The Chilean professional football has until 31 December this year to take a relevant decision: buy 20% of Canal Football (CDF) which is now in hands of businessman Jorge Claro Mimica. The option, called call is part of the Shareholders Agreement signed in April 2003, when Claro TV -through Management, where other minoritarios- partners and the National Association of Professional Football (ANFP) agreed that the company would participate 80 % of the company then began to operate. This gave way to debut an unprecedented model in the local television industry, “in which football is his own image and sells itself, unlike other countries who sell their rights to others,” says Martin Awad, executive director of CDF.
The project, 12 years later, became the most valuable television station of the national industry, which was recently valued at US $ 967 million (with an exchange rate projected $ 625), according a report produced last March by consultancy PwC.
“We have estimated the economic value of the assets of CDF at December 31, 2015 by $ 967 million,” the report said.
The figure puts the CDF to head national television. For reference: in 2010, Sebastian Pinera Chilevisión Time Warner sold at US $ 155 million; That same year, Andronico Luksic disbursed US $ 55 million for the 67% of Channel 13 and two years later, the Bethia group paid just over $ 180 million for control of Mega.
If more than a decade, the CDF was a niche channel, today the network has achieved great masses. In 2014, the basic channel of the CDF was seen in 2.7 million households, about 802 000 customers premium paid for the signal, another 80 thousand were HD subscribers and 7,500 Internet signal. By 2015, PwC estimated to continue to add subscribers. Will total 2.8 million subscribers to the basic plan, 813 000 to 113 000 signal and premium customers segment HD
As a result of the above, consulting projected a leap in its economic performance. By the end of this year, revenues from television station to reach US $ 122 million, 8% higher than the 2014 record; with an EBITDA of US $ 84 million and profits of US $ 65 million, 4.6% higher than the previous period.
The good projections are grounded in the auspicious prospects expected to take the market pay-TV in the coming years. In its analysis, PwC includes a projection on the evolution of regional and local industry. “Chile is the second fastest growing country in the region, mainly because it also has a wide range to increase household penetration,” says the report, which estimated an average growth of 7.5% of subscribers in the country, between 2014 and 2018.
For the CDF, the projection is clear. “We estimate that by 2016 there will be 2.89 million pay TV subscribers in Chile, and 2025, the 3.85 million would be achieved”. For that year, the premium will be 1.6 million more HD subscribers.
In Chile, the report continues, it is expected that the penetration rate for pay TV households reaches 53.9% at the end of 2015. For 2018, meanwhile, it is projected to reach 60, 3%.
To estimate the US $ 967 million, PwC employed the method of discounted cash flow and applied a discount rate of 10.8%.
A director of CDF believes even the recovery fell short. “It may well be worth more”.
Another leader who participated in previous assessments agrees that the economic value of the CDF could be much higher and recalls that the CDF sales almost equal to its usefulness. Low costs allow an operating margin in 2014 reached 83%, something not seen in any business. The key has plotted a partner as well: the CDF transmits “soap operas” high cost without paying for the “actors”. The clubs pay the salaries of players and broadcast rights are sold to third parties: they are the same owners of the CDF
The jump in five years
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The last time the possible purchase of 20% Jorge Claro was discussed in late 2010. But the CDF is no longer what it was five years ago. At that time, PwC what valorized in US $ 659 million.
The formula for setting the price to pay for this 20% is stipulated in the origins of the channel. If you would like to buy ANFP Sure, the price to pay is calculated with a formula: the heritage of the CDF is determined by multiplying 10 times Ebitda (earnings before taxes) in the calendar year to which the purchase option is exercised. A caveat: Jorge Claro can not refuse to sell. “It is an irrevocable right to purchase that has the association,” says one close to the entrepreneur.
If in 2010 the ANFP had exercised that right, it would have had to pay $ 107 million for the transaction. In light of the PwC report last March, we can conclude that the ANFP is profitable to buy 20% of Claro. Today, that share, according to the formula laid down in the shareholder agreement, is worth US $ 171 million, $ 22 million less than estimated worth consulting the percentage by valuation of US $ 967 million for 100% channel. “Looking at what has happened in this time, clearly ANFP would have agreed to buy the 20% five years ago, because if you do now will have to pay more,” said a director of the association.
Another leader ANFP estimated to cost $ 200 million a decision not to buy five years, for three reasons. The price rose US $ 70 million in the period, for a five ANFP gave 20% of the dividends to Jorge Claro and third, avoided anything that could only solve if you have 100% of the CDF: double taxation. The clubs claim the CDF pays income taxes that clubs then, upon receiving via ANFP surpluses, can not deduct from their own taxes and must pay again.
For that reason, several leaders believe that again postpone the decision could make it more expensive to buy in five years.
If the ANFP not exercise its right to buy this year, may choose again only in 2020, because the option is checked every five years. And, as estimated by PwC, the business of CDF go higher.
The consultant estimated revenue for 2020 to reach $ 102,487 million (about US $ 164 million to a $ 625 dollar), 34% more than planned for this 2015. In turn, It provides that the profits the next five years will be about $ 87 million, 34% more than planned for this year.
If you look further ahead, the path is even more eloquent. By 2025, PwC expects the CDF will have revenues of US $ 233 million (91% more than expected this year) and profits of US $ 130 million, twice the period 2015.
