Examination of Witnesses (Questions 220
WEDNESDAY 9 NOVEMBER 2005
Mr Roger Mosey and Mr Dominic Coles
Q220 Lord King of Bridgwater:
Who tells who how much money there is?
Mr Mosey: It is a joint decision. Dominic and
I would go on bidding for sports rights and Dominic sits on the
Sports Management Group, so we work together collaboratively.
Q221 Lord King of Bridgwater:
Has he had a letter from the Director of Finance saying, "This
is your budget for this year. Now, make the best of it!"?
Mr Coles: I think it is worth me explaining
how we manage our sports rights budget. We have a five-year rolling
budget which is allocated corporately by the BBC Finance Director
and the Director General, which allows us then to manage that
spend over a five-year rolling basis and it allows us to secure
ideally a portfolio of sport that maximises value for the licence
fee payer. That allows us to have a lot of flexibility in the
way that we look at new acquisitions, at the value of rights that
we are trying to renew and to acquire and perhaps even to lose.
On those occasions when we do lose rights we look at how to replace
those rights within the confines of that restricted matter.
Q222 Lord King of Bridgwater:
So you have a piece of the cake handed down to you by the Director
General and you then make the best you can of it, is that it?
Mr Mosey: Part of our planning is to decide
what rights we would like to acquire in the next four or five
years and we put to the Director General what we think should
be part of the sports portfolio. It is a process in which there
are various iterations. We have already said we would like to
bid for cricket in 2009 and so the corporate financial planning
would try to take account of those kinds of issues.
Mr Coles: Although we manage this five-year
rolling cash budget, on an individual basis we also have corporate
approval procedures which require us for any investment over £2
million to go to the corporate centre and request them to approve
it on an individual basis.
Q223 Lord Maxton:
I once went to look at your operation at Wimbledon. At Wimbledon
you pay the Lawn Tennis Association for the rights to show Wimbledon.
You then become the sole broadcaster and so you then sell on your
live fees to the rest of the world, do you not?
Mr Coles: No, we do not. As part of the acquisition
of the Wimbledon rights we agree not only to pay a rights fee
but also to act as host broadcaster for the Lawn Tennis Association
or for the All England Club. They then, through their agent, TWI,
sell those rights externally.
Q224 Lord Maxton:
So they sell them, not you?
Mr Coles: We do not sell them, no. We would
not be taking on that financial risk on behalf of the licence
Q225 Lord Maxton:
Is your bid lower as a result of that than it would be?
Mr Coles: Absolutely. The costs of our host
production are taken into account in valuing the rights.
Q226 Lord Maxton:
If you become the sole broadcaster for the 2012 Olympics, would
you be selling on rights?
Mr Coles: That is a very good question. We have
acquired the exclusive UK rights to the Olympics, but the IOC
themselves manage the host production of the Olympic Games. I
anticipate that we will inevitably be involved in a substantial
manner in terms of helping the host production. The host production
and the sale of the international rights to the Olympics will
be managed by the IOC, not us. We have only bought the UK rights.
Q227 Lord Kalms:
I have been studying your paper on how you approach sports rights
and how you acquire them. I am not being critical of it because
it is actually a very detailed paper. You are right to say it
is not a science, although you do not quite come to the conclusion
that bidding is an art, but it is. You seem to be at an enormous
disadvantage at the end of the day. Bidding is competitive. In
the world of deals and buying and bidding you seem to be very
vulnerable to someone who comes along and offers £1 more.
You are not in a strong position. Your formula is really a backroom
exercise. A lot of boys are in the backroom doing calculations
that are pretty meaningless. The figure you come to at the end
means you are very vulnerable to a higher bid from someone who
wants it. What happens at this stage? You have got a limit of
£2 million. Your calculations are pretty meaningless in the
open market. When the open market says this is worth more your
calculations will crumble.
Mr Mosey: One of the tests is our success so
far. The successes that we have are the World Cups in 2010 and
2014, we have Wimbledon to the end of the decade, the Six Nations
to the end of the decade and the Grand National to the end of
the decade. In terms of whether or not it works, I think it does
Q228 Lord King of Bridgwater:
Which World Cup?
Mr Mosey: We have the football World Cups in
2006, 2010 and 2014.
