David Conn: League in talks with BSkyB over TV rights

Legal battle set to go ahead with ITV Digital as collapse of contract brings game's problems into sharper focus

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The Football League has already held talks with BBC and BSkyB about selling them the television rights that ITV Digital has dramatically marked down by going into administration this week. The League is adamant it will sue ITV Digital, and more importantly its parent companies Carlton and Granada, for the full £178m owing on the three-year contract – a case which will turn on a 1677 Act of Parliament – but sources confirmed they have already "gently discussed" a deal with BSkyB, the only subscription broadcaster realistically left.

BSkyB's very dominance, and the fact that it has not suffered financially from losing the League's rights, which it had previously, means there is no bumper pay day on offer from Rupert Murdoch this time. Greg Dyke, the BBC's director general, has also been repeating his view that the deals of 2000 – £1.5bn to the Premier League and £315m to the Football League – were made at the height of a boom and the game will see nothing like that again.

Keith Harris, the League's chairman, is livid at the League's treatment by the ITV companies, which he said was "high handed" and "patronising", and vowed to fight. "We will use all the influence and power which football can muster," he said. "If supporters don't watch their favourite soap, if companies which sponsor football stop advertising on ITV, then so be it. This is not a concerted action to drive down Carlton and Granada's share price, but that could be a consequence."

While talk of boycotting Coronation Street may be taking militancy a step too far, the League and ITV companies continue to wave legal opinions at each other. Some club chairmen believe the League should face its disaster and negotiate, but Harris and David Burns, the League's chief executive, have assured them the legal case for tying in Carlton and Granada is strong. But ITV also claim their case is a winner.

The deal was done in June 2000, £315m for three seasons from the current one. The League sent out tender documents in March then received a bid from ITV Digital, or ONdigital as it then was, on 7 June. The document did offer guarantees from the parent companies: "ONdigital and its shareholders [Carlton and Granada] will guarantee all funding to the Football League outlined in this document."

The League, which was without a chief executive at the time, accepted the offer on advice from its four-man commercial committee: David Sheepshanks, the chairman of Ipswich, Barry Hearn of Leyton Orient, Charlton's Richard Murray and Huddersfield Town's Barry Rubery. Indeed they were delighted; the deal was a windfall compared to the £125m, five-year deal the League's 72 clubs previously had with BSkyB. A "short form" contract, a basic outline of the deal, was signed on 15 June 2000. "As you can imagine," said one League source, "we were dancing round the office when that deal was done." It contained, however, no parent guarantees, only an agreement to negotiate a "long form", full contract, which stated it would be informed by the League's tender document and ITV Digital's bid. That long form contract was never signed. Although this may look shabby, both ITV and League sources said it is fairly common in the industry.

The League claims it was continually frustrated by ITV Digital in its efforts to negotiate the long form contract. ITV's version is slightly different.

In November last year, after stories began to circulate about ITV Digital's financial problems and the possibility they might renegotiate the deal, Stuart Prebble, ITV Digital's chief executive, addressed a meeting of all 72 Football League club chairmen at Notts County's Meadow Lane ground. The meeting was more notable at the time for a furious clear-the-air session on the "Phoenix League" proposals, the breakaway brainchild of a few First Division clubs that was reduced to ashes at the meeting. Prebble acknowledged ITV Digital's problems, but, according to Harris, the chairman did not get the impression that they were of anything like this magnitude. "His main message was to reassure clubs that the contract was sound, but to ask for our help in lobbying BSkyB to take ITV Sport on its digital platform at a realistic price, which we duly campaigned for."

Shortly afterwards, Granada published their accounts, which showed its digital operations losing £234m, turning a profit the year before into an overall £132m loss. Charles Allen, Granada's and ITV Digital's chairman, said Granada and Carlton were looking to reduce ITV Digital's "cash burn", but the annual report also stated: "Granada and Carlton have both indicated that their current intention is to continue to provide funds to ITV Digital and ITV Sport to enable the businesses to meet their operational requirements as and when they fall due." This also gave the League some comfort.

ITV sources said that only after Prebble's Notts County visit did the League even seek parent company guarantees in the ITV Digital contract. ITV Digital refused and negotiations broke down.

Still, until two weeks ago, no direct talks were had with the League. Then Prebble, Allen and Michael Green, Carlton's chairman, met Burns and Harris at Harris's Mayfair offices. They offered £50m over two years. Harris was incensed: "The words 'take it or leave it' were used, and there was a suggestion that if we didn't accept this reduction they would put ITV Digital into administration."

The League rejected the offer very publicly, talking defiantly, passionately and with unusual unity about dozens of clubs potentially going to the wall, stressing the social and community costs in towns and cities across England and Wales. Another meeting was held last Friday, "similarly unproductive", according to Harris. On Wednesday, ITV Digital made good their threat and applied to the High Court to go into administration.

ITV's spokespeople are promising that the administration will "last weeks, possibly three weeks at most, not months", and urging the League to renegotiate. So far the League has refused, arguing that their legal advice, from Charles Flint QC, is positive that the parent companies can be made to pay, even if ITV Digital goes bust. ITV Digital has opinion from two QCs, Gordon Pollock and Lord Grabiner, which advise equally strongly that the parents can let their joint venture die without picking up its debts.

Lawyers will get rich arguing over whether ITV Digital's bid document and short form contract make Granada and Carlton liable under the law governing such guarantees, section 4 of the Statute of Frauds Act 1677. Written in old English, it provides that a party cannot be liable for another party's debts "unless the agreement upon which such action shall be brought... shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised".

On these words, the future fabric of English football could depend. Effectively, it means that a guarantee has either to be signed by the parent companies, or by a company authorised to give guarantees on their behalf. Both sides privately acknowledge that the law is never certain, takes a long time and is expensive. There are, increasingly voices arguing that football has to negotiate the best it can and then restructure.

ITV's spokespeople have stressed that the media companies' problems, caused by the advertising downturn and internet and digital TV failures, are unsustainable and that the renegotiation had to happen. Six hundred jobs have gone at ITV Digital, Granada have laid off 1,000, Carlton 400. Privately, sources have been arguing that clubs have been wasting most of their TV money on excessive wages and several were going bust. In a normal business, people would lose their jobs, but footballers' contracts are protected and cannot be renegotiated. So, in football, the talk is of clubs going bankrupt because they will not be able to pay the wages, rather than that players might lose their jobs or have to accept pay cuts.

In 2004, when the TV deals are renegotiated, the money on offer is now certain to be dramatically less than last time. The League and clubs are understandably outraged, particularly at the idea that Carlton and Granada, two ITV stalwarts, which are Government regulated, apparently intend to walk away. But there is also an argument, quietly, that for all the furore, football clubs were expecting a major TV downturn, but were dangerously unprepared for it. Looked at that way, this is football's Doomsday – it has just arrived two years early.

davidconn@freeuk.com