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Is Setanta about to tog out for Disney?

John Meagher on the rise and rise of an Irish sport network that has proven to be a match even for Sky

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By John Meagher
Saturday Feb 16 2008

It only took Paddy Power a couple of days before opening a book on a future buyer of Setanta Sports, the digital network started by two Irish lads Michael O'Rourke and Leonard Ryan in the most modest of circumstances 17 years ago.

With speculation mounting this week that the Irish sports broadcaster was attracting admiring, takeover glances, the country's leading bookmaker is offering odds of 7/4 that American giant ESPN -- itself owned by Disney -- will buy out the company.

Odds of 9/4 are being quoted for a takeover from Setanta's existing business partner Virgin Media while a generous 10/1 is on offer if its fierce rival, Sky Sports, stumps up the €1 billion that Setanta is thought to be currently worth.

Setanta insists that it is not courting a takeover and this week issued the following statement to staff: "There is frequently speculation of this sort regarding Setanta ... but we have not put the company up for sale. If we receive offers we will look at them. Our adviser and shareholder Goldman Sachs will act for us in this regard. And we will let you know of any significant developments if and when they occur."

Rumours of a takeover first surfaced when a Setanta-owned network, NASN, was snapped up by ESPN.

And media commentators were intrigued by a huge billboard that appeared in London earlier this year, proclaiming the company's 3m-plus subscribers. Its location was at the Hammersmith flyover, in the same vicinity as ESPN's British headquarters.

Setanta shot to prominence in May 2006 with its audacious €527m bid for two of the six Premiership rights packages, running from August 2007. It is the deal that turned the company into a football season fixture in Britain.

Since then, Setanta has put the noses of both BSkyB and the BBC out of joint by scooping the rights to show FA Cup and England games from August this year in a joint-bid with ITV. That cost Setanta €200m. It also has the rights to the Scottish Premier League and club channels for Arsenal, Liverpool, Rangers and Celtic fans.

And it also bagged the rights for Ireland's World Cup away qualifiers which will mean that the only possibility of watching Giovanni Trapattoni's first two competitive games as Irish manager will be via Setanta.

Omar Sheikh, a media analyst at London firm Dresdner Kleinwort, says: "They have been following a roll-up strategy. They have been going out to buy as many rights as they can in the hope that somebody buys them."

Setanta's origins have already become a bit of sporting folklore. Its two Irish founders, Michael O'Rourke and Leonard Ryan, were living in London when they realised the Republic of Ireland v Holland World Cup game at Italia 90 would not be shown on the BBC because England were playing Egypt.

So they bought the rights to the match, hired the Top Hat pub in Ealing, West London, and charged 1,000 Irish fans £10 each to watch the game. From such humble origins, Setanta has grown to a 12-channel TV business, with PGA Golf and horse racing as well as boxing and football.

Setanta has been bigging up its capture of the Joe Calzaghi-Bernard Hopkins boxing match as well as such fringe attractions as the Ultimate Fighting Championships. On a far smaller scale, it won the rights to show live, floodlit Gaelic football league games.

Setanta's founders and management own about 25 per cent of the business between them. Private equity groups Balderton Capital and Doughty Hanson, which own TV3, own about 20pc each of the broadcaster.

Other shareholders include Goldman Sachs, Davy private clients, Enterprise Ireland and EchoStar Holdings in Colorado.

Revenues this year are projected at about €500 million. The company is loss-making and is not expected to break even until the first quarter of next year. This would exceed expectations.

Commercial director Mark Mohan says Setanta has already exceeded expectations. "We have firmly established ourselves in the sports subscriptions market and have bought up a great deal of prestigious sports events."

While Setanta quotes 3m-plus subscribers, 1.4m have come from Virgin Media and another 600,000 from Irish cable platforms. Such subscribers boost Setanta's customer numbers and provide upfront cashflow but they receive a hefty discount on the standard £9.99 a month subscription fee. Virgin is thought to be paying only €80m a year on behalf of its customers.

Despite the rapid growth, that leaves only 1.1m-plus Setanta subscribers who are paying the advertised rate.

Mohan is convinced that Setanta subscriptions will grow strongly from autumn 2008 with subscribers in England keen to pay to see Fabio Capello's away qualifiers.

Meanwhile, Dublin-based media watcher Paul Moran of Mediaworks believes Setanta is highly attractive for would-be suitors. "It's got a major foothold in the market in a short space of time and a takeover by someone like ESPN would mean it would be far easier for them to take on Sky Sports than if they tried to build business in the UK by scratch."

- John Meagher