Club. They are by far the company’s largest shareholders. BSkyB also own 9.2% of Leeds Sporting, who wholly own Leeds United. BSkyB also own 9.9% of Manchester City. Furthermore, they have agreements with both Manchester City and Leeds United to act as ‘media agents’, with seats on each board, in which they will have a role in TV rights negotiations and benefit from any increase in TV revenue. Clearly, BSkyB enjoy a powerful position in making key decisions in three clubs.

All three football authorities in this country – the Premier League, the FA, and the Football League – have clear rules to prevent clubs being owned by the same person or company. Traditionally, the basis for these rules is to maintain fair competition in football and avoid suspicions of clubs coming to agreements with each other over results, finance and transfers. Within the context of the developments outlined above, a new and additional threat is that dual ownership by media companies will be used to help them gain access and preferential deals for TV rights. The current competition rules of the football authorities are outlined below.

The competition rules of the FA Cup, run by the Football Association, the English game’s governing body, are explicit. Rule 30 states:

a) Save with the prior written permission of the Council no club may compete in the competition at any stage where that club is interested in another club which is participating in the competition or wishing to participate in the competition (‘the Second Club’). The Second Club shall similarly not be permitted to participate in the competition at any stage.

b) Save with the prior written permission of the Council no club may compete in the competition at any stage where a person or any associate of that person is interested in such club and a Second Club . . .’

The FA define a club, person, or associate as one who:

  1. holds or deals in . . . the securities or shares of that club; or
  2. is a member of that club; or
  3. is involved in any capacity whatsoever in the management or administration of that club; or
  4. has any power whatsoever to influence the financial, commercial or business affairs or the administration of that club . . .

The FA can disregard the holding of less than 10% of the share capital, but only if ‘those shares are, in the opinion of the Council, held purely for investment purposes only’. The additional factors in BSkyB’s ownership of Manchester City and Leeds – their seat on the board and agreement to act as media agents – seem to override this condition.

The FA Premier League have similarly comprehensive rules regulating the involvement of persons or companies in more than one club:

Except with the prior written consent of the board, no club may either directly or indirectly:

2.1 hold or deal in the securities or shares of another club;

2.2 be a member of another club;

2.3 be involved in any capacity whatsoever in the management or administration of another club;

2.4 have any power whatsoever to influence the management or administration of another club.

Further, Rule 3 of the Premier League rule book states that:

‘no person, by himself or with one or more associates, may at one time, either directly or indirectly be involved in any capacity whatsoever in the management or administration of more than one club.’

Rule 4 makes a similar distinction to the FA rules with regard to a 10% shareholding by saying that:

‘no person, by himself or with one or more associates, may directly or indirectly hold or acquire any interest in more than 10% of the issued share capital of a club while he or any associate is a director of, or directly or indirectly holds any interest in the share capital of any other club.’

The Premier League also follow a similar definition of ‘associate’ to the FA and their conditions outlined in 2.1–2.4 suggest, again, that the intention of the 10% rule would be effectively bypassed in relation to BSkyB’s investment in Manchester City and Leeds.

The Football League have almost identical rules to the FA, but state that they are in place to prevent associations and dual interests which might ‘undermine the integrity of league competitions and the reputation, credibility and image of professional football clubs’. The League can force any club in breach of these regulations to ‘take such action as is necessary to rectify the breach’ with the ultimate sanction of expulsion from the League.

The European governing body, UEFA, have similarly strict guidelines on associations between clubs. Their rules were invoked in relation to media company ENIC’s majority stake in Slavia Prague, part-ownership of Rangers and full ownership of Vicenza and AEK Athens. Although UEFA’s ruling that two teams in which ENIC had interests could not compete in the same UEFA competition was challenged within the European Commission by ENIC, UEFA’s rules were found to be legal under European law.

It should be restated that for all football authorities, regulations on dual ownership are quite explicit in a number of areas. Firstly, that a shareholding of 10% or less is not considered to be an interest. Secondly, a shareholding of 10% or more precludes a company having any interest in another club. Thirdly, any shareholding which is not solely for investment purposes – whether under 10% or not – shall be considered an interest; and finally, that any power or agreement to influence the business decisions of one club shall preclude that person’s (or company’s) interest in any other club.

BSkyB’s holding in Manchester United, their recent acquisitions at Leeds and Manchester City, and their strategic roles at the latter two clubs, are a prima facie transgression of competition rules in English football.4 It should be remembered that all three clubs compete in the Worthington League Cup; that all three compete in the FA Cup (except for the 1999–2000 season); and that Manchester United and Leeds compete in the Premier League. Manchester City will also compete in the Premier League in the 2000–2001 season should they gain promotion. There are a number of areas where rules on dual ownership appear to have been broken: BSkyB’s holding of 11.1% of Manchester United should have precluded them from owning any shares in any other football club with whom Manchester United might be competing. This was acknowledged by the Premier League, who obliged BSkyB to reduce their holding to below 10% at the end of November 1999. Even with their current holding of 9.9%, however, they are still by far the largest shareholder in Manchester United and as such they could certainly be deemed to have ‘any power whatsoever to influence the financial, commercial or business affairs or the administration of that club’.5 In any case, BSkyB must have the ‘prior written permission’ of the football authorities (the board of the Premier League, the FA Council or the board of the Football League) for holding stakes in more than one club. This had not been given.

