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Mismatch?
The BSkyB bid to buy Manchester United
steve greenfield & guy osborn
february 12 1999

A unique club

The news in early September 1998 took the football world by great surprise: it was the proposed £623m (or $1 billion) deal for Rupert Murdoch’s BSkyB to buy Manchester United Plc and take control of Manchester United Football Club; among the most shocked were the dazed devotees of the Red Devils.

Manchester United is a unique and peculiar sporting phenomenon, going beyond the traditional notion of local support. While it does, of course, have a very large group of devoted supporters from Manchester, it also garners loyalty from all over the United Kingdom and Ireland. And it has a tremendous fan base in other parts of the world: the supporters’ club in Scandinavia alone has some 32,000 members. This broad, uniquely strong attachment is fundamental to the BSkyB deal.

One reason for this emotional attachment is historical – the Munich air disaster of February 1958. This crash resulted in the death of eight of Man United’s talented "Busby Babes," the nickname for the young side fashioned by the legendary manager Sir Matt Busby.


Dominance on the pitch

The club’s popularity was reinforced when it became the first English club to win the European Cup in 1968 at Wembley, beating Benfica of Portugal 4-1. The lineup that evening included George Best and (Sir) Bobby Charlton, two world-class footballers who were also extremely popular, the former for his pop star image and the latter for his internationally recognised sportsmanship.

The years after 1968 were ones of decline and included a season in the second division, following relegation. But since 1990, the club has dominated the domestic game under manager Alex Ferguson. Since the formation of the Premier League in 1992, the club has won the title four times out of six (finishing second on the other two occasions), and has won the League and F.A. Cup double twice.

This has been achieved with a group of young players who have risen up through the youth system, inevitably leading to comparisons with the Busby Babes. Along the way, Ferguson has added international players with flair, most notably Eric Cantona, whom he bought cheaply from arch-rivals Leeds United. During his tenure with the club, "King Eric" inspired United, and it was clear that fans, club, and player were entirely at one with each other. Despite a lengthy ban for kung-fu kicking an abusive opposition fan, the relationship continued until Cantona announced his retirement from the game in 1997 to pursue an acting career.


The nub of the deal

At the heart of the Murdoch deal are the broadcast rights that each football club owns. At present the rules of the Premier League require a "package sale" – that is, the rights to all Premier League football games are sold together, most recently to BSkyB in a five-year contract for some £670m, an agreement that expires in 2001.

This entitles BSkyB to show up to two live games per week, generally Sunday afternoon and Monday night. The matches are available primarily to subscribers to Sky Sports, though they can also be bought through cable companies. The technical quality of the coverage is very impressive and the influence of BSkyB has been extremely positive in this respect.

The problem for BSkyB is that the existing television contract with the Premier League has been referred to the Office of Fair Trading (OFT) for a determination as to whether the packaging of TV rights is anti-competitive. If the ruling is against the contract – and the hot money from competition lawyers is on this outcome – then the contract will be considered unlawful and all TV rights will revert back to the clubs themselves.

This has important consequences: BSkyB would then have to strike a deal with each club for those rights, and the clubs could seek to market their own rights or deal separately with other broadcasters. Furthermore, the digitalization of TV makes it possible for clubs to move into the broadcasting arena themselves – Manchester United has recently started its own station, MUTV.

Premier League football has been the feather, if not the cap itself, for BSkyB, and its loss would be an absolute disaster for the company, despite its attempts to diversify coverage into other sports. Here then one can see a strategy emerging, essentially a defensive manuever to make sure that when the TV contract is either declared unlawful or expires, BSkyB will have access to the most valuable of those club rights – those belonging to Manchester United Plc.

This is why BSkyB wants to own Manchester United Football Club: to protect and bolster the key sport that is the fulcrum of the station’s attraction for the subscribers. Without Premier League football and Manchester United, BSkyB would lose much of its appeal in the consumer sports market.


Opposition

On one level it might be argued that the match between the leading non-terrestrial broadcaster and premier football club is complementary in that the club must be successful on the field in order to maintain and promote the associated business interests. Football, or rather exciting and meaningful football, is the key. Without footballing success a vicious circle ensues – attendance may dwindle, support for the club begins to drop, and the broadcasting rights decline in value. Therefore, we might expect BSkyB resources to bolster those of Manchester United, which might in a perfect world make Manchester United supporters into BSkyB supporters.

However, there are a number of contentious elements to the deal. The critics can be divided into three groups: (1) supporters who fear that the history and tradition of the football club will be further submerged beneath overriding commercial considerations; (2) those concerned about the wider effects on football itself and the questions of how a broadcaster and newspaper publisher can maintain independence in the reporting of its own club; and (3) those who argue on a purely business footing that the club’s shareholders have been sold short.

Supporters have started to organize against the bid. The key groups are the Independent Manchester United Supporters Association (IMUSA) and the Shareholders United Against Murdoch (SUAM).

The fans’ wish list

An initial public meeting of IMUSA attracted over 1,000 supporters. IMUSA issued a list of ten proposals for assurances to be met by any organization seeking to take over Manchester United, asking that the new parent company not interfere with the team; that ticket prices not be increased unreasonably; that the domestic football structure remain in place; that the fans be consulted on changes; and so on – in other words, that the tradition of Manchester United be honored.

The supporters’ campaign quickly built up a strong head of steam and the main target switched to the Office of Fair Trading, whose role was to advise the Department of Trade and Industry on whether the offer should be referred to the Monopolies and Mergers Commission. The OFT received over 350 submissions. The shareholders group also contacted all individual shareholders urging them not to sell, and sought to persuade the large institutional shareholders to reject the bid. Fans were being urged to buy shares on the stock market in order to give them a voice, for, surprisingly, shares could still be bought at a price lower than the original BSkyB offer.

The fan pressure paid off and on October 29 the Office of Fair Trading announced, to much fan rejoicing, that it was recommending to the Department of Trade and Industry that the bid should be referred to the Monopolies and Mergers Commission for consideration. The DTI accordingly asked the MMC to investigate and report on the bid by March 12, 2020.

The function of the MMC is to consider the possible effects of the deal with respect to competition in the broadcasting market and wider public interest matters. Members of the MMC carried out a site visit to Old Trafford and bought tickets for the match against Leeds United. It also sent out an "issues letter" to the main parties to highlight those matters that have been initially identified. One element is the likely effect on the "markets" of both BSkyB and Manchester United.

The second question is the public interest issues in relation to broadcasting, football generally, and specifically Manchester United. For example: "Whether the merger would lead to an increase in Manchester United's gate prices, or the prices of any of BSkyB's TV channels or both." Furthermore the public interests issues are broadly drawn: "Whether the merger and its consequentials would lead to English football being run by people with no real interest in the game itself."

The MMC has been receiving further submissions from fans opposed to the bid and has also taken formal evidence. One of the supporters who gave evidence described it as "very tough – two hours of interrogation, essentially – but there was a genuine sense that they were exploring the issues and getting as much detail and scenarios as possible."

The Independent Television Commission wants the BSkyB bid to be blocked, according to a report in the Financial Times. The Mergers and Monopolies Commission could ignore the advice but it is likely to take their views on the matter seriously.


Conflict of interest

The wider aspects of opposition to the deal center on the conflict of interest that may emerge if a leading broadcaster of football owns one of the teams. The question has been asked as to whether the commentators could retain a critical objective approach to the club. This extends to how the team might be covered by the newspapers within Murdoch’s control, namely The Sun, The Times, The News of the World, and the Sunday Times.

The other major issue is the consequent role of BSkyB in any negotiations for the Premier League rights, given that Manchester United would be enthusiastic for the rights to be sold to BSkyB. Dr. Adam Brown, a leading critic of the offer, has argued that it will increase the unhealthy influence of broadcasters at the expense of fans and the game itself:

This campaign is about the takeover of Manchester United, but it is also about the future of football. If Murdoch is allowed to take over Manchester United then it will open the door to similar TV driven takeovers and harm the game as a whole. The priorities for the game will be determined by television companies and, whilst the Premier League and FA may have proved that they are more interested in TV money than protecting the game, such deals would rule out forever any chance of keeping football as the top priority.

The relationship between sport and television has altered enormously since the introduction of satellite and cable television. Many sports that were freely available on terrestrial television have been lured by increased sums onto subscription services. The explosion of live televised football has led to serious concerns about the whole relationship with critics arguing that the tail (television) is wagging the dog (sport) and that the armchair fan is taking precedence over the match-going spectators. What may be particularly galling for fans of other clubs, particularly notorious rivals such as Liverpool and Leeds, is that a subscription to BSkyB could be seen to be financially supporting a club that they loathe.


A bad deal?

The final criticism of the deal has emerged from investment analysts who argue that the offer of £623m for the Plc seriously undervalues the company. While it is greater that the stock market value (approx. £400m), this doesn’t take into account the worth of the company once the broadcasting rights become available to the club, as opposed to being packaged with the rest of the Premier League.

Tom Rubython, writing in the October 1998 issue of Business Age, has suggested that the rights could be worth as much as £500m on their own, given the potential changes in the market through digitalization. If this figure is right, then Rubython argues that the shareholders have been sold short:

If Manchester United had sold the TV rights outright for £500m it could have paid a dividend equivalent to the then £400 million market value of the club, put £100 million in the bank and the shareholders would still have owned the club, which shorn of its TV rights would probably still be worth some £300 million.

This line of criticism may assume greater significance if shareholders decide not to sell to BSkyB in the hope of a better offer emerging.


Where the deal stands

Of course, the major problem for opponents of the deal is that Manchester United is a Public Limited Company and legally open to takeovers of this type. The route to the Stock Exchange has been taken by a few of the leading clubs in order to raise capital, though the majority of clubs remain in private hands. It is perhaps surprising that this is the first such move for one of the major clubs, but the major financial institutions still see football as a relatively high risk business, although it may be true that Manchester United are an unique asset.

But Premier League football in the 1990s has radically changed from the apparently doomed game of the late 1970s and 1980s. Football at the highest level has emerged from a hooligan-blighted, disaster-ridden plague to the brightest, richest sport on the block. The BSkyB bid makes it clear that football may well be about to move onto a different, and, for many of the fans, unhappy financial plane. Since the news of the proposed takeover emerged other major Premier league clubs have been linked with other media groups, and if the eventual outcome is in favor of BskyB, it is likely to be only the first of such mergers.

The whole issue is clouded with political concerns. Most recently the government-appointed Football Task Force indicated that it considered that the TV deal between the Premier League and BSkyB was of benefit to the game as a whole. The general assumption, noted above, was that this contract would have to be unpicked, but if it was permitted to stand the whole outlook might change again. Everything will rest on the determinations of both the television contract and the MMC report on the takeover that is not due until the end of March.

It remains to be seen whether or not fan power can reclaim some of the more worthy elements in the relationship between clubs and supporters. The organization and efforts of the United fans opposed to the deal has been extremely impressive and very persuasive. It has been extended beyond just fans of the club towards all football supporters. At the very least the effect may be to galvanize fans towards a common cause, the protection of an important part of their national sporting heritage.

 


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