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Monday, January 29, 2007
The One and Only Berlusconi...

Mr. Silvio Berlusconi, the former Italian Prime-Minister, eternal President of the great AC Milan and owner of Mediaset, is perhaps better known for his less than commendable antics and over the top comments. However, he brings to international headlines a truly interesting case, at a time when the Italian Competition Authority just released its very own view on the need to collectively sell Italian Calcio's broadcasting rights. Mediaset, who reportedly paid over USD$ 65 Million for the right to broadcast Calcio's highlights, claims this summer’s match-fixing scandal in Serie A devalued its TV rights, stating a strong loss in viewer interest in Serie A as a result of the relegation of top club Juventus and heavy punishments to AC Milan, Fiorentina and Lazio.

According to Il Corriere, Mediaset cites a 15 per cent drop in pay TV rights. After one of the main title contenders was relegated and three other major clubs heavily punished with the loss of points, the League lost at least some of its magnetism. And some 40% of all football viewers are fans of the proscribed clubs. Now Mediaset is taking legal action against the Italian football league. It seeks the reduction of the total price agreed upon for the right to broadcast the best moments of Italian soccer. The claim in itself, regardless of its merit, should be welcomed for what it entails in terms of mentality and is sure to make excellent reading.

Mediaset will try to establish the devaluation by resorting to available figures: (i) ticket sales in Serie A dropped 17.5%; (ii) Paying spectators in the first 13 rounds dropped 10%; (iii) Serie A Pay TV subscriptions dropped 14.8%; and (iv) Serie B Pay TV subscriptions increased by 52%, with Juve competing is the second tier this season. This should be enough to sustain the argument of a significant change in circumstances. Basically, if (i) the circumstances that were taken into account upon the execution of the contract have been subsequently and significantly altered and both parties could not have foreseen it; if (ii) the change brings significant economic imbalance to the contract; and if (iii) the change cannot be deemed inherent to the nature of the contract and the risks it entails, then the contract can be terminated or its price (as an element of the contract) reduced accordingly. Are we to assume that something of this sort might happen when contracting in the field of sports? The assumptions the parties took into account when agreeing upon the price certainly included the likes of Juve in Serie A and Fiorentina and AC Milan vying for a Champions League spot. Those assumptions are no longer valid. And match-fixing can hardly be deemed an inherent risk of any sporting activity.

This brings us to the Mediaset’s second prospective argument: was the League negligent in its capacity as regulator of professional soccer in Italy? The regrettable state of affairs in Calcio’s backstage had been mooted for years and one gets the feeling it was just a matter of time before the bubble of corruption burst. The League will certainly argue that it is not responsible for the actions of clubs, underlining the disappointing behavior adopted by club’s managers in their undertakings towards success. While it may be tempting to let the League off, the fact remains that little had been done to prevent and punish match-fixing. And the League will find it very hard to shake-off its duty to supervise the legality of its clubs’ deals. However, Mediaset is not likely to choose the path of negligence. Mr. Berlusconi would be falling into a trap. While the claim of negligence might further reduce the price he’s paying for the highlights, it will no doubt prove very costly in terms of personal image. After all, the owner of Mediaset would be surging against the President of AC Milan: the one and only Mr. Berslusconi...


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