How the canny Irish duo at Setanta took on and beat Sky at its own game

BSkyB and Setanta Sports, the two winning bidders in the auction for Premier League football rights, joined forces yesterday to ensure that pubs can show all games with a single subscription.

The supposed rivals are also working on a deal that would allow residential customers the same access - something they have agreed "in principle".

Sky's residential customers will have to take out a separate subscription with Setanta, at a price to be revealed later.

Although the announcement reassured armchair football fans who were suddenly worried they might miss key games, it did also raise the question of what the point of the auction was.

Aren't these two supposed to be in competition?

Setanta, a little-known Irish broadcaster, surprised the City last week when it won two of the six packages on offer for the three years from 2007. Sky gets the rights to show 92 matches a year, Setanta 46.

The original thinking behind the intervention by the EU into how UK football rights are sold was that Sky seemed to have too close a relationship with the Premier League. The competition watchdogs demanded that when the next set of rights went up for auction, at least one other broadcaster should get some of the action.

As it is, Sky's stranglehold on football is, if anything, stronger than ever. This is the end of Rupert Murdoch's monopoly over the national game in theory only.

Sky paid £1.3bn for the new three-year deal - money it will claw back, presumably, from higher subscription fees (football fans should feel free to thank the EU in person).

Setanta will pay Sky for the right to use its broadcasting platform so that the matches it owns get the widest possible audience.

Setanta, which paid £392m for a package of matches on Saturday evenings and Monday nights, clearly outfoxed NTL, the media group that claimed it was going to take on Sky with all guns blazing.

Who are these guys?

Setanta was set up in 1990 by two young Irishmen who were annoyed the BBC was not showing a World Cup match between Ireland and the Netherlands.

Michael O'Rourke and Leonard Ryan rented out a pub in London's West End, set up a satellite link to show the game, and charged punters £10 on the door.

The venture lost money but an idea was born. Wouldn't expat Irishmen the world over pay significant chunks of their disposable income to watch the home sports that weren't shown in the United States, or Spain, or wherever?

Setanta first bought the foreign rights for Gaelic football and hurling and began broadcasting in pubs.

It recently launched the first sports-only channel in Ireland, showing English football and Formula One racing.

If you are in New York and you want to watch a football match in a bar, Setanta is likely to be the provider.

Last year, Benchmark Capital, the private-equity house that funded some of the internet's biggest success stories - notably eBay - decided that Mr O'Rourke and Mr Ryan were on to something.

The US fund paid £40m for a 40 per cent stake in Setanta. AIG, the giant insurer, has a 15 per cent stake, while the founders hold the other 45 per cent between them.

Beyond such bare bones, not much is known about the two. The City PR firm they have just hired in recognition of the attention they are about to attract does not yet have pictures of them. Their ages are put at "40-something".

One indication of the pair's savvy - while doing little to dent the notion that Setanta is a Sky stooge - is who they have hired.

Trevor East, Setanta's director of sports, is a former Sky executive. Richard Brooke, the director of corporate development, was previously Sky's finance director.

Of the deal he struck with Sky to, in effect, share the "exclusive" rights he so carefully plotted to win, Mr East said: "Setanta's strategy is to make our programming services available on all platforms. We're delighted to have agreed a deal that will give us access to all Sky homes, as well as distribution to their pubs and clubs."

NTL, the US cable group that was planning to make a splash in sports broadcasting under the Virgin brand (it recently bought Virgin Mobile), was left complaining about the "flawed" auction process yesterday. It simply did not have enough information to work out how much it needed to bid, and it had not thought to hire the former Sky insiders who could have made the difference.

NTL customers will have to subscribe separately to Sky and Setanta if they want every Premier League match from next year. The details of the tie-up between Sky and Setanta are still being worked out. One known outcome is that Prem Plus, Sky's pay-per-view service, will be scrapped.

Some of the Setanta matches will be offered on a pay-per-view basis instead. It may also sell games via the subscription service called Top Up TV that is available to some homes with a Freeview digital terrestrial box.

Richard Freudenstein, the chief operating officer of BSkyB, said the deal with Setanta was "good news for Sky customers - both commercial and residential", although until the fee structure is known, the customers themselves may want to wait before they agree.

There is certainly a concern among investors about how much Sky had to pay to retain its pre-eminent position.

The football analysts at ABN Amro said in a note yesterday that Sky has paid much more than expected. "We believe Sky's willingness to pay so much exposes its dependency on these rights and raises the question of how much the costs could inflate come 2010," the note said.

Perhaps by then Setanta itself could make another, even more serious tilt at a property vital to Sky's business.

Given how little is known about the founders at this stage, it is tempting to see them as a couple of likely lads who got lucky.

Certainly, Setanta parties are ones to get an invite to, by the sound of things. "They are a lot of fun, people go crazy," one source said yesterday.

This image belies some canny operators. Ynon Kreiz, a partner at Benchmark, said of the two founders: "They are very smart, creative entrepreneurs. We asked about them in the industry before we invested - no one could fault them. Sports is a people-driven industry, deals are done on a handshake, and no one had a bad word to say about them. If you look at what they have done over 15 years, they have built a business with little funding. They understand consumer requirements, they know what viewers want."

Setanta is named after a mythical Celtic warrior. In some ways, it is living up to the name. It is a comparatively tiny business, with turnover in the tens of millions.

But as a broadcaster that now runs seven satellite channels in seven countries, it is growing in power.

It saw off the BBC to win the rights to the Scottish Premier League two years ago and can now be regarded, thanks to the financial muscle Benchmark provides, as a serious bidder for most sports broadcasting rights.

The idea that it was likely to break Rupert Murdoch's control of football in the UK at its first attempt, however, was always pie in the Sky.