We’re going to pay for all this free stuff

Ultimate Fighting, a mutant blend of martial arts and street brawling, is wildly popular in the US and globally with pay TV revenues bigger even than boxing. People pay up to 45$ a go for live access to the bouts but it is a sport under attack.

Everytime the Ultimate Fighting Championship (UFC) promote an event, illegal pirate broadcasts of the pay-per-view event spring up relentlessly all over the internet – up to 200 on a single US video streaming site and many more around the web often in jurisdictions beyond the reach of US copyright law. It's like the 45$ PPV charge is becoming voluntary.

As this article from BusinessWeek makes clear – ProSports vs. the Web , it is not just UFC that is fighting a losing war against internet piracy. Every single baseball and football game in the States was available free and live (and illegally) last season online.

Do we care that this 220 million dollar business is under threat? Ultimate fighting has been called “human cockfighting” and maybe we should not weep over the demise of a business model that depends on getting men to pay a lot of money to watch other men getting beaten senseless.

But it’s a sign of the times – the disruptive force of the internet is gathering strength and portends some surprising and dramatic results.

For rights owners in the broadest sense, it’s not looking good. If what happened to recorded music (80-95% of content consumed for free with prices for the legal stuff way down) is anything to go by, the results of rampant piracy could destroy business models across a range of industries - sport, movies, TV, books, games.

For example, it is easy to foresee the value of football's Premier League TV deals going down