League converts as Nine busts through

Despite not having a chief executive, despite the weak economic backdrop and despite the stressed state of two of the three commercial television networks the Australian Rugby League Commission has pulled off a coup, getting the $1 billion-plus it wanted for its television rights.

The deal, which secures its core programming, is also a major win for the debt-laden Nine Entertainment, continuing the roll the network appears to be on since the surprise hit, The Voice, re-ignited its ratings.

Nine fought off what are said to have been very aggressive bids by Seven Network and Ten Network for the free-to-air component of the rights. Both Seven and Ten have raised capital recently to shore up their balance sheets and to give them the firepower to boost their programming.

While he won't be happy that he missed out on taking one of the most attractive and highest-rating chunks of programming from his nearest competitor, Seven's Kerry Stokes will at least console himself that he forced Nine to pay what its chief executive, David Gyngell, indicated was the absolute limit of what the network could afford.

For Gyngell, while it might have cost Nine $450 million in cash and kind – about $400 million of it cash – the win not only maintains franchise programming within the network but sends a signal about Nine's financial credibility.

Nine, owned by private equity firm CVC Asia Pacific, has been holding up well at an operational level but is impossibly over-leveraged and facing a February deadline for repayment of the $2.8 billion senior debt component of its $3.8 billion of borrowings.

With about 60 per cent of that senior debt held by hedge funds and the majority of it held by two funds that want to force Nine into a debt for equity swap, there had been concerns that Nine's unstable balance sheet and ownership might handicap its bidding.

The ARLC and its advisers, Greenhill Caliburn, however, took comfort from Nine's operational performance – and some insurance against the balance sheet risk (Greenhill was brought into the negotiations in May, when it appeared the ARLC was going to be disappointed with the outcome of the bidding).

About $90 million of the $1.025 billion Nine and Foxtel have agreed to pay over the next five years will be paid up-front by Nine, in two instalments in December and March next year.

In the unlikely event that Nine formally defaults its debts in February and for some reason can't or won't make good on the remainder of its obligations to the ARLC (whoever is in control of Nine would presumably want to retain the rights) the ARLC will have that $90 million in the bank and would be able to re-tender the free-to-air rights. Seven and Ten would still be keen.

The $1.025 billion, incidentally, doesn't include the New Zealand broadcasting rights, the mobile telephony rights or the ARLC's websites so the proceeds will swell. In net present value terms, the up-front payment from Nine also effectively increases the real value of the deal.

There is a significant difference between the deal that the ARLC has struck and the $1.25 billion five-year deal the AFL signed with Seven and Foxtel last year, under which Foxtel broadcasts every AFL game live, including those televised by Seven.

That has produced some disappointing ratings for Seven, hasn't generated the levels of subscription growth Foxtel hoped for and is being blamed in some quarters for lower attendances at AFL games.

In the ARLC deal, for the routine weekly matches Nine will broadcast three matches, two on Friday and one on Sunday, and Foxtel will broadcast five matches across Saturday, Sunday and Monday, with not all of them necessarily being broadcast live. Foxtel also has the IPTV rights.

A bonus for the ARLC is that Nine and Foxtel, which had "first and last" rights in the latest round of bidding, won't have them for the next set of negotiations in five years' time.

Interestingly, News Ltd, which had its own "first and last" rights, a legacy from the dissolution of its partnership with the ARLC early this year when the game was handed over to the independent commission, voluntarily relinquished them. That ought to strengthen the ARLC's hand next time.

Given the difficult advertising markets and the brittle economy generally, the financial condition of Nine and Ten and the failure of the AFL rights to completely live up to the expectations – and the fact that the ARLC was negotiating without a permanent CEO, David Gallop having stepped down in June – the commission and its negotiating team appear ecstatic about the outcome. They are entitled to be.

News Ltd is the owner of Business Spectator and Eureka Report.