Richard Gillis wonders whether Setanta's bold move to take over the USPGA Tour golf slot from Sky for $18 million can pay off in the long-term
How much are you prepared pay to watch golf on television? This is the question facing armchair fans ahead of the launch of Setanta Golf, a new specialist channel showing live and exclusive coverage of the USPGA Tour from January.
To access the channel, which comes bundled into Setanta's other sports output, Irish golf watchers will be asked to pay up to €15 a month, depending on the type of signal they receive. Cable customers, some of whom can currently see the basic Setanta offering for free, will need to upgrade to NTL's digital service to access the golf. This currently costs €7.99 a month. It is expected that Chorus subscribers will be able to have access to the same service following their takeover by NTL.
For golf fans currently accessing USPGA golf via the Sky Digital and satellite network, the €15 a month will be on top of their existing Sky Sports subscription, which currently costs €41.50 a month, taking the total outlay on sport to €56.50.
Niall Cogley, head of Setanta Ireland, told The Irish Times: "The PGA Tour is the high end of golf, the best players in the world view it as their bread and butter. The Ryder Cup has given the Irish players additional profile, and Clarke and Harrington, particularly, have performed very well in the US over the past few years."
Cogley says Irish golf fans have become used to settling down on a Sunday night to watch the conclusion of the big American events on Sky. And having outbid Sky to buy the rights of the Tour, paying $18 million for seven years of coverage, Setanta are betting that a proportion of these people will pay the additional fee.
For their money, Cogley promises a fresh approach to the presentation of the sport. The direction taken by Setanta Golf will be the responsibility of David Tippett, formerly the head of Sky's golf output, who moved over to Setanta in the days following his impressive handling of the Ryder Cup broadcast from The K Club.
But will golf fans pay to watch the new channel? Time will tell whether the US Tour is a compelling enough proposition to justify the extra cost. Already there have been fevered editorials in some specialist golf magazines deploring the additional financial burden being placed on fans.
Cogley, formerly head of RTÉ Sport, has little sympathy. "Once upon a time a terrestrial broadcaster decided what you saw, when you saw it or if you saw it at all. The choice over what to watch is now the viewers' decision."
Cogley points out that the same, anti-subscription argument, was put forward by RTÉ and the BBC in the early days of pay television.
"The terrestrial retail proposition forced sports federations to starve. They were unable to service the needs of the golf because they didn't have the time on their schedules to show it.
"I can remember the days when the European Tour couldn't understand why the terrestrial broadcasters were not more supportive of them. They were paupers, but Sky came along and changed the market.
"The viewer had no choice but to pay the licence fee but they have a choice whether to pay the subscription. The argument has matured."
BUT WHAT IS IT THAT SETANTA HAS BOUGHT? From next year, the schedule of the US Tour is to change significantly. The aim of this, ironically, is to make it more attractive to American broadcasters, who have lost millions of dollars on their coverage of golf in recent years.
And whilst securing the PGA Tour for its subscribers is a major coup for Setanta, the $18 million they have paid is but a drop in the ocean for the American governing body. The real value of the Tour to the USPGA, resides in the huge domestic television market. These deals, which were up for renewal this summer, previously reaped a staggering $850 million from the US's major networks.
However, that deal was negotiated in 2000, when Tiger mania was arguably at its height. Woods, who burst on to the Tour in 1996, had just completed his so-called "Tiger Slam", holding the four major championships simultaneously. The networks saw the future, and dug deep to get a piece of it.
Six years on, and reality proved to be less appealing. Although Woods continues to live up to his initial promise, the TV networks have found that he alone is not enough to build a profitable business.
The networks involved in the negotiations, ABC, NBC and CBS, reported that ratings for the last year of the contract were down 21 per cent.
Interestingly for Setanta, worst hit were the cable channels, ESPN and USA Network, which carry the bulk of the coverage. The TV executives were unhappy that Tiger's appearances between the majors and the World Golf Championship events became fewer than they once were, leaving much of the Tour's schedule lacking in the glamour necessary to draw in new viewers. Advertisers noticed this too, meaning the television companies made a loss on the deal. This was enough to persuade ABC, with its sports-based sibling ESPN, to walk away from golf after several decades of golf coverage.
