ITV Digital – A tale of greed and speculation

It’s been 18 years since the digital television provider owned by television companies Granada and Carlton, originally known as ON Digital then subsequently better known as ITV Digital was granted the rights to Football League and League Cup live TV coverage. What began with optimism and spending levels in the Football League of an unprecedented nature to that date, ended in chaos and outrage. But how did it all happen and what lessons can be learnt?

The infamous tale began as David Lister put it with “a rush of blood to the head”. A fee of £315m was agreed with the Football League for which ITV Digital were getting exclusive rights to show live Football League and League Cup games for three years starting in the 2001/02 season. A monumental sum compared to the current deal at the time, and in fact only £14m a year less than the 5-year deal just agreed with Sky due to start in August 2019, nearly 17 years after the ITV Digital deal started.

In David Lister’s Independent article, he talks about how the ITV Digital venture was “doomed to fail from start”. He goes on to detail a long list of mistakes that led to the ITV Digital failure. For example, how in November 1998 there were not enough set-top boxes to meet the demands from the Christmas period. Lister also details how “in three-and-a-half years, ITV Digital consumed £750m of the ITV companies’ cash to attract 1.2 million subscribers. The break-even figure was 1.7 million. Sky has 5.5 million”. ITV Digital’s intention was to provide competition to Sky, but it ended up only reinforcing its dominance in the market.

By the end of the first season of the new TV deal ITV Digital had collapsed and the Football League was in crisis. As the crisis came to a head the late Tessa Jowell, then UK Government Minister for Culture, Media and Sport spent time encouraging the company to keep going, but it was to no avail, leaving the Football League without its main income source.

Subsequently Minister for Sport Richard Caborn warned financially troubled clubs that the Government would not mount a rescue operation. In fact, going as far as stating that there were “four very famous clubs who will probably not be in existence at the end of the season”. But this was a threat that proved untrue, but a threat that was spoken of a lot at the time.

Then Manchester United chief executive Peter Kenyon spoke out on behalf of the top clubs in the country in favour of halving the number of professional clubs in the league pyramid. Amongst others the PFA and Football League objected and ultimately won out, but Kenyon wasn’t alone in calling the current Football League structure “Unsustainable”. John Williams, the director of the football research unit at Leicester University agreed with Kenyon, but the number of full time clubs in England remains as high today as it was then.

The argument of reducing the number of professional clubs is an old recycled argument from the dark days of English football during 1970s and 80s, one that was driven by the top clubs wanting a larger share of the TV revenue and went away when the introduction of the Premier League markedly increased the size of the market and the proportion of revenue going to the top clubs.

However, it’s no wonder that the Football League has survived as it is when you consider the breadth and depth of support for Football in the UK. You only have to look at stories like that of my club Brighton to see how the threat of a local community losing its football club can pull everyone together in a show of support.

Many saw the deal with ITV Digital and the subsequent chaos that followed largely because of clubs speculating on money that they had not received yet. But as former Barnsley chairman, John Dennis put it clubs like his saw it as “perfectly reasonable to assume the terms of a properly negotiated contract with a properly constituted company would be honoured”. Barnsley who hadn’t long been relegated from the Premier League were one of the clubs who subsequently went into administration to stave off the threat of extinction.

How wrong they were and with many clubs left with players on relatively lucrative long-term contracts, many players were released, some players like those at Watford and Grimsby instead agreed a pay-cut and many other clubs were left with financial difficulties to manage for years to come. According to one Guardian report at the time 30 of the Football League’s 72 clubs were at risk of going under and 12 went into administration in the immediate aftermath.

Those 12 teams included Bradford City, who were also suffering from a recent relegation from the Premier League and the accompanying subsequent fall in revenue. As a result, they found themselves unable to meet the contractual demands left over as a legacy of their Premier League days and also went into administration.

At this time Leicester were another recently relegated team who coupled with Premier League debts, the collapse of ITV Digital pushed them over the edge and into administration. And it wasn’t until a Gary Lineker headed consortium enabled the club to exit administration in 2003 and secure its long-term future.

Administration is a tool used in business for an organisation to restructure and keep running as an organisation under a new directorship whilst paying a reduced amount to its outstanding creditors, and as such appeals more to football clubs than other businesses. This large influx of football clubs entering administration was also partly so they could utilise loopholes in British law under the “football creditors rules”, which prioritises other football organisations and staff over non-footballing creditors.

This trend led to clubs succeeding under administration being heavily criticised for utilising this loophole as a financial advantage. In particular Leicester City, who after exiting administration in 2002 achieved promotion at the end of the 2002/03 season back to the top flight. Subsequently the Football League brought in rules meaning clubs would be subject to penalties such as points deductions if they were to utilise the administration route in future.

Of course, many clubs like them should and did take their fair share of the blame for financial mismanagement. For many clubs, ITV Digital’s collapse was simply the final straw in a long list of evidence of financial mismanagement. And considering what has already been said of ITV Digital and its flawed business model it’s surprising clubs were as fast and loose as they were with the money that was to be never forthcoming.

Stories like the demise of Bradford’s fortunes and subsequent stories like that of Portsmouth have led to the introduction of greatly increased parachute payments for clubs relegated from the Premier League and financial fair play regulations for all Football League clubs, including a salary caps.

The issues that clubs had financially were exaggerated due to a temporary collapse of transfer market. With many Premier League clubs like Leeds and Chelsea along with many of the Football League clubs experiencing financial difficulties, the financial trouble couldn’t be fixed as easily as it could now by a club selling off their top players for a quick injection of cash and reduction of the wage bill.