BSkyB’s agreements with Leeds to act as their media agents and to sit on their board should preclude them from holding any interest in any other club as this constitutes ‘any power whatsoever to influence the financial, commercial or business affairs or the administration of that club’. Likewise, BSkyB’s agreement with Manchester City should preclude any other interest or agreement with any other club. Even if all these agreements were terminated, it is clear that BSkyB’s holdings in these clubs are not ‘held purely for investment purposes’ but to be able to influence the sale of television rights. They are ‘buying a seat at the negotiating table’ in NTL’s words.

Recommendations

BSkyB’s ownership stake in Manchester United and its recent purchase of stakes in Manchester City and Leeds, as well as its agreements with those clubs, represent a multiple transgression of the football authorities’ rules. These rules were designed to protect the integrity of football. It is absolutely essential to the credibility of the football authorities’ regulatory functions that they uphold their own rules regarding the dual ownership of clubs. It is particularly important in this case, as indicated above, because of the nature of the company concerned – already the dominant market force in sports pay TV and seeking to further enhance this position. The importance of TV revenues to football make this a matter of central concern for the whole game.

The following action by the FA is therefore appropriate with regard to the FA Cup: if BSkyB wish to maintain their shares in Manchester United, they should divest of their interests in Leeds and Manchester City. Alternatively, BSkyB should divest of its shares in Manchester United and one of the other two clubs. BSkyB’s additional agreements with Manchester City and Leeds should, if they are not ruled anti-competitive by the competition authorities, be nullified. Under existing rules BSkyB could maintain their agreement with one of these clubs, provided that they divest of their interests in all other clubs. To ensure that these measures are implemented, the FA should make it clear that the only alternative is expulsion of the clubs concerned from the FA Cup.

The Football League should also apply the same action to the Worthington League Cup. To ensure that these measures are implemented, the Football League should make it clear that the only alternative is expulsion from the Worthington League Cup. Similarly, the FA Premier League should take the following steps with regard to the Premier League: BSkyB should end their ownership either of 9.2% of Leeds or of 9.9% of Manchester United. If BSkyB were to maintain their ownership of 9.9% of Manchester United, they should end their agreement with Leeds United to act as ‘media agents’. Should Manchester City gain promotion to the Premier League, BSkyB should be made either to divest of their holdings in Manchester City and terminate their agreement with that club or divest of their interests in other Premier League clubs. The Premier League should prevent BSkyB buying further stakes in any other Premier League club and prevent the company from making similar agreements with other Premier League clubs. To ensure that these measures are implemented, the Premier League should make it clear that the only alternative is expulsion from the League.

Dual Ownership – Summary  The football authorities in the UK and Europe have robust rules to prevent the dual ownership of clubs and to prevent associations between clubs. It seems clear that Manchester United, Leeds and Manchester City are in contravention of these rules relating to three English competitions – the FA Cup, the Premier League and the League Cup. Should both Leeds and Manchester United qualify for the Champions League in the 2000–2001 season, they may also be in contravention of UEFA rules. The fact that these dual associations involve the biggest broadcaster of sport in the UK, BSkyB, and that BSkyB has board membership and additional agreements with Manchester City and Leeds to act as their ‘media agents’, makes the case compelling. It raises additional concerns about the integration of media companies into the ownership of football to those outlined in the first part of this chapter, and places a question mark over the future finance, organisation and governance of football.

ENIC – A Test Case  The football authorities should be confident of their position in relation to these matters of dual ownership. The right of membership associations in football to enforce their rules on dual ownership was upheld in the Enic test case at the European Commission. This followed a complaint by Enic when UEFA challenged their ownership of a number of clubs in different countries which were competing in UEFA competitions. In a third landmark ruling relating to media companies in 1999, UEFA were allowed to enforce their own rules preventing dual ownership of clubs. Their example now needs to be followed in England.

Conclusion

There has been considerable debate and discussion in the UK in relation to the governance of professional football. The government’s Football Task Force was established to make proposals for the better governance of the game and in the course of this has deliberated about what form of regulatory mechanisms are needed in English football. The developments which this chapter outlines, and the contravention of FA, Premier League and Football League rules which they appear to represent, are a test for the authorities and their regulatory function. Quick, unequivocal and firm action is needed to safeguard both the integrity of professional football in England and its long-term financial health. Although other matters concerning media companies owning strategic stakes in football clubs ought to be dealt with by the competition authorities, the concerns of dual ownership and common associations are in themselves matters for regulation by the football authorities.

A failure to police adequately its own rules in this case will not only damage the health of English football but also strengthen the calls for an independent regulatory structure for football.