BT Sport: Game changer
2 December 2013 | By Jonathan Ames
5 December 2013
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4 December 2013
The gargantuan BT Sport-Uefa football deal was all the work of each side’s in-housers – private practice take note
For anyone still naïve enough to doubt that the modern incarnation of association football is about anything but the money, a glance at a recent, extremely high-profile broadcast rights deal is essential.
Sky Sport’s current arrangement, struck in June 2012, to broadcast 116 live English Premier League matches a season set Rupert Murdoch’s empire back £2.3bn. BT – an organisation that less than a generation ago was associated purely with a bizarre piece of central London 1960s high-rise architecture and telephones – at the same time coughed up a similarly whopping £738m to crack Sky’s market by taking 38 live English matches for this season.
But it is the deal cut last month for the broadcast rights to Uefa’s Champions and Europa leagues that has really shaken the market. BT Sport has dug deep into its coffers to hand over nearly £900m for a three-year deal that pinches European football from Sky and ITV, leaving the latter with no live club football on its screens, and the parent company of the former with £1.5bn wiped off its share price.
They are the sort of figures that make Gareth Bale’s recent €100m (£83m) transfer from Tottenham Hotspur to Real Madrid seem like pocket change. And BT is flamboyantly promoting the deal in a bid to get as much publicity bang as possible for such a huge outlay.
A game of one half
“Great sport happens here,” scream two-storey-high banners at BT Sport’s London headquarters near St Paul’s Cathedral. Professional sport – especially football – can more often be frustratingly mundane than great, as anyone who has spent time at an English ground will grudgingly relate.
But regardless of how exciting the competition itself is (and there is always a question mark hanging over punter interest in what many see as the meaningless circus of the Europa League), the legal deal to bring Champions League games to BT Sport is nothing short of remarkable for its audacity.
BT Sport was only 100 days old at the beginning of October when it grasped with both hands Uefa’s invitation to tender for the exclusive live broadcast rights to the two competitions. Very much the new kid on the block, it fell to the business’s legal team to convince one of the world’s biggest sports rights-holders that it wasn’t as green as it seemed. And it did so with one of its key lawyers having been only a month in his role.
Of course, ponying up a cash bid that was roughly double the amount the incumbents had put on the table several years earlier will have gone some way to convincing Uefa poobahs lounging in plush offices in the Geneva suburb of Nyon that they were serious players.
But, says Nigel Paterson, BT’s general counsel for consumer, it really wasn’t all about the dosh.
“Yes, we were putting up a lot of money,” agrees Paterson. “But there were many competing interests that Uefa needed to consider, such as their sponsors and the coverage of the games. So putting all their eggs in one basket? It’s a money thing to an extent, but the criteria for the bid made clear there were lots of other issues – our distribution capability, how we would promote the competitions and the credibility of our offering.”
And perhaps most remarkable from a legal profession perspective, both BT and Uefa negotiated and cut this landmark deal claiming not to have relied on any external law firm advice. It is a decision that may send a few shivers through the partnership meeting rooms of several leading sports business specialist practices. Indeed, there will be potential pause for thought around the partnership luncheon tables at BT’s normal network of firms – Bird & Bird, Sheridans, Olswang and Wiggin.
Keeping it tight
Retaining the legal work in-house is part of a strategic policy at BT Sport that is about much more than keeping the business’s employed lawyers busy; the policy is related to staying ahead of the competition.
“Our view on using external counsel is that where the transaction is high-value or strategic, keeping the work in-house is a complex and vital source of competitive advantage for us,” reveals Paterson. “Those are the type of deals we want to retain in house.”
And the Uefa rights deal precisely fits the model.
The tight timetable for the deal also advocated relying on the in-house team. BT Sport had around a month to submit a bid from receipt of the tender invitation but, more importantly, the negotiation window was narrow – effectively four days between 5 November and midnight on 9 November, when the deal completed.
“What we needed,” says Paterson, “and sometimes perhaps you can get this better with an in-house team – is a completely seamless inter-working with the commercial team.”
BT Sport also had something of an ace up its sleeve. Only a month before receiving the tender invitation, the in-house department had recruited Ronu Miah to head its TV rights and content team. He came from London-based sports marketing agency Kentaro Group, but crucially, before that he had done stints at both Sky and TEAM, the previous rights-holder and Uefa’s global marketing agency respectively.
“Ronu has a huge amount of experience of this type of deal,” says Paterson, “so – along with the other seven lawyers in our TV team – we thought we had the capability in-house.”
Miah is also a strong proponent of keeping the bet-the-farm deals in-house.
“These sports deals are often only three or four years long,” he points out, “so it is important for the in-house team to accumulate that knowledge because deals come up quickly for renewal.”
