Murdoch blocked: `Damage to the quality of football'

THE MONOPOLIES and Mergers Commission's 254-page report - probably the most detailed study of the British football industry and its relationship with television - has massive implications for the future ownership of football clubs.

Although the report deals specifically only with British Sky Broadcasting's (BSkyB) takeover of Manchester United, the MMC's findings appear to rule out any broadcaster buying a Premier League football club in the future.

The report seems also to set an important precedent by finding that the proposed takeover would have "damaged the quality of British football" by further widening the gap between rich and poor clubs and giving BSkyB added influence over the Premier League, "leading to some decisions which did not reflect the long-term interests of football".

In its four-and-a-half month investigation, the MMC considered a huge number of submissions from supporters' organisations, football clubs, rival media groups and industry regulators. The submissions, which were overwhelmingly hostile, attacked the deal with a large variety of arguments.

However, the MMC appears mainly to have looked at one key issue: whether BSkyB owning Manchester United would affect competition from other broadcasters in the battle for Premier League television rights, thereby reducing competition in the pay-television market as a whole.

The report identifies BSkyB as the dominant pay-TV company in the UK, and ascribes its success, by large, to its control of Premier League television rights. It also describes Manchester United as the dominant club "by any measure". At the same time, however, the MMC appears to take an unusually suspicious view of the two companies and the undertakings that they offered in an attempt to help clear the deal.

In response to almost all the promises offered by BSkyB and Manchester United, the MMC's response is that it, effectively, does not believe they will be kept. In drawing up its report, the MMC was hampered by uncertainty over the future of Premier League television rights.

The Premier League, which negotiates the television deal on behalf of its members, is fighting a court case against the Office of Fair Trading, which argues that the league is behaving as a cartel.

If the OFT wins the case, the market for television rights will be blown open.

As a result, the MMC looked at four scenarios. It considered the impact of the BSkyB/Manchester United takeover if the Premier League both won and lost its case. It also looked at both those scenarios if the takeover was followed by a wave of similar mergers between broadcasters and football clubs.

In all of those cases, the MMC concluded that the merger would improve BSkyB's chances of securing Premier League rights in the future. "We would expect this further to restrict entry into the sports premium channel market by new channel providers, causing the prices of BSkyB's sports channel to be higher, and choice and innovation less, than they otherwise would be."

One of the main concerns voiced to the MMC was that Manchester United would be able to tip off BSkyB about bids from rival broadcasters. In an attempt to ease these fears, the club offered to withdraw from the negotiations - and not to use its vote when the decision is being made.

However, this did not convince the MMC. "We do not believe that undertakings could ever prevent informal flows of information in an organisation like the Premier League," it concludes. The MMC also doubted that constructing a "Chinese wall" between the two companies would work.

The MMC also gives short shrift to the argument that ownership of football clubs by media groups is well established elsewhere. For example, AC Milan is owned by the Italian media mogul, Silvio Berlusconi, while Canal Plus, the French pay-TV broadcaster, owns Paris Saint Germain. However, the MMC decided that the different structure of football, and of broadcasting, in Italy and France made the comparison meaningless.

While the report is dominated by the discussion of the market for football rights and the pay-TV market as a whole, the MMC also tackles the issue of football in general.

In particular, the MMC decides the merger would give BSkyB more power in its dealings with the Premier League, especially in changing the timing of matches to suit its television schedule. The MMC finds that the takeover will also "reinforce the trend towards greater inequality of wealth between clubs, weakening the smaller ones.

"On both counts, the merger may be expected to have the adverse effect, that the quality of English football would be damaged," the MMC writes.

It added that there was no undertakings BSkyB could offer which would prevent this from happening. "Effective remedies would involve a high degree of intervention by the Government in the administration of football," it argues.

Interestingly, the MMC adds that the trend towards inequality would be made even worse if the takeover led to a wave of similar mergers between other clubs and broadcasting groups - a view that could help to scupper NTL's proposed acquisition of Newcastle United, which was referred to the MMC yesterday.

In conclusion, the MMC delivered its verdict on the merger in such a way that left Stephen Byers, the Secretary of State for Trade and Industry, with very little option but to block the deal.

Mr Byers said: "The adverse effects of the merger... appear to us to be very serious. As it is our view that no undertakings would remove these adverse effects, we conclude that prohibiting the merger is both an appropriate and a proportionate remedy, and we recommend it accordingly."