8 April 1998

Ballpark Figures: The Real Cost of Sports Broadcasting Rights

by Matt Rubinstein at 10:55 pm

This is an article I wrote with my colleague Nick Mulcahy when we both worked as lawyers at Gilbert+Tobin in 1998. It’s fairly out of date now, but the same issues have come up every year since.  

If people don’t want to come out to the ball park, nobody’s going to stop them.
– Yogi Berra

Introduction

In 1937 the High Court of Australia endorsed an action by one George Taylor which, if repeated, would threaten some of our most cherished institutions. George had jerry-rigged a sixteen-foot platform in his Dowling Street front garden. The platform was accessible by a ladder and overlooked the Victoria Park Racing and Recreation Grounds, which, until the arrival of George and his platform, had been accustomed to a brisk trade in spectator racing.

George’s platform was of sufficient height for him to peer over the perimeter fence of Victoria Park. From this vantage point he could make out the horses and, more importantly, the score cards posted for the benefit of spectators within the park. Entrepreneurial George quickly saw the advantage of his position and arranged to open his platform to Cyril Angles, an announcer at 2UW, who spent his subsequent Saturdays in George’s front yard, calling the races.

Cyril Angles and 2UW benefited enormously from this arrangement, and Victoria Park’s patrons soon began sitting at home in droves, listening to Cyril’s broadcast and the promotional messages of 2UW’s delighted sponsors. George Taylor was handsomely rewarded for his ingenious platform to the tune of one pound for every time Angles scaled the ladder.

Victoria Park was understandably distressed by the decline in their own takings, and appealed to the High Court for an injunction to prevent anyone peering over their fence using George’s platform. The High Court, perhaps surprisingly, refused to intervene, saying that George, Cyril and 2UW had done nothing wrong. There was no property in a spectacle; the event could not be “owned” in any ordinary sense, and Victoria Park would simply have to build a taller fence.

If George Taylor was still with us, lived in Homebush and had a big enough ladder, he could probably duplicate his scheme with impunity and considerable profit. The law underlying sporting events in Australia has not changed since Victoria Park v Taylor,[1] although the practical reality is very different. For a start, George would be foolish to accept a mere pound for the use of his ladder, considering that the world broadcast rights to the 2000 Olympics are worth well over a billion dollars Australian.[2]

Despite the nebulous legal protection afforded to sporting events against unauthorised broadcasts, billion dollar figures are now commonplace. Cable and network television stations in the United States paid US$4.4 billion for the last four years of NFL games and will pay US$2.6 billion for the next four years of the NBA.[3] Broadcasts of Premiership soccer games in the United Kingdom are expected to generate £520 million for the 2004-5 season. Major sporting events top free-to-air ratings and are key drivers of subscription television. Media magnates are building their empires on the backs of Bulldogs, Swans and, of course, Dodgers.

Networks and pay TV providers are spending more on sports programming than ever before. But what exactly are they paying for?

Identifying Protectible Property

How Rights Arise

It may distress a number of aficionados to consider that there is no copyright in a sporting event. Even the savage ballet of professional football (of whatever code, and whatever competition) is not considered a dramatic work; even Pro Wrestlers are not afforded performers’ rights. Copyright will subsist in a sporting team’s theme tune and any half-time entertainment, and the logos of the teams and the league are likely to be trademarked. These elements will be protected and may not be reproduced. But the battle itself is not protected, and may be reproduced.

The situation is slightly different in the US, where the unauthorised broadcasting of a sporting event is regulated by the doctrine of unfair competition and quasi-property rights are created.[4] The law in Australia knows no such finesse, and negotiations for broadcasting rights are deeply rooted in practicality and the common law of England.

Basically, the organiser of an event grants exclusive broadcasting rights to a broadcaster or program supplier by allowing that person, and only that person, into the stadium with cameras and equipment. It will invariably be a condition of entry for everybody else at the game that no photography, recording or transmission of the event is allowed.