Mr Coles: We are always vulnerable, you are
absolutely right, to a knockout bid from a competitor and as a
result of that we have lost rights in the past; the European Rugby
Cup and the boat race are very good examples. Usually through
my team we can anticipate what the commercial sector will be looking
to bid and we will formulate our valuation with that in mind.
First and foremost, however, we must ensure that the amount that
we are prepared to bid will deliver value to the licence fee payer
and an assessment of that value is arrived at both through the
empirical measure of cost per viewer hour, looking at overall
costs, looking at the viewer base and looking at the number of
hours output, but also, as I mentioned earlier, looking at the
type of audience we are delivering to and the value of that specific
audience to the BBC, and it may be a hard to reach audience in
particular. Having made those assessments and having come up with
a valuation of the value to the BBC, we then do our own market
analysis of how much we believe the market would be prepared to
pay for those rights. If the two are way out of sync then we will
either not bid or we will put a bid in in the expectation we will
lose. A good example of that is the Champions League which has
become an incredibly valuable commercial property to ITV and to
Sky. We would always anticipate having to struggle to be able
to compete with those premium values which a subscription service
or a particular demographic do actually offer ITV or other commercial
broadcasters. Premier League football is another good example
of where those premiums apply. We will go ahead and bid and we
will go to the corporate centre and explain our strategy for bidding
and the rationale for bidding, but you are absolutely right that
in many cases we will find a situation where we cannot compete
and we will have to reassign that element of the budget that we
previously committed to that particular sport and look at other
sports which may be more affordable for market reasons, ie because
they are less attractive to a purely commercially-driven organisation.
Formula One has a high intensity of sponsorship and marketing
visibility. In the BBC's walled garden that is very difficult
for us to accommodate. It is easier for the likes of ITV to accommodate.
Q229 Lord Kalms:
Let us say your backroom calculations work out at £x for
the offer and you realise it is not enough. How much would you
go above that, 10 per cent, 15 per cent? How many have you lost?
Does it move from the bean counters to the marketplace is really
the question I am trying to get at.
Mr Coles: The process ensures that we do move
from the bean counting to the market because the significant rights
that I think we are referring to would require us to go to the
corporate centre. If we are paying a premium which delivers a
cost in cost per viewer hour terms which is more than is usual
for either sport or for the BBC as a whole, we need to justify
it and we justify it by looking at the demographics it is delivering
and looking at the value across the piece.
Do you have a cash limit on what you can do? Do you go in with
an inflexible cash limit and you cannot go above that?
Mr Coles: When we start to look at rights our
cash limit is our capped sports right budget. If we were to take
on Sky and buy the Premier League outright that would consume
the entire sports rights budget for the BBC. So we have to look
at how we manage that portfolio. When we are making the decision
of how much of the big pot to commit to a particular sport we
go to the committees and we discuss the rationale for coming out
at a bid level where we believe we could compete. If we cannot
compete then we say we cannot compete.
Does it go back to the committee or to the Governors? Say you
wanted to make a really big bid, would that go to the Governors?
Mr Coles: All investments over £2 million
go to the Director General's Finance Committee. Investments over
£5 million go to the full Executive Committee to decide.
Anything over £10 million is normally referred to the Governors
but goes through the Chairman and the Head of the Audit Committee
because of the commercial sensitivity of the acquisitions and
just the issues with confidentiality.
And swiftness, presumably.
Mr Coles: And speed, of course.
Q233 Lord Kalms:
How much were you outbid on the cricket by Channel 4?
Mr Coles: Back in 1999?
Q234 Lord Kalms:
Mr Coles: I could not tell you. I am not aware
of the figures. Even if I was, because this is a public meeting
we cannot go into individual figures.
Q235 Lord Kalms:
In hindsight would it have made sense to be more competitive?
You hit your glass ceiling very early on that one, I suspect,
because of the structure and the way you bean counted the cost
value to the BBC. In hindsight would it have been better to say
for the BBC's prestige and the viewers' benefit and subscribers
and as a general benefit across the board that you should have
bid higher? Channel 4 had its own glass ceiling and in a competitive
bid somehow or other we got squeezed out.
