Select Committee on BBC Charter Review Minutes of Evidence


Examination of Witnesses (Questions 220 - 239)

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 fee payer.

  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 work.

  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.

  Q230  Chairman: 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.

  Q231  Chairman: 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.

  Q232  Chairman: 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: Yes.

  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 sport—and it was the last chance ITV had of securing regular football at that particular point in time—I 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 time round?

  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.

  Q237  Chairman: 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.


 
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