In an agreement as complex as the AFL Pay TV deal between Foxtel/Austar/Fox Sports, Ten and Seven there are some delightful snippets which illustrate the realities of the relationships.
The mechanics of the deal are amusing. Firstly Foxtel/Austar/Fox Sports will pay a total of $315.5 million over the five years, when broken down it is $50 million cash and contra of $10 million a year. Ten and Seven originally wanted $60 million cash so on the face of it they have come off worst.
Foxtel only wanted to pay a maximum of $45 million, and it appears it has done well. The stand taken by PBL and James Packer opposing any increase has paid off. Foxtel appears to have had the additional win of getting regional “rival” Austar to pay $5 million a year to make the offer look better.
But things are not what they seem. The $50 million is indexed at 3% a year compounding. That means the final year cash payment will be just over $56 million. At Foxtel’s initial offer of $45 million, it would have been liable for a total of $225 million.
Austar kicked in $5 million a year, the aim being to try and get negotiations back on track because it feared losing thousands of private and business subscribers. The contra was thrown in at $10 million a year and won’t rise. It will be used to promote the AFL on Foxtel.
The indexation (compounded) was added to boost the amount to be paid in future years closer to the $60 million. And Foxtel pays the lot. Seven and Ten only have a contract with Foxtel. Austar isn’t mentioned. Seven and Ten both view the cash amount as Foxtel’s and that’s the figure that will be compounded at 3% a year.
On the face of it Austar doesn’t pay, but that will be up to Foxtel to get Austar to pay or not pay. The regional operator isn’t very enamoured of Foxtel and its management at the moment.
The money to be paid by Foxtel doesn’t actually go to Seven and Ten. It will be paid in regular instalments to the AFL, which will reduce the amount payable by Seven and Ten. That way Seven and Ten don’t face bigger than needed cash drains every month in paying the AFL and then waiting for Foxtel to send in its cheque.
The total amount of $780 million for five years includes $90 to $100 million in contra. The actual cash amount is around $680 million, reduced by the $255.5 million in cash from Foxtel and its mates over the five years, meaning Seven and Ten have to generate around $450 million, plus costs, over the five years. That’s well over $100 million between the two in advertising revenues, a big ask.
And finally, just imagine the hacking and slashing at Nine if it had won the AFL at $780 million. Most of it would have ended up on Fox Sports and that’s why Seven and Ten were so persistent.