Setanta on the Brink; ESPN to Pick up the Pieces?

Setanta Sports, the British broadcaster that everyone loves to hate, stopped answering their customer phones and shut down their on-line subscription signup page yesterday in another sign that they may have reached the end of the road. One British source reported that Setanta would cease operations at midnight Tuesday, but that deadline came and went with the broadcaster still on the air.

The company has been in "emergency discussions" with its financial backers over the last few days in a desperate attempt to raise the estimated £100 million needed to stave off administration. Some major stakeholders reportedly were willing to kick in, but only about half the necessary funding was pledged.

Late reports this morning are saying bluntly that a final decision is a matter of "days, if not hours" away.

Appeals to ESPN and fellow British EPL rights holder British Sky Broadcasting (fondly known as BSkyB) for financial relief have also not been successful. Reportedly, Setanta offered their EPL rights package to both companies, with Setanta acting as a sort of wholesaler, but they declined.

A BSkyB spokesman told reporters that they tried to help bail Setanta out but that in the end "we're not a bank". ESPN had no comment.

The company's founders, Leonard Ryan and Michael O'Rourke, are making a last ditch effort to secure financing to buy back the company from the shareholders but most observers doubt their ability, particularly in the current economic climate, to raise that kind of money.

It's a good thing Jose is now on Special 1 TV:

[ame="http://www.youtube.com/watch?v=-TOh3WlXJg0"]YouTube - Jose Mourinho "I'm on Setanta Sports"[/ame]

What finally kicked Setanta over the edge is a looming £30 million payment due the EPL on Monday. They simply don't have the money.

The payment, which is for games already shown, would be the second rights fee in ten days that the broadcaster has been unable to pay. Last Friday they missed a similar £3 million payment to the Scottish Premier League, forcing the SPL to dip into its reserves to provide operating money to the teams.

At it's heart the problem is simple: Setanta needs 1.9 million subscribers to break even. At the moment it only has 1.4 million.

Industry observers are saying that Setanta's policy of selling monthly subscriptions, instead of the more usual yearly agreements, left them extremely vulnerable to cost-conscious customers; when a household needs to do some belt tightening, stopping a monthly TV subscription is an easy and obvious move.

Why BSkyB, owned of course by the omnipresent Rupert Murdoch, desperately wants rival Setanta to stay in business is a bit more complicated and, ironically, BSkyB helped push Setanta to their current precarious position.

English Premier League rights are divided up into six packages. Murdoch's company, flush with cash, has continually bid up the rights to stratospheric levels which even Disney-backed ESPN refused to match. In the end, the American cable content provider has other choices.

Setanta did not. Without the EPL they would be left with an assortment of smaller products like Rugby Union and the SPL. As a result they were forced to bid on a level with BSkyB, shelling out sums which have become increasingly unjustifiable as the world economy contracted.

But European Union regulations demand direct government supervision of companies which hold a monopoly position in any industry, and BSkyB needed Setanta in the game to prevent having to dance to a tune played by some bureaucrat from Brussels.

It's a situation roughly analogous to the time a couple years ago when Apple was on the verge of going under and Bill Gates stepped up with financing to keep them afloat. Everyone knows there's nothing Gates loves more than crushing a competitor but becoming the only show in town was going to create anti-trust problems that Microsoft wants desperately to avoid.

Which is why Murdoch seriously considered bailing Setanta out, but in the end his experts agreed that the latter had no chance of turning a profit anytime soon, making the investment an ongoing money pit.

For their part, it's believed that ESPN figures they can step in and either buy the rights from the administrators in a fire sale - Setanta has virtually no fixed assets so broadcast rights are the only thing that can be auctioned off to pay the creditors - or, if the rights revert to the provider (ie. the Premiership) they can still buy them at a bargain because BSkyB will be reluctant to bid and thereby create the monopoly situation they want very badly to avoid.

Either way, it seems quite possible, even likely, that ESPN will indeed end up with the very same English Premier League games they walked away from during the original bidding, and at a much better price.

In the end, few tears will be shed in the US over the demise of Setanta. Those of us who recall the days when they demanded that bars charge patrons $20 each to watch their broadcasts don't exactly have a soft and tender spot in our hearts for them.

And if ESPN does end up with 23 games a year (Setanta's package; BSkyB has 115) then we're the winners anyway.