Goal of the month
The story of the one-month roller coaster ride that saw BT Sport pay precisely €1,075,981,484.31 for a three-year deal for the exclusive rights, beginning in the 2015/16 season, involves a core in-house team of four lawyers.
In addition to Paterson and Miah, commercial content specialist lawyers James Lord and Richard Young also slipped into their boots and took to the pitch. Coming off the bench with specialist Swiss contract law advice was Andy Poell from the legal team in BT’s global services division. Team manager and captain were John Petter, chief executive of BT Consumer, and Marc Watson, chief executive of the business’s TV group.
“One of the biggest challenges,” reveals Patterson, “was that we had to make sure we were prepared in advance, that we knew what our negotiation position would be, what the fallback would be, and that we had arranged all our internal authorisations. The lawyers were inputting directly to the board to make sure it had all the relevant factors when the top execs had to take a stop/go decision.”
In relation to the bidding process Paterson and his legal team recognised they were undeniable underdogs in the bid, so preparation would be key.
“We knew we were at a slight disadvantage compared to Sky and ITV because they’d been through the process before,” he says. “They had seen the contract before and, therefore, under normal circumstances, they should be able to get a contract quicker.”
Keeping a lid on the market-sensitive bid was also essential.
“It was important that we managed the confidentiality of the process,” says Paterson. “We were putting in a unique bid for exclusive rights across both competitions and it was vital that the news of our strategy did not get out. Confidentiality was jealously guarded.”
BT Sport executives also piled pressure on the legal department to ensure that as the clocked ticked down to the final whistle on negotiations, they would be ready with all positions and clearances in place regarding the business’s trading policy.
“The execs wanted to know we could react as quickly as Sky or ITV when Uefa came back with queries,” adds Paterson.
With regard to the legal issues around the rights contract, much of the game could be safely predicted.
“There were the usual suspect issues in play for a content acquisition deal,” says Miah. “From a contractual point of view it was important to ensure that the exclusivity to the live rights to 350 matches was shored up. At the same time we wanted to agree on certain elements where we’d be comfortable with third-party involvement – for example, broadcast rights for the highlights.”
It has just been announced that ITV and News UK have cut a deal with BT Sport to broadcast delayed highlights of some matches.
Despite the exclusive element the deal did not trigger EU competition alarm bells, says the BT Sport legal team, primarily because the arrangement covers just the UK jurisdiction. Instead, comments Paterson, Uefa officials were more concerned about maintaining an element of free-to-air broadcasting for the competitions. One of the attractions of the Sky-ITV deal was that it involved just that through Britain’s leading terrestrial commercial broadcaster.
“That made the combination of Sky and ITV quite compelling and something we had to overcome,” Paterson adds.
“There were some discussions around the number of games we were prepared to put free-to-air,” he says, pointing out that a core plank of the agreement is BT Sport’s commitment that the British clubs will each be shown free-to-air once during the Champions’ League, as will the annual final.
“We will charge for some of our content,” says Paterson, “but as this deal is for the 2015/16 season we haven’t yet decided on the charging structure. Some will remain free-to-air, and our overall mission is to make the content much more accessible and affordable than it has been to date on Sky.”
BT Sport has form in this area. Since the channel launched it has run ‘free weekends’ as a promotional tool. And there is little doubt across the industry that the motivation behind digging so deep into the BT corporate pocket revolved around a desire to hook punters into its broadband internet package through the popularity of the world’s favourite game.
The team cut the deal without ever physically shaking hands with their Uefa lawyer counterparts.
“We didn’t travel to Switzerland,” smiles Paterson. “If we’d all gone there, we wouldn’t have had time to do the deal.”
The legal teams negotiated remotely, relying on the fact that if any business should be able to bring to bear state-of-the-art communications and conference-call facilities, it should be BT.
“All our lawyers were on one floor with the executives,” says Paterson. “That’s vital to get this type of deal done – everyone has to be available and physically proximate. We avoided having to sleep in the office but we concluded the deal at about half-past midnight and then had to wait for the Uefa signature to arrive at about two in the morning.”
Was there a dark hour when heads dropped and it looked as though the deal would unravel? Not really, quips Miah with equanimity.
“Once you’ve done a few rights acquisition deals you don’t expect or encounter too many surprises,” he says.
For Paterson, the crunch of the three-day negotiation window was the deal’s hairiest element.
“Even if you’ve anticipated the issues,” he says, “and you have the experienced team, it is an incredibly intense experience. My background is as an M&A lawyer, so I’m used to deal frenzies, but this was intense even by those standards.
“You had to make decisions in real time, so the advance preparation and having the right team in place were crucial. We had the balance of expertise on side and that is what enabled us to respond. Crucial to the deal was that we were able to show Uefa we knew what we were doing, despite being the new kid on the block.”
