Broadcasting rights: French football makes the switch to new economic structure

The French professional football league (LFP) emerged from 2020 battered and bruised. While feeling the immediate financial effects of the Covid-19 pandemic since March, it was then tackled from behind later in the year by its main broadcaster. Mediapro, which won the Ligue 1 broadcasting rights auction for the 2020-2024 period, skipped two successive payments in October and December 2020. Following unsuccessful negotiations with the LFP to reduce the previously agreed price (see here for our earlier take on the inevitability of broadcaster disputes), Mediapro agreed to an early termination of its deal.

Emboldened by its member clubs, which urged a change to the status quo, the LFP has decided to move toward the creation of a new economic structure to secure and enhance its commercial and broadcasting revenues. Opinion remains divided as to the best course of action.

The imitation game: following in the footsteps of continental models

With their financial health becoming more precarious, major French clubs were reportedly inclined to follow the English Premier League (EPL) model, under which the company managing the awarding of broadcasting and commercial rights is wholly owned by the league’s member clubs. However, this structure is not compatible with existing French legislation.

According to the French Sports code, the French Football Federation (FFF) is the only beneficiary of a public service delegation from the ministry in charge of sports to organise football in France (art. L.131-14), with the ability to create a professional league to manage the professional aspects (art. L.132-1). Therefore, barring an unlikely change in law, Ligue 1 clubs are not permitted to embrace the EPL model.

However, in light of the seriousness of the clubs’ financial situation, the LFP was determined to make a change and decided to move in a more “continental” direction. On 10 December 2020, its extraordinary general assembly voted an amendment to its articles of association that would grant the league competence “to carry out, whether directly or indirectly, any legal, financial or commercial operation in relation to its purpose, including through a structure in which it is a member or a shareholder”. The LFP now needs the vote of the FFF’s federal assembly and then an order of the Minister in charge of sports to fully implement this change (art. 2.2 of the FFF/LFP agreement).

As such, this first small step is not quite yet a giant leap for French football. If it gets the required votes and approvals, the LFP’s stated aim to set up a commercial company (whether fully-owned or not) to manage the broadcasting and commercial rights of French professional football will follow the successful precedents of the German Bundesliga and Italian Serie A.

Sidestepping the mandatory public tender process

The first and most direct consequence of the LFP selling broadcasting rights through its commercial affiliate will be to avoid the tendering process by law imposed on French professional leagues. The LFP is currently only permitted to sell broadcasting rights of French professional football under specific conditions (art. L.333-2 of the Sports code), including a mandatory public tender process as well as for a maximum term of four years (art. R.333-3 of the Sports code).

A public tender process can be inflexible and does not allow potential buyers to negotiate with the LFP. The obligation to make a fixed-price offer can be seen as particularly unhelpful: historical Ligue 1 broadcaster Canal+ submitted an offer too low to win a single batch whereas Mediapro aimed too high to be sustainable (and exacerbated by the Covid-19 pandemic). While Canal+ has called for a new public tender process which is likely to end up with a less generous offer than their initial bid, thoughts that an initial negotiated offer would have been a much more favourable situation for the clubs and the LFP are widespread.

The ability to negotiate with potential broadcasting rights buyers could be considered the first success for the new commercial company.

January transfer window: bringing new players to the team?

According to the proposed amendment to its articles of association, the LFP would be able to open up the shareholding of its new commercial affiliate to any other entity, such as private equity groups, the new key players of sports investment.

Despite the financial impact of the pandemic, private equity firms have bet on sport in 2020, showing unhindered interest for acquiring stakes in sports competitions (and more specifically, in companies owning the broadcasting and commercial rights of these competitions). CVC Capital Partners successfully acquired 28% of the Guinness Pro-14. Silver Lake, which famously led the investment group that bought the Ultimate Fighting Championship (UFC) for €4bn in 2016, is reportedly on the verge of acquiring 15% of New Zealand Rugby for US$2bn.

Football holds even greater financial appeal. According to reports, a consortium led by CVC Capital Partners and including Advent International and FSI is due to acquire 10% of Italian’s Serie A for €1.7bn. More than 20 private equity firms are reportedly in the running for acquiring a minority stake (£) in the new digital media company set up by the Deutsche Fußball Liga (DFL) in order to sell the Bundesliga’s international broadcasting rights. The scale of interest in these deals shows an unprecedented appetite from private equity firms for sports competition at a time where leagues and clubs are in need of immediate revenues while these firms look for innovative ways to invest their war chests.

An investment by a private equity group is likely to be the most favoured short-term solution for the indebted LFP. Its €120m loan taken in October to compensate for Mediapro’s payment default must be repaid in full by June 2021. Mediapro’s commitment to pay an overall termination amount of €100m by the end of March 2021 (€64m of which is already paid) will not be sufficient to meet the LFP’s repayment obligations. This debt is only the tip of the iceberg, as the LFP will also need to repay the €224.5m loan taken to compensate the clubs for loss of broadcasting revenues after the 2019-20 season came to an early end back in March.

However, somewhat surprisingly, French clubs do not appear to be enamoured with this idea. While all 20 Serie A clubs approved the sale of the minority stake to a private equity consortium, only 21% of the French professional club executives are reportedly interested in a similar operation in France.

Total control, tactical revolution: is OTT the super-sub?

If clubs’ executives are reticent to bring private equity groups to the table, they largely support the idea of reshaping the broadcasting and media rights landscape to their satisfaction. 72% of them reportedly want to seize this opportunity to develop new content distribution methods. Rather than using the new LFP’s affiliate to negotiate better deals with traditional broadcasters, some clubs want the LFP to regain control of media content and broadcasting rights. This ambition aligns with the German DFL’s latest plans to develop an “over the top” (OTT) internet subscriptions service to screen games in the Middle East.

The LFP does not yet have the technical capability to provide satisfactory OTT screening. It may wish to follow the path trodden by the DFL and set up a joint venture with a media group to bring in the expensive production and technology needs. The commercial company would have full control over the broadcasting but would need to share the profits with its media partner in return.

If this new commercial company offers an OTT solution, further discussions on payment and compensation would likely follow. The EPL’s pay-per-view option was scrapped following significant criticism from fans and pundits; a demonstration of the difficulty to balance production costs with consumer needs, particularly during the pandemic. However, a full-scale test may unexpectedly be carried out in the coming months, as Canal + has offered the LFP a technical solution to broadcasts all games in pay-per-view (£) until the requested public tender process is awarded. Jean-Michel Aulas, president of Ligue 1’s Olympique Lyonnais, has advocated for a “football spotify”, centralising all offers for a unique subscription fee. Indeed, this solution would be very favourable to the viewer with anticipated costs being cut. However, under the ‘sportify’ model, payments to clubs would be based on viewership figures, which would be detrimental to clubs with a smaller fanbase.

Comment

The LFP is taking a cautious, measured approach. The FFF’s next federal assembly, at which this structural revolution is due to be discussed, is scheduled in March. This additional time should enable the LFP and French clubs to find common ground and speak with a single voice when the time comes.

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