The system works best in venues where the organiser can restrict entry, but applies equally in public spaces. The challenge for the organiser of a public event is to make successful filming of the event so difficult that a broadcaster may only practically undertake it with the organiser’s blessing and cooperation.

In essence, the organiser of an event is not disposing of a right owned by that organiser, as an author does when he or she assigns copyright to a publisher or film producer. Instead, the organiser is creating a new set of personal, rather than proprietary, rights through contractual arrangements with broadcasters or producers.

Who Holds Which Rights?

Ultimate control over broadcasting activities in a sporting venue therefore resides with the owner of the venue. The owner of the venue holds the property rights which make all further rights possible. It is the owner of the venue who may license people to enter and remain on the venue, and may set conditions on that entry.

It is therefore incumbent on the organiser of the event to negotiate with the venue owner to give effect to the required restrictions: to give the right film crews room to set up, and to keep out the wrong ones. Ordinarily this will be in the venue owner’s best interests and they will be happy to cooperate. However, to make sure, it is just as well for the organiser of the event to have a stake in the venue. In America, it is common for a professional sports team to come packaged with its own stadium. The Madison Square Garden company owns the stadium, the New York Knicks and the New York Rangers. Peter O’Malley owns the LA Dodgers and, until recently, Dodger Stadium.

Once the cooperation of the venue owner is secured, an event organiser (or the relevant sporting administration body) can feel confident in granting whatever broadcasting rights it wishes to whoever it chooses. These rights are purely contractual and are limited only by the imaginations and lawyers of the negotiating parties.

Broadcasting rights may be defined in terms of their exclusivity, their duration and the territory to which they apply. With the advent of new systems of broadcast, they may also be confined to one or more delivery platforms. Typically, free-to-air rights are distinguished from pay TV rights; pay TV rights may be further differentiated among cable, satellite and microwave distribution platforms; and even cable rights may be further split into basic, pay-per-view or video-on-demand rights. Any of these rights may be exclusive or non-exclusive and may be confined to a certain territory.

In NBA v Motorola[5] (decided in January 1997) the NBA argued that it had proprietary rights in the real-time scores of its basketball games, and that Motorola and a service provider called STATS were in breach by broadcasting updates of these scores over a paging service, having taken the scores from TV broadcast. The Second Circuit Court of Appeal found that while there was no copyright in a sporting event, the law of unfair competition by misappropriation of “hot news” would still apply in certain circumstances. However, since the paging service was not in competition with NBA games, the action was not made out.

These various broadcasting rights may be separately assigned to different parties by the organiser of the event, or they may be assigned in one hit and carved up further down the track. In Australia, for example, commercial networks such as Nine and Seven may acquire all television broadcasting rights to major football matches from the Australian Rugby League and the Australian Football League. These rights do not usually differentiate between free-to-air and pay TV delivery, but of course Nine and Seven are not (for the moment) in a position to broadcast the games on subscription television. They therefore create a new licence to broadcast the games on pay TV platforms only, and assign this new right to pay TV players such as Optus Vision and Foxtel.

At some point the rights being dealt with will become closer to traditional notions of copyright. Although there is no copyright in a spectacle, as soon as an event is recorded or broadcast by video, copyright subsists in the video signal and in the recording. This copyright is owned by the producer of the signal and may be dealt with as the producer sees fit. Copyright is not a single right but a bundle of rights which may be split up and separately assigned.

Bundling of Rights

Who bundles?

The various ways in which rights are bundled can have significant effects on sports broadcasting. Again, this is often rooted in practical considerations. The attitudes and bargaining positions of the parties will often depend on the way in which the event is filmed.

The organiser of the event may wish to contract an independent production company to film the event. In this case, copyright in the broadcast signal reverts to the organiser of the event and may be bundled or unbundled as the organiser wishes. In this case there would be no reason to assign any particular rights to broadcasters who could not use them and a high degree of unbundling and specification would be possible. However, this method is not often practised, partly because broadcasters want more control over the signal they are to distribute.