Unlike now where the Premier League riches filter down the English football pyramid via the transfer market, it simply didn’t exist at the time. For example, due to their own financial difficulties the pre-Abramovich Chelsea stated they would concentrate on home-grown talent, how times have changed.

The transfer market is often a get out of jail card clubs use to paper over the cracks, much as my club Brighton did in the late 80’s. And is ultimately often just a tactic used to delay the inevitable effects of this mismanagement. Many shared this view, for example David Taylor, then chairman of Huddersfield Town said: “Many clubs have been guilty of paying out silly wages in an effort to get success. The demise of ITV Digital brought home that you have to be more realistic in the wages you pay.”

At my team Brighton, the chairman at the time of the ITV Digital collapse, Dick Knight reassured fans that the club’s finances were secure. In fact after stepping down, in his book ‘Mad Man’ he wrote about how he and Leyton Orient chairman Barry Hearn were both sceptical from the start. So much so that Dick Knight said he told the board of directors that they weren’t going to rely on the money turning up at all, but as it has already been shown many other club chairman didn’t have the same foresight.

However, to a certain degree it’s hard not to sympathise with the football clubs and their owners given the circumstances they are working in. If you consider the pressure they are under it’s no wonder clubs speculated to make the most out of the anticipated financial windfall. It’s a well-accepted culture in the Football League for clubs to sail close to the wind financially and rely on windfalls from generous benefactors to make ends meet. Just look at my club Brighton in the Withdean years and imagine what the club would have achieved without the generosity of some of the directors at the time, I suspect a much more modest period in the club’s history would have followed.

It’s also true that fans believe this is the duty of the board of directors to part with their cash for the better of the club. Dick Knight, now a club legend and a man who took the club from a perilous position in exile to stability and success during the years at Withdean Stadium, was nicknamed ‘Dick Tight’ by many of the fans on the website North Stand Chat because of his perceived lack of willingness to get his chequebook out. The ambitions of fans are often forcing owners to take financial risks whilst at the same time not being irresponsible with regards to the club’s financial sustainability. Two requirements that have little correlation with each other and create little synergy.

Sky benefited from all this chaos, with the Football League returning after only one season away. In some ways it saved the day and, in the process, got a cut price deal for Football League TV rights for the next four years totalling only £95m. Many complained of Sky’s opportunism, but they’d been supportive and constructive partners of the Football League for a number of years up to this point. In particular, helping in no small part to make the Football League playoffs, the highlight of the English football calendar it is today. It was the Football League that decided to walk away from this partnership in search of better things, something that in hindsight looks greedy and foolish.

Furthermore, unlike ITV Digital, Sky have always met the contractual financial demands they have agreed with footballing authorities for TV deals. And they were the established market leader in digital TV. So, it’s fair to say that the Football League and its clubs deserve some criticism for entering into this deal with a company that instead were without a proven track record or established subscriber base, even with the backing of the ITV brand.

To add to this, it became clear the Football League had not ensured the contract was as watertight as it should have been. When they later took their claim for damages against ITV Digital to the high court, the judge ruled against the Football League’s claim. The judge said that it had “failed to obtain the necessary written guarantees”, because the final contract hadn’t been signed. Which was further damming evidence of the Football League’s incompetence in this whole fiasco.

Around the same time as the ITV Digital collapse, a Scottish football pay-per-view tv deal known better as “SPL TV” was being planned for the Scottish top flight but at the last minute the idea was scrapped due to the high risk of the venture. Once again, the club’s greed got the better of them and after rejecting a much larger deal with Sky had to accept a far less valuable deal with BBC Scotland. As well as the initial financial loss this deal also meant Scottish football has been out of sight of much of the UK ever since.

There could be lessons in this story in the current discussions surrounding the deal just agreed with Sky for Football League (now better known as the EFL) TV rights, with talk of a breakaway by some of the top Championship clubs. The bigger clubs such as Leeds, Aston Villa and Derby are said to be unhappy with the deal and in particular the affect the increase in live midweek fixtures could have on attendances.

The problem is that these same clubs were happy to take Sky’s money when it suited them. Now Sky knows it’s TV rights deal for the EFL games constitute such a high proportion of those club’s revenue, it can hold the clubs and its fans to ransom and to hell with the consequences for anyone else. In fact, the cynic in me says it would be encouraged by the potential of decrease in attendances as it would only increase dependence from those same clubs on Sky’s TV rights deal revenue. It’s hard to see anything but a Sky win here.

And whilst BT Sport seem to have established themselves as a secondary party to Sky in the fight for Premier League TV rights, the latest round of bidding was overshadowed by rumours of their financial insecurity. Furthermore, any substantial deals with new partners that were spoken of like Amazon (who after rumours of grander intentions bought only the smallest TV rights package, showing only two full match-days), will likely be ignored due to the risks played out in the story of ITV Digital.

And ultimately that’s the main legacy of this story, as well as the increased financial regulation that exist for English football clubs today, is the increased power and influence of Sky in British football.

Additionally, and unlike many predicted at the time, the number of professional football clubs didn’t fall, in fact the Football League has the same composition now as it did then and after years of recovery is in as strong a position as ever.

Just look at the recent England squads and the number of players involved with Football League clubs on their CV (like Brighton’s very own Lewis Dunk), or the number of Premier League teams who were not that long ago playing in the lower divisions of the Football League. There are plenty of examples which show that the Football League’s influence on English Football is still very strong, and long may it continue.