Courses?
207. The OFT’s position was that payments by ATR to the Courses under the MRA were largely fixed. This is because, apart from a small top-up element expected to be payable in the last two years of the term, they consisted of guaranteed payments distributable between the Courses in accordance with the RCA distribution formula. It followed that the method of payment provided no incentive to the Courses to alter
their fixtures or races in ways that might generate more betting revenue. On the OFT’s counterfactual case, the sales of rights would have been individually negotiated and a high proportion of the payment structure so negotiated would have been represented by a revenue split formula in the nature of a revenue sharing arrangement. The payment received by each course would then have been related directly to the betting turnover it generated, thus providing an appropriate incentive. The OFT’s case was that it was obvious that the bidders would have wished to structure their payments to the Courses in this way. They referred to examples of agreements which included like formulae, including the BAGS agreement, the first Arena proposal in January 2000 and Channel 4’s approach to the 47 in March 2000.
208. The RCA’s response to the Rule 14 notice was to question whether any such incentives would have been provided for in the suggested counterfactual situation; to argue that the courses had anyway retained incentives to improve their output; and to argue that the MRA’s impact on their incentives was anyway too small to affect their conduct.
209. We recognise that the payment structure in the MRA loaded much of the downside risk with ATR, with the upside potential (if profits exceeded expectations) being shared with the Courses. This was, on its face, unattractive to ATR, whilst the avoidance of the downside risk for 10 years was attractive to the Courses. In the event, the ATR venture proved to be a business failure. That was not because of any deficiencies on the part of the Courses, but (so it appears) on shortcomings which can be laid at ATR’s door. It is no surprise that the Courses looked unfavourably on a proposal which required them to shoulder a material proportion of these risks.
210. The crucial question is, however, whether the OFT is right that a sale of the rights other than by collective negotiation would probably have yielded a return to the Courses in which a high proportion of the payments was under a revenue split. We consider that there was no sufficient evidential foundation entitling the OFT to reach the decision that, absent collective negotiation, the successful bidder would have achieved a purchase of the necessary critical mass of rights on terms involving the loading upon the Courses of a material element of the risks of the new venture. Again, the burden of proving the case in this respect was on the OFT, whereas again its
conclusion was founded on speculation as to what might have happened in a world that never was. It was guesswork based on what the bidders would have wanted but which paid insufficient regard to the fact that the evidence showed that the courses would probably not have wanted anything other than substantial fixed payments. The sale of their interactive rights was not an inevitably “win win” opportunity for the courses: as explained in the evidence of Mr Gundill and Mr Davies, the sale of their interactive rights could also have an effect on their other income, for example from race attendance (turnstile income) and could reduce their turnover at LBOs. The attraction from the courses’ viewpoint in a return represented predominantly by fixed guarantees is also underlined by the fact that the competitive GG Media deal offered fixed amounts and was therefore regarded as superior to the ATR deal by ten courses.
211. To the extent that the OFT relied on other agreements said to have been concluded in analogous circumstances, we were not persuaded that the claimed analogies were helpful. The question turns on the probabilities of a different reward structure having been negotiated in the particular market for these novel rights in 2000/2001. The reliance on the Arena discussion document of January 2000 was also unhelpful, that document proposing a structure in which the courses were to become shareholders in a joint venture, which was a quite different situation. In so far as there is anything in the way of concrete guidance as to what might have happened in hypothetical negotiations between ATR and the courses in the world that never was, it was within the knowledge of the courses that before the RCA became involved in the negotiations the Channel 4 consortium had made an offer to the Super 12 including minimum guarantees amounting to £221m. On the OFT’s counterfactual suggested to us in the course of argument, ATR would or might have engaged in separate negotiations with the Super 12, Arena, Northern and then the rest. It is improbable that the Super 12 would have settled instead for a split revenue consideration; and with such a deal on offer to the Super 12, we regard it as improbable that Arena, Northern and many (if any) of the other courses would have been prepared to accept terms that did not include substantial minimum guarantees either. In our view, there was no sufficient evidential basis for the OFT’s conclusion on this aspect of the case. The OFT did not, therefore, prove that the MRA resulted in an appreciable restriction of non-price competition that would otherwise have existed.
9. Was the OFT’s section 2 analysis affected by the fact that the rights