Another way to distribute unbundled rights is to allow more than one broadcaster into the venue to telecast the event. In this case, each broadcaster’s rights would be defined and limited by careful contractual provisions. However, the logistics of multiple film crews covering the same event, each jostling for the best vantage point, often make this an impractical proposition.

What usually happens is that one broadcaster is exclusively licensed to telecast the event and becomes the absolute owner of copyright in the broadcast signal and all its attendant rights. In this case it is the broadcaster who is responsible for carving further rights out of the copyright; for example, pay TV rights or the right to show highlights. This gives considerable power to the broadcaster as rights-broker and can lead to complications and disputes.

Anti-siphoning

Overbundling of rights is seen as especially dangerous when it ties up certain rights and, in a sense, allows them to lie dormant. Questions of market dominance and sheer financial influence become relevant here. Pay TV companies and free-to-air networks around the world are becoming enormous and can wield considerable power in the market. If they were to acquire the full bundle of rights to broadcast a sporting event, their refusal to pass on their unused rights (free-to-air rights held by pay TV companies, and pay-TV rights held by free-to-air networks) to the same event might be undesirable. This problem has traditionally been considered in relation to pay-TV tying up free-to-air rights, although the opposite situation can be equally damaging.

In the 1977 American HBO case, the FCC argued that “the overall level of public enjoyment of television entertainment would be reduced if sports events were shown only on pay cable, or shown on conventional television only after some delay.”[6] It used this argument to defend its “anti-siphoning” rules, which were designed to prevent the migration of sports events from free-to-air to cable television. However, the US Court of Appeals found there was no reasonable public interest justification for imposing siphoning conditions on cable carriage of sports programming, and bolstered its decision with First Amendment arguments. There are therefore no anti-siphoning provisions, as such, in the United States.[7]

The US is left with limited FCC rules relating to cable blackouts of local sporting events. These rules provide that a cable system located within 35 miles of a city where a sporting event is taking place, and where a free-to-air broadcast station is located, may not carry a live telecast of the event unless such a telecast is available on a local free-to-air station, if the organiser of the event so requests. This puts blackout rights in the hands of the event organiser and reflects the traditional division of broadcast rights in professional sport in America. Under this system, the event organisers (the relevant League or Association) control national broadcast rights to broadcast the event on any delivery system anywhere in the country, excluding the local area where the game is to be held. The owners of individual teams retain the rights to broadcast their home games in their local territory.

Despite the still birth of America’s attempted anti-siphoning rules, the FCC has found that sporting events have not significantly migrated from free-to-air to cable delivery platforms in the last 20 years. Instead, all sports are subject to complex arrangements involving detailed carve-outs and varying shades of exclusivity. For example, ESPN’s US$435 million deal with Major League Baseball gives it broad exclusivity on Wednesdays, limited regional exclusivity on Sundays, and no exclusivity on opening day and holidays. Even the free-to-air networks do not consider anti-siphoning rules necessary, and the FCC has decided not to pursue them.[8]

In Australia, the Broadcasting Services Act 1992 provides an anti-siphoning mechanism similar to that considered but rejected in the HBO case. It allows the Minister to specify events which should be available free to the general public. The present list includes matches and tournaments in rugby league (conducted by both the ARL and Superleague), rugby union (the ARU only), cricket, soccer, tennis, netball, basketball, golf and motor racing.

The Act makes it a condition of each subscription television broadcasting licence that the licensee must not acquire the right to televise a listed event on pay TV unless the event is also available on free-to-air television. The Foxtel Cable decisions of 1997 determined that a free-to-air broadcaster’s right to televise a listed event was not satisfied by a delayed telecast or a highlights package. The right granted to the free-to-air broadcaster must be capable of being exercised within seven days of the event, must not be a lesser right than that acquired by a pay TV operator for the same event, and must be a right to televise the event live or as soon as is technically feasible.