So, for the time being at least, the BT Sport team can fly a banner shouting: “Great deals happen here.”
But the pressure will kick off again when the English Premier League broadcast rights contract comes up in around 18 month’s time. Is the
legal team feeling nervous?
“That’s a discussion for another day,” says Paterson.
The BT Sport lawyers
Qualified in 1995 into the corporate department at Linklaters where he focused on M&A deals. From 1998 he
spent two years in-house at ExxonMobil International, before joining BT 13 years ago, initially working on M&A deals for the telecoms giant before spending four years on international outsourcing and systems integration projects for the global services division. Four years ago, he was made GC for the consumer division. He is an Arsenal season ticket holder.
Qualified in 2001 in the corporate team at Freshfields Bruckhaus Deringer before jumping in-house to Sky Sports.
In 2006 he moved to Swiss sports marketing company TEAM, before returning to London to join fellow sports marketers Kentaro Group. He became BT Sport’s head of rights and content three months ago. He has supported Luton Town since childhood.
So where does this leave private practice lawyers?
Private practice sports lawyers agree that BT’s interest in European football is less motivated by a keenness for the beautiful game than a desire to drive consumers to its internet broadband packages. At heart, BT remains a telecoms business.
“This is a triple-play deal,” comments Adam Leadercramer, a partner at sports specialist London firm Onside Law, invoking language more familiar to baseball players than footballers. “Both BT and Sky would see this as covering phone, internet and pay TV, with the idea that people will go to one place for all three. Broadband subscriptions are seen as particularly lucrative – and to drive subscribers to broadband, the companies are looking for ways of getting consumers in.”
More specifically, the deal is widely seen as a way BT hopes to lure additional broadband customers away from Sky. Compared with the Murdoch-owned established football broadcaster, BT has only recently begun to use sport as part of this strategy.
Graham Shear, a sport specialist partner at Berwin Leighton Paisner, comments that, with the Uefa deal, BT Sport has “not really innovated as much as adapted a known formula to a slightly different platform, which may turn out to be more adaptable as the technology develops”.
Sky has done its best to throw cold water on the deal, claiming BT has overpaid for the rights and telling anyone who will listen that if Sky thought the rights were worth that much it would have paid the fee itself. There are also suggestions that Sky maintains European football is not yet the goldmine BT might hope, with its viewing figures showing only 3 per cent are generated by European matches, compared with 18 per cent for Premier League football.
“BT has gambled that the deal will provide sufficient new broadband customers, along with other revenue streams,” says Leadercramer. But one certainty exists, he says.
“This deal will make the next Premier League rights auction a real blockbuster,” he argues. “Sky will be keen not to lose more ground. That will inflate the price for those rights, so BT has certainly shaken up the market.”
Shear says much of the deal will have hinged on the commercial terms, not legal issues.
“It was almost certainly about pricing and duration, and about territories and quality of content,” says Shear. “The lawyers will have reflected those commercial terms in the transaction documents. They may well have relied on adapting the existing format. There are good lawyers at BT and Uefa but they weren’t exactly reinventing the wheel, they were adapting an existing wheel.”
All of which might go some way towards explaining why BT Sport decided to keep the work exclusively with its in-house legal team. Should that decision cause a frisson of concern among private practice sport law specialists?
“This is a horses for courses issue,” says Alex Kelham, a senior associate sports lawyer at Lewis Silkin, who previously was in-house at the London Organising Committee of the Olympic and Paralympic Games (Locog).
“When I was in-house at Locog,” she says, “even when we had Freshfields on board, we used them mostly as in-house secondees. Unless you have a long-term private practice lawyer who really knows the business you have to ask whether it is worth the effort of getting a firm up-to-speed. At Locog we’d go to Freshfields for their pure private practice knowledge on niche areas. There are some businesses that don’t need that much private practice advice because they have experts internally and the capacity.”
Other private practice lawyers reluctantly agree.
“As long as there is the necessary broadcast expertise in-house it’s not a concern,” says one. “But these are complex areas where the assistance of a specialist broadcasting rights lawyer is often necessary to ensure there are no gaps in the deal.”
BT Sport won’t be drawn on the implications of last month’s Uefa deal, but private practitioners are not so coy.
“Other deals will definitely flow out of this,” forecasts Graham Shear. “What one achieves when one becomes the primary rights-holder is strategic control. You can identify primary objectives and then look at how to lay off the balance of the rights.
“There’s no doubt that Sky has a well-developed, evolved and efficient platform that produces great distribution. BT’s strategy could be further enhanced by laying off the rights to Sky in the short term so as to increase BT’s revenue while they evaluate how best to take strategic advantage for the long term.”