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Bankruptcy
In news that shook the football world, International Sports Media &
Marketing (ISMM), the company underwriting the 2002 World Cup and FIFA
partners for 19 years, filed for bankruptcy in the Swiss courts in March
2001 with estimated debts in excess of a staggering US$425m (£300m).
The company, founded in 1982, by the late Horst Dassler (of Adidas fame)
held the contract to market the 2002 World Cup with a budget of US$173m.
ISL Worldwide, a subsidiary of ISMM held the TV rights outside continental
Europe to the 2002 & 2006 World Cups, for which it paid US$376m and
US$434m respectively.
On July 2 the Leo Kirch media group exercised its option to acquire these
TV licensing and broadcasting rights in an exclusive last-minute deal
with FIFA.
The company's financial woes are linked to the loss of its lucrative marketing
contract with the International Olympic Committee in 1995 after a poor
performance at the 1994 Games in Atlanta and its over-ambitious expansion
into other ventures including ATP tennis, US motor sport and involvement
with two Brazilian soccer teams. The US$800m dollars it had paid for the
2002 and 2006 TV rights, under pressure from a rival bid by Mark McCormack's
IMG group was the final straw for the troubled company.
Cancellation
ISL's collapse was cited at the time for the last minute cancellation
of the 2001 World Club Championship scheduled for Spain in August, threatens
the profitability of the Korea/Japan World Cup and has raised questions
over 'secret' bank accounts and FIFA President, Sepp Blatter's handling
of the whole sorry affair.
Blatter has faced some increasingly harsh questioning on his governance,
particularly from long-time rival UEFA chief, Lennart Johansson and from
a hostile press over his knowledge of 'secret accounts' supposedly set
up by ISL that contained around US$40m in payments from the Brazilian
media company O Globo.
Blatter was also quizzed about the appointment of Traffic, a South American
marketing and media group as official agents for the disastrous World
Club Championships and the June 2001 Confederations Cup in Korea/Japan.
Brazilian Ricardo Teixeira and Argentinian Julio Grondona, both important
executive members of FIFA also happen to be directors of Traffic, a company
that still owes FIFA US$45m for its unfulfilled contract for the ill-fated
event in Spain. Supposedly the company was experiencing difficulties in
attracting sponsors and broadcasters for the competition many believe
is unnecessary at the end of a long European season with World Cup qualifiers
also still in progress. The collapse of ISL may well have been used as
a smoke-screen for the murky dealings involving Blatter's friends at Traffic.
Blatter has denied any wrong-doing. He has been backed by the African
and Asian Confederations, whose tolerance to suspicions of financial irregularities
seems to be higher than that of the Europeans.
FIFA has been obliged to compensate the 12 clubs due to compete in the
2001 World Club Championships and the Spanish organizers of the tournament.
The 2001 Confederations Cup was also put in doubt until FIFA promised
to pay up to cover the 40 ISL staff involved in running the competition.
When ISL's accounts are finally settled and its creditors pick up what
is left in the Swiss bankruptcy courts, FIFA face potentially huge losses
of up to US$42m and the embarrassing scandal threatens 65 year old Blatter's
dreams of re-election as FIFA President at the annual FIFA Congress in
Seoul next year, where he could face a challenge from the Korean millionaire
Chung Mong-joon or Issa Hayatou from the African federation.
TV rights
The German Kirch Media group holds the European TV rights and is involved
in a legal battle with the British government over auctioning the rights
to the highest bidders.
UK broadcasters BBC & ITV had their joint bid of US$57m rejected by
Kirch who wants US$257m. Sky is so far refusing to bid claiming the asking
price is too high. In Italy, the state broadcaster, RAI has also turned
down Kirch's demand for US$184m.
The British government claims its "crown jewels" legislation
(under the Broadcasting Act) concerning "listed sporting events"
, such as The Grand National and Wimbledon tennis, protects all 64 games
at the 2002 World Cup for free-to-air TV and is enshrined in European
law. FIFA rules that only the opening game, semi-finals, final and games
involving the broadcasting nation's national side are to be broadcast
free-to-air. The Kirch group is challenging the British government's interpretation
in the European Court, citing a Danish pay-TV channel, which broadcast
a 'listed-event' in Denmark after a ruling by the European Court of Appeal.
Nowhere in FIFA'S TV contract does it say KirchSport is bound to sell
to every country. Should the situation arise in which Britain gets to
see none of the matches, the lifespan of the government could well be
foreshortened.
The 1998 France World Cup cost the BBC & ITV around US$4.8m between
them and ITV is reluctant to increase its bid as advertising may be difficult
to find for less popular games.
Should Kirch win out in the courts Sky Sports and Ondigital may re-enter
the bidding process in the UK market.
However, FIFA sold the 2002 & 2006 rights to ISL and Kirch despite
the rival bid from IMG, ditching a previous exclusive deal with the International
Television Consortium (which included the European Broadcasting Union).
Kirch paid approximately US$387m dollars for the 2002 European TV rights
and US$445m for 2006.
He has also secured the US distribution rights.
ISL held the rights for the rest of the world and paid the same rates
as the Kirch group. FIFA pocketed US$773m for 2002 and US$893m and 2006
respectively.
Japanese rights were secured by Rupert Murdoch's Sky PerfecTV for a cool
US$100m.
ISL stood to make US$1.4 billion dollars on its US$387m investment before
it collapsed.
As for the Kirch group, it sold its rights in Spain to the pay-for-view
'Via Digital' channel for US$171m. The Irish TV rights brought in around
US$2.8m and Kirch has so far cut deals with broadcasters in Finland, Bulgaria,
Cyprus, Malta & Slovenia.
Kirch Media is also involved in troubled negotiations to sell the German
rights to terrestrial free-to-air broadcasters ARD & ZDF, with the
German Interior Ministry anxious to see any deal concluded at an affordable
price, which guarantees the games for public television.
In the meantime, the British government is still standing firm on its
offer to Kirch but this particular clash looks as though it might end
up in the courts.
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