The United Kingdom also has anti-siphoning provisions and a “prohibited list” similar to Australia’s. The UK list is characterised by sporting bodies and event organisers trying to throw off their own protected status. Events such as the Grand National, the Derby and the FA Cup Final are on the list. The Wimbledon tennis championship has succeeded in having all but its finals weekend removed from the list, and the England and Wales Cricket Board is petitioning the government to have England’s home test matches removed. The ECB estimates that if pay TV channels were permitted to bid for exclusive live broadcast rights to the games, its annual revenues could triple.

Content and Access

Anti-siphoning is one attempt of various regulatory schemes to combat the problems that arise when content is tied up by a single operator. This exclusivity is seen as detrimental to other broadcasters and consumers alike, since it reduces competition in the marketplace. The overbundling of rights is seen as particularly damaging to competition. But any form of concentrated ownership may cause problems.

The American market is becoming more vertically and horizontally integrated. Fox, which now has a national free-to-air network which rivals those of NBC, CBS and ABC, is simultaneously consolidating its regional cable networks through Fox Sports Net (FSN), a joint venture with TCI’s Liberty Sports. FSN is becoming competitive with sports cable giant ESPN, and recently outbid its rival for the Classic Sports Network channel. In late 1996, FSN bought a 40% stake in a joint venture with Cablevision System Corp’s Rainbow Media Holdings, Inc (Rainbow) which includes Madison Square Garden, the NY Knicks and Rangers, and local programming rights to 39 major league teams. Fox has also been buying broadcast rights to other major leaguers, including the Detroit Red Wings and Pistons, the Denver Nuggets and the Avalanche. It owns local cable rights to every major league professional sports team in Los Angeles.

However, its most audacious purchase in recent times must be its US$350 million acquisition of the LA Dodgers, one of the most important baseball teams in the American collective memory. The deal, which has recently been approved by Major League Baseball, includes complete control of the team and Dodger stadium. Ownership of sporting teams naturally trumps mere ownership of the rights, since rights are fickle and limited by time. Peter Barton, former CEO of Liberty Sports, points out that “Owning the team is a way of making sure you don’t lose the rights.”[9]

This vertical integration is not unique to Fox. Disney, which now owns ESPN, also owns the LA Angels and the Anaheim Mighty Ducks.[10] Ted Turner owns the Atlanta Braves and the Atlanta Hawks. Comcast Sports Net owns two thirds of the Philadelphia Flyers and the Philadelphia 76ers, as well as the CoreStates Arena. News Ltd’s ill-fated Superleague competition in Australia is another example of the broadcaster organising the event to be broadcast.

When a single entity owns a sporting team, the stadium where it plays and the networks on which its games are broadcast, it becomes fairly invincible in the marketplace. A lot of content may be hoarded jealously by these vertically integrated behemoths, and content is bound to suffer.

In America, access to content is provided by the Program Access Rules, set out in section 628 of the Communications Act. The Rules are designed to increase access to content for all pay TV providers by prohibiting unfair or discriminatory practices in the sale of programming by vertically integrated (cable-affiliated) programmers. The rules prohibit these programmers from engaging in “unfair methods of competition or unfair or deceptive acts or practices” designed to hinder or prevent any distributor from providing programming to subscribers or customers. The rules also prohibit exclusive programming arrangements between vertically-integrated programmers and cable operators unless these are found to be in the public interest by the FCC.

For example, in September 1997 the FCC found that Rainbow had breached the Program Access rules by charging new entrant Ameritech higher rates for access to sports programming than it charged incumbent cable operators.

The Program Access Rules are limited in a number of respects. Apparently, they only apply to programming distributed by programmers to local operators by satellite. While this accounts for the bulk of cable programming, alternative distribution systems such as fibre optics may well be explored. Neither are the Rules applicable to programmers who are not vertically integrated, or to free-to-air broadcasters who also supply cable operators with programming. New entrants such as Ameritech have petitioned the FCC to extend the ambit of the Rules and close off these “loopholes”. The FCC is presently seeking comment on various aspects of the petition.

