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TV & Radio

May 2, 2011

Footy rights winners and losers ... AFL looked after its own

The AFL has certainly looked after its own, with the winners from the AFL’s landmark broadcast rights agreement largely being AFL insiders.

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After almost a year of tense negotiations, the most expensive sporting broadcast agreement in Australian history has been signed, with Channel Seven, Foxtel and Telstra agreeing to pay the AFL a record $1.1.18 billion over five years for the rights to televise matches until 2016 (plus a further $125 million worth of contra advertising also being provided).

But while AFL CEO Andrew Demetriou claimed that “everyone is a winner” in announcing the deal — there is one group of stakeholders who certainly haven’t appear to have been quite for fortunate.

The winners

The AFL executive — already among the highest paid executives in Australia (not merely for sporting organisation, but for all businesses), the billion dollar broadcast deal will allow Demetriou to increase his $2.2 million annual salary, along with loyal lieutenants, Adrian Anderson and Gillon McLachlan.

The players — the new agreement is likely to lead to a significant rise in player salaries. Traditionally, AFL players, who until the late 1990s were generally part-time employees, receive a far lower proportion of revenue than their international rivals. Tony Boyd in the Financial Review noted that in 2010, players received only 21% of the competition’s revenue, down from 27% in 2001. By contrast, Premier League Soccer has tended to pay players upwards of 65% of revenue while Major League baseball and NFL in the US pay just under 60% of revenue to players (both sports suffered industrial strife in recent decades).

Aside from being less professional, the historical reason that AFL players have tended to receive a smaller share of revenue is due to the nature of ownership of football clubs (being member-based rather than privately owned organisations) and the precarious nature of clubs’ finances. The more lucrative broadcast deal, combined with impending free agency, is almost certainly likely to drastically increase player payments and place several clubs under serious financial stress.

Foxtel — the deal struck by Foxtel, while expensive, is critical to maintaining subscriber growth and reducing churn. As Rupert Murdoch proved with BSkyB in the UK, live sporting rights to leading competitions are essential in driving pay-television penetration. While Foxtel will be contributing more than half of the broadcast cost (at $600 million), it will be able show every game (other than the grand final live), and be practically the only provider of football broadcasts to New South Wales and Queensland.

The clubs — the AFL clubs will most likely win from the deal, allowing their bloated administrations continue to expand. Since 2001, payment to clubs has increased from $62 million to $141 million. However, those funds have largely been spent on administration and additional staff (the AFL stubbornly refuses to impose any sort of off-field salary cap on clubs). While some clubs (Collingwood, Essendon, Adelaide and Hawthorn) are exceptionally well run, others continue to struggle financially despite the largesse flowing from fans.

The Losers

The fans — AFL fans have quietly accepted significant price increases in memberships, reserved seats and finals tickets in recent years. A booming economy has allowed the AFL, as the owner of the dominant sporting franchise in Australia, to rely on a highly inelastic demand for the sport. In the AFL’s 2010 annual report, it noted that “in 1999, St Kilda had slightly more than 20,000 members and attracted average crowds of 33,000 per home game. The club had 39,000 members in 2010 and attracted average crowds of 38,000 per home game”. However, despite the increase in attendance, admission and seating costs for fans has skyrocketed, with the annual cost of a premium reserve seat (not including ground admission) increasing from $180 annually to about $400. One would expect a doubling of membership to reduce costs (as the fixed costs of staging matches is spread over more members), this has not occurred.

Not only have direct attendance costs increased substantially, but the new broadcast agreement will compel many supporters to pay upwards of $700 annually for a Foxtel subscription to allow them to watch their team play on TV each week. Currently, the penetration rate of subscription television in Australia is about 30%, which means a large proportion of AFL fans will be forced to pay extra under the deal. This represents a share contrast to the NFL in the US, which has managed to negotiate a far steeper increase in broadcast fees but maintains live, free broadcasts into local cities.

Before Foxtel’s introduction to AFL in 2001, supporters were guaranteed live, free-to-air coverage when their team played interstate. Now, those games are either on pay television or delayed.

Aside from paying more, fans have also been forced into attending and watching games at inconvenient times, to maximise the value of the rights for broadcasters. The highly unpopular twilight and occasional Monday night games are loathed by fans, but loved by broadcasters, who are able to show the games to a prime-time audience.

For the AFL’s most important stakeholders — instead of a $1.2 billion rights agreement (with hundreds of millions of dollars “lost” to AFL executives, bloated clubs and rocketing player payments), they would prefer a far less “rich” agreement with a free-to-air broadcaster. That would lead to lower player payments and administration costs, but also reduce the cost to supporters by almost $1,000 annually.

Channel Seven — not necessarily a loser, yet, but taking a very significant gamble. Seven is paying $475 million for the rights to broadcast four matches a week, that’s $95 million annually (before production costs), fairly similar to the cost of the current rights, which are split between Seven and Ten. However, the Financial Review reported Citigroup analyst Justin Diddams estimated that the networks generate about $73 million in revenue from AFL broadcasts. That means Seven, even if it is able to sell a couple of games a week, probably won’t even cover its costs, let alone generate a commercial return. While the “halo effect” of sports broadcasting rights flows onto other areas, a drop in the advertising market in general could make the Channel Seven gambit a risky one indeed.

The AFL has certainly looked after its own, with the winners from the AFL’s landmark broadcast rights agreement largely being AFL insiders — staffers, players and the executive. However, it is difficult to envisage that the deal is one that is in the best interests of the AFL’s most important stakeholder — its supporters.

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2 comments

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2 thoughts on “Footy rights winners and losers … AFL looked after its own

  1. Pete

    I have to take Adam to task on this – the fans are the biggest winner out of this deal. No longer do we have to put up with delayed games, blackspots ouside of Victoria and general poor treatment of games by the free-to-air broadcasters. Foxtel is a small price to pay for live football, all fans being able to watch their team (even if it isn’t a local one) and a higher standard of picture quality. Channel 7 especially, have treated viewers with absolute contempt for years now and it is beyond me why anyone would want to watch their sub-standard broadcasts anymore.

  2. davirob

    I agree with Adam about C7,the only halo effect I get from them is negative.Two matches on last sunday an in Adelaide we got car racing.I don’t pretend to understand this but C10 get taken over awhile ago and now disappear from calculations?

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