The decision is of such importance for the ANFP, the entity is analyzing the issue from earlier this year. In the summer, the agency formed a special commission, composed of presidents and representatives of clubs. Additionally, the company hired BTG Pactual to discuss financing options in case you decide to buy 20% of the CDF. “The report will present alternatives on how to finance the purchase, the pros and cons of each. It, along with the study of economic recovery, one of the key reports to make a decision, “said a senior executive of a club.
On June 19, the Council of Presidents will meet in an extraordinary way to discuss the issue. It is hoped that at that meeting the special commission explaining the advantages and disadvantages of buying and at the same time, it presented the report of BTG Pactual.
It was not the only report that was commissioned ANFP on the topic. Previously, about a year ago, the ANFP Econsult hired consultants to analyze the values of transmission rights leagues around the world, especially in Europe.
Later, between late 2014 and early 2015, he commissioned the valuation study PwC and then report to TVO, signing former television executive David Belmar, on projected medium and long-term television industry.
Key, management
According to the schedule set in 2010, the distribution of the surpluses of the CDF is as follows: Universidad de Chile, Colo Colo and Universidad Catolica receive 25% of profits. The other First Division teams are divided by 57%, while for First B reaches 18%. That scheme is five years, renewable deal, period ending in December. And while other clubs might try to change that distribution and thus open a new focus of conflict, to do so require two-thirds vote.
While at first glance purchase appears as a profitable business for the ANFP, between the 32 clubs in doubt. “Undoubtedly, today we are closer to making use of the option that five years ago, but still no decision,” says an officer.
The established option is not required to buy the entire 20% of Claro. “Maybe 10%, or 5%, or 1%, depending on what they want the clubs,” need from the ANFP. An executive of a club complements existing alternatives. “The ANFP could buy 20% and then sell some to a third party”.
By contract, shareholders agreement, Jorge Claro is the administrator of the CDF. The big question for some clubs is how the business course to leave the property would be administered. “The CDF management is a great asset, objectively has made a great management and great fear is that this attribute is lost when the 32 clubs have to define a new administration,” said a director of a company that manages a club.
The idea raises a representative of another club, the administration could seek a third party to offer guarantees to all. A minor point considering all the football players recognize it as a guarantor, “a kind of dam that prevents the direct intervention of the clubs on the millions in profits,” says one industry executive.
model
“With us help generate television market quite competitive pay,” says Martin Awad. When they left, they remember, there was a very concentrated market it difficult to come up with the football content via pay-TV system. What they had to do, recalls was to create its own distribution channel, they called ZAP and had the CDF with the games live in its plans. “With our arrival, Telefonica (now Movistar) began to complete their local supply with ZAP, then went Telmex, today course, and ended up buying ZAP” that account.
The recipe for success, he says, is that They have sought to expand coverage, improve the product and technology. They started transmitting four games since starting in the second half of this year shall transmit the national football First Division live and direct. In total, they will be eight games. Every weekend, details, leaving nearly 500 people to produce these meetings, which adds a first-B and another young soccer. In total, they produced 300 live games a year.
They sell the first exhibition of professional goals in TVN, which won the tender for two years. Chilevisión is the second window, which allows you to show greater depth the games in the midnight newscast. Then goals for free use of the news is released.
In the words of Awad, the grace of the business is one: the content owner manages content, without intermediaries.
key in the success of the model is cost. As incomes rise as the user base grows, costs go up less. This year CDF will cost US $ 21 million, mainly due to the transmission of the matches, which is outsourced to Chilefilms. “The cost structure is relatively light, because there are huge costs to maintain studies,” says a leader of football.
The bulk of the income received by the CDF-more than 80%, according PwC- corresponds to the revenue from subscription television operators. The payment made by subscribers to its premium service CDF is an important business, whose value varies according to the cable operator is hired. Each subscriber pays per month from just over $ 6,000 to $ 6,800, details Awad. “It’s a product that has a higher value and at the end of 2016 we expect to have more than one million premium subscribers,” he predicts.
Advertising is another entry of the CDF, with 13% of the total. Another key revenue is the sale of exclusive television rights to broadcast the goals of the tournament, which contributes 4% of global revenues.
A business model that has not been without complaints of possible anti-competitive behavior, allegations that the National Economic Prosecutor dismissed.
This 2015 will be a year of definitions, because also the end of this year the CDF must re-tender the goals. After paying about $ 16 million, TVN was awarded through a bidding rights compact transmission of the matches of the First Division, the Primera B Copa Chile and for the period 2013 and 2015. The market is expected that number will increase significantly in the new process that will open later this year.
This, considering additional data. In late 2012, Mega hit the market by providing a record US $ 106 million for all the rights of the Chilean national team, for the qualifying process for the World Cup in Russia (2014-2018). Gone are the $ 17 million raised ANFP qualifying process for South Korea and Japan 2002.
Going forward, the channel has high expectations. “We hope to maintain a good level of growth, by enhancing distribution channels (…). The next decade may be more dizzying the first 10 years, “he says. And to expand the range of content will continue trying to convey rights to other leagues. And they tried unsuccessfully with the Champions League.
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