Football Bid: `Murdoch Utd' plot hatched in Italy

Peter Thal Larsen,Paul McCann
Wednesday 09 September 1998 23:02

RUPERT MURDOCH's plans to take control of a British football club were hatched after a meeting with Silvio Berlusconi, the Italian media mogul and one-time Italian prime minister, earlier this year.

Mr Berlusconi told Mr Murdoch, who visited Italy in the Spring, of the immense bargaining power that football clubs can wield if they control their own television rights. In Italy a small group of top clubs - including Juventus and AC Milan, the club owned by Mr Berlusconi - have negotiated a lucrative television deal with Telepiu, his pay-TV operator.

Returning from Italy, Mr Murdoch telephoned Mark Booth, the chief executive of British Sky Broadcasting, and told him that BSkyB needed to buy a football club if it was to hang on to the television rights to key matches.

The next move was for Booth, BSkyB's new American chief executive, to meet Manchester United's chief executive, Martin Edwards. Booth, 41, is a long-time Murdoch man who joined BSkyB from its Japanese sister company in January. It was a meeting at his West London office on a rainy day in June that set Project Moore under way - the name Moore (after Bobby Moore, captain of England's 1966 World Cup-winning team) was chosen as a codename to throw the scent off Manchester United. "Project Bobby Charlton would have been a bit obvious," said one banking source last night.

Edwards, United's chief executive and largest shareholder was in Sky's offices for one of the broadcaster's regular meetings with the head of Premier League teams. After discussing the future of televised football Booth made his offer: "I'll buy you out".

Edwards, who had been running Manchester United for more than 30 years, was known to be keen to sell the business.

It was no secret that Edwards was looking to cash in his 14 per cent share in the club. He was willing to sell the whole club for pounds 20m in 1989 and has reportedly already made pounds 30m from selling blocks of his United shares. Last year, he turned down an offer for the club from VCI, the video production group chaired by former Channel 4 boss Michael Grade

For the rest of June and July, Edwards and Booth negotiated face-to- face. A tiny team of advisers, including Peter Kenyon, United's deputy chief executive, and Martin Stewart, BSkyB's chief financial officer, knew of the talks.

In August, the negotiating teams grew larger and BSkyB brought in its bankers, Goldman Sachs, while Manchester United turned to HSBC and Merrill Lynch.

Negotiations came to a head last week, when BSkyB tabled a bid which valued Manchester United shares at 217p. Although Mr Edwards and Professor Sir Roland Smith, the club's chairman, were keen to accept the dea, it is thought that Greg Dyke, the former London Weekend Television boss, who is a non-executive director of Manchester United, convinced them to hold out for more.

Dyke, a lifelong United fan, argued that the club was one of the few in Britain big enough to survive on its own. He also believed that football teams had been under-valued by the City for the last two years. If the club waited a couple of years, it could get a much better price.

After news of the talks leaked on Sunday, unleashing a storm of protest from fans and politicians, negotiations become more urgent.

Manchester United's financial advisers told BSkyB's bankers, Goldman Sachs, that the offer undervalued the potential revenues from pay-per- view football matches once BSkyB's current deal with the Premier League ends in 2001.

Throughout Monday and Tuesday, BSkyB's directors and advisers, who were camped in the broadcaster's head office in Isleworth, west London, negotiated by telephone and fax with the Manchester United team, which was based at HSBC's offices in the City.

In the mean time Rupert Murdoch, who was visiting London on Tuesday for the funeral of Lord Rothermere, the press baron, was kept up to date on how the negotiations were progressing.

BSkyB tabled what it said was its final offer on Tuesday afternoon: this valued the shares at 225p each. BSkyB also set a deadline of 5pm for Manchester United to accept the bid.

However, the club's directors once again rejected the bid and allowed the deadline to pass. Eventually, at about 7pm, BSkyB tabled its final cash and shares offer, valuing Manchester United at pounds 623.4m, or 240p a share - adding 23p a share to its original offer - which was unanimously accepted.

Dyke knew that he was defeated and agreed to vote in favour of the deal to ensure a unanimous recommendation to shareholders.

Yesterday to register his opposition he donated the pounds 60,000 profit he will make on his own shares to Manchester charities.

The reason for the record-breaking deal is deceptively simple. Last year Manchester United earned pounds 12.6m from the televising of its matches. Murdoch has spent pounds 623m buying the club because he knows he can make that pounds 12.6m figure a great deal bigger.

At present the division of television money between Premiership clubs is based on a three-part formula. Last year every club got a basic pounds 3m. Then each got a facility fee that was paid according to the number of times the BBC or Sky Sports screened one of its games. On top of this, there was a merit award based on a club's league position at the end of the season.

This formula is only indirectly related to the ratings figures for matches. Rupert Murdoch has bought Manchester United for the simple reason that pay per view television will make the relationship between money earned and the number of armchair fans an absolutely direct one.

The arrival of digital television offers both a threat and an opportunity. The threat is that with a massive digital spectrum anyone can become a broadcaster. The distribution system becomes less important. Instead owning the content of the broadcasts becomes important - which is precisely how Mr Murdoch sees Manchester United, not as a 120-year old football club, but as television `content', just like his Twentieth Century Fox film studio.

How quickly pay per view arrives depends on the Restrictive Practices Court. It meets in January to decide whether the Premier League's sale of television rights to BSkyB amounts to a cartel. If it tears up the current Premier League-BSkyB contract, Murdoch is protected because Manchester United will quickly be in the position to sell its games on a subscription or pay per view basis - whatever it thinks it can get away with.

It is more likely that the court will tinker with the Premiership television contract, but leave it largely intact until 2001 when it expires. And that is when Manchester United will be worth its pounds 623m - and potentially much more.

It will give Murdoch a strong negotiating position for the next television deal when all teams will be looking to exploit pay per view

Not only does BSkyB's contract with the Premiership expire, but so too does a pounds 100m contract currently held by the sports agents IMG and French media giant Canal+ to sell the rights to Premiership games outside the UK.

With his Star satellite system in Asia and his share in El Globo, the South American satellite, Murdoch is in a perfect position to extend the pay per viewer all around the globe.

And Manchester United is the perfect team to use to create the global electronic stadium. The official fan club has 200 branches and 140,000 members. It is the most recognised sporting brand in the world and its Supporters' Association claims 100 million members worldwide. Either as a `battering ram' to grow his satellite services, or as a pay-per-view earner, if Manchester United has fans, Murdoch's satellites can reach them and charge them for watching.

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