Mr Mosey: I have found one of the joys of the
job is that there are two completely conflicting pressures. One
is that the BBC at its most extreme should not bid against other
terrestrial broadcasters and the other is that the BBC should
have cricket come what may. You then get an absolutely huge flex
in price and the kind of market depending on whether we bid at
all costs or whether we take value for money. It is a tricky dilemma
for us because clearly there is also a public service obligation
to have major national sports on the BBC.
Mr Coles: One thing we should avoid doing is
paying inflated values to avoid the negative publicity that could
arise from the BBC failing to secure rights, particularly if the
successful bidder is another public service broadcaster who ends
up delivering a very good service for that particular sport. A
good example of this is when we were outbid for the Match of
the Day rights by ITV in the last contract when it is public
knowledge that ITV bid £61 million for a contract that we
were paying £20 million for. When you have those levels of
extremes, when other broadcasters are prepared to pay that level
of strategic premium to secure a sportand it was the last
chance ITV had of securing regular football at that particular
point in timeI do not think we would be serving our licence
fee payers by chasing those premiums. We have to step back.
Q236 Baroness Bonham-Carter of Yarnbury:
In the case of the cricket now, it has not gone to a terrestrial
channel. Do you think the BBC should have been more active this
Mr Mosey: I think what we said going forward
is that there are these two questions, which are whether we can
schedule the rights to buy and whether they are value for money
for the licence payer. I think we will need to look quite hard
at the scheduling in the future and whether we are paying a premium.
Sky want to drive subscriptions and I think it is absolutely right,
Sky run a very good business. They pay a premium because they
are pay TV. The question we have to face is whether the market
is going to be like that in 2009 and if we are competing against
pay subscription premiums it will it be tough. We would like to
bid for the cricket, but that is the kind of consideration we
will be looking at.
When does it come up again, in 2009?
Mr Mosey: Yes. The cricket could come back on
to terrestrial television in 2010, but the expectation is the
rights will be available in 2009.
Q238 Lord Peston:
If you think of the companies selling the rights, they are private
enterprises and they are entitled to make as much money as they
can. I have always been troubled by anything called "England"
or "Great Britain". Let us take the Test team and the
notion that the MCC have somehow the right to sell that for the
maximum amount of money. Do you have any idea where they get the
right to call their team England from in the first place? It sounds
funny but it is a very serious question because you could argue,
and I would argue very strongly, that anything being called England
belongs to the people of England and the notion that in order
to watch a team that belongs to them they actually have to pay
for it I think involves a degree of contradiction. Have you argued
about this in any way yourselves at any time? I do not mean just
England. England is often used for other things. I think the Olympic
team is called Great Britain. I have always been worried about
why you should have to pay to watch something called England when
the marginal cost of supplying it is actually zero.
Mr Mosey: Let me give you an example where I
think there is a very good partnership and that is between the
BBC and the FA. The BBC and the FA have a relationship where we
jointly want to support England for large terrestrial audiences,
so the rights to England home internationals are on the BBC. In
the case of the FA Cup, we see it as part of our function to support
the FA Cup at grass-roots level, so in the preliminary rounds
and also last Sunday when we showed Chase Town against Oldham,
so there is a sense of getting the community involved. We think,
if possible, we should spread the benefits of sport and our partnerships
with governing bodies right through whole communities. On the
technical point of who has a right to call themselves England,
I am not absolutely sure about that.
Lord King of Bridgwater: Surely the point
is it is not the MCC, it is the England Cricket Board.
Q239 Lord Maxton:
Do you not think that the sporting bodies, not the commercial
ones but those representing sport and supposedly representing
sport across the whole of the range of sport from the grass-roots
level right up to the top, have a responsibility not just to maximise
the amount of money they make but to maximise the amount it is
seen on television to encourage young people to play that sport?
Mr Mosey: Yes, I do. I think we should give
credit to sporting bodies where they have achieved wonderful transformations
in sport in some cases. It has gone from the old Division One
of 15/20 years ago to the Premier League now. It is a major achievement
for UK sport that we have such a prestigious Premier League. Part
of our agreement with the Premier League is we support grass-roots
football in Match of the Day when it is repeated on Sunday
mornings. We are launching a major initiative next year called
"Your Game" which is designed to bring football to under-served
communities, which is in partnership with a number of footballing
bodies and we do absolutely believe that it is income, of course,
but it is also visibility and involvement at the grass-roots.