Australia’s new competitive telecommunications regime, constituted by the Telecommunications Act 1997 and Part XIC of the Trade Practices Act 1974, contains a general access scheme for telecommunications services. The regime guarantees access to “declared services” such as voice telephony and broadband carriage. However, content services cannot be declared services and the access regime does not apply.[11] There is therefore no equivalent to the American Program Access Rules in Australia, and no means to free up important content, particularly that which is controlled by the free-to-air networks.

The Future

Broadcasters, sporting associations and consumers alike have complained bitterly about the direction in which sports broadcasting has been heading. Many broadcasters lose out in the billion-dollar auctions for sporting rights and complain that prices are rising too quickly and that access to content is inadequate. Subscribers to pay TV services complain at the rate hikes necessary to accommodate this new expenditure. Fans and sporting associations fear that the sheer sums involved subjugate the game to the broadcast rights.

Some analysts have suggested that sporting teams and clubs are due to get more closely involved in the exploitation of their own broadcasting rights. Already in the US, major league teams retain the right to license local broadcasting of their home games. In the UK, Manchester United has entered into a joint venture with BSkyB and Granada to set up its own TV channel, MUTV. MUTV will offer six hours of daily prime-time programming[12] to be delivered to subscribers via digital and satellite services, although the exclusive rights to live first team games are presently owned by other broadcasters. Back in the US, Major League Baseball’s new deal with the ABC and NBC networks is a joint venture called “The Baseball Channel”, under which MLB has no guaranteed rights fees but takes 87.5% of all advertising revenues. This represents a new approach to sports broadcasting.

Certainly, for the sporting players to reclaim control of their destinies and broadcasting rights would put a brake on the increasing integration and consolidation of the industry. The various teams’ loss of independence to media magnates may be a dangerous thing, not for sentimental reasons but because it tightens the broadcasters’ stranglehold on sporting events and the associated rights. Several members of Major League Baseball’s ownership committee are reportedly likely to refuse Fox’s purchase of the Dodgers. Their protest will probably not be enough; attempts to stand between Fox and baseball have already been described as “quixotic.”[13] But they may provide a starting point for critical debate about the fate of sporting teams and their broadcasting rights in the future.

Perhaps, in Australia, our players on the field and in the market should draw humility from the fact that in theory, at least, the most expensive and exclusive of their broadcasting rights are forever vulnerable to any George Taylor with a tall enough ladder.

[1] (1937) 58 CLR 479

[2] Ian G McGill & Ian Carroll, “The Negotiation and Sale of Television and Other Rights Associated with a Sporting Event”. In Mark Fewell (ed), Sports Law: A Practical Guide. LBC: Sydney, 1995.

[3] Cable World, 1 December 1997.

[4] McGill & Carroll, page 109. However, the fundamentals of property rights are the same. This gives rise to the practice of some US broadcasters of “repainting” advertising billboards within a sports venue using an electronic palette. The billboards at the ground then become visible only to the spectators while the billboard advertising space as seen by the broadcast audience can be sold to the network’s sponsors.

[5] A copy of the decision is available online at www.ljextra.com

[6] Home Box Office v FCC (1977) 567 F 2d 9; 434 US 829.

[7] FCC Inquiry into Sports Programming Migration, 9 June 1994, FCC 94-248.

[8] FCC Inquiry into Sports Programming Migration, 9 June 1994, FCC 94-248.

[9] Quoted in Connie Bruck, “The Big Hitter”. The New Yorker, 8 December 1997.

[10] The name of the hockey team was changed to reflect that of a fictional team in a series of Disney filmed entertainments.

[11] This is because of the definition of “eligible service” (relating only to carriage services) in section 152AL of the Trade Practices Act.

[12] Apparently including reserve and youth matches and training sessions.

[13] Connie Bruck, “The Big Hitter”. The New Yorker, 8 December 1997.

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