Against this troubling backdrop, the PGA Tour, under their commissioner Tim Finchem, were forced to make some fundamental changes to their itinerary for the 2007 season.
The result is a new format, culminating in a four-event finale to the season, the focus of which is the FedEx Cup, a season-long points race. The aim of this is to persuade the best players to play on the PGA Tour in August and into September, a time of the year when golf ratings in the US plummet due to the start of the NFL and basketball seasons.
SETANTA'S MOVE INTO GOLF is not only significant for golf fans, it is a big moment for the company as a whole. And it reveals the aggressive approach being taken by Setanta in building their business.
The company currently have around 200,000 subscribers in Ireland and Britain, following a deal with Racing UK, the specialist horseracing channel, which added a further 40,000 new subscribers to their books. To break even, that figure must rise to between 750,000 and one million, according to specialist trade magazine TV Sports Markets. The company hope to achieve this level by the end of the second year of their Premier League output, in 2009.
This highlights the risk of operating at the top end of the sports television market. To justify the €15 subscription fee, the company must first add interesting content to their channel. This means paying top dollar for premium rights.
To win the rights to the PGA Tour, Setanta, led by former Sky Sports lead negotiator Trevor East, went head-to-head with Sky. The $18 million they paid was almost double the $10 million paid by Sky for the previous four years.
But regardless of the size of the fee, the loss of US golf, is a blow to Sky. At a stroke the broadcaster lost a bank of their regular weekend programming. Between 20,000 and 100,000 viewers regularly tune into the PGA Tour coverage and these numbers, though not high relative to other sports such as soccer, do attract higher-end advertisers.
The loss of the US Tour undermines other commercial deals done by Sky, most notably their relationship with RBS, the bank which sponsors all of the channel's golf programming.
Setanta's line in the press has been that they are not in competition with Sky. Any public comments are prefaced with much praise for Sky's delivery of sport, their professionalism and the way they have transformed the broadcast landscape. This line will be difficult to uphold.
Talking to The Irish Times, a spokesman for Sky was bullish when asked about the effects of Setanta's winning bid, but it's clear the company know they are in a fight.
"We (Sky) are not embarrassed or downhearted. We just felt it was not worth paying that amount of money for the product (PGA Tour rights). Let's face it, how often do Woods and Mickelson go head-to-head over a season? They (Setanta) will have to work hard to make it work financially. One of the biggest events, The Players' Championship from Sawgrass, comes very early in the season. Will they be able to build a following for their new channel by then?"
Certainly, having lost one piece of their viewing schedule, Sky were not about to lose anything else. In the weeks following the PGA auction, the two broadcasters went head-to-head twice in bidding for more sports rights. First up, the UK and Ireland rights to La Liga, the top division of Spanish soccer, which is currently broadcast on Sky on Sunday nights. Setanta's presence in the bidding process forced Sky to pay €45 million for three more years. This was four times the size of the current deal. Similarly, when the NFL rights came to auction, the American football league cost Sky nearly six times the amount they currently pay, amounting to $50 million.
Funding this level of spending requires very deep pockets. Sky have a distinct advantage, backed as they are by Rupert Murdoch's News International, a multi-media conglomerate.
Setanta's ownership is divided. Co-founders Michael O'Rourke and Leonard Ryan own a 35 per cent stake. Private equity firm Benchmark Capital paid €40 million for 40 per cent of the company. The remainder is held by a division of American company AIG, and Setanta's own staff.
Currently, O'Rourke and Ryan are in advanced negotiations with another potential investment fund in order to raise money for further rights acquisitions.
Given this disparity in spending power, a head-to-head battle with Sky has never been Setanta's strategy. And because Sky own the means by which most digital viewers receive their pictures, Setanta must pay to be on the Sky Electronic Programme Guide (EPG). For this they pay a carriage fee, which equates to roughly 10 per cent of every subscription. "Sky are not only the competition, they are the gatekeeper too," says James Pickles, editor of TV Sports Markets. "Either way you look at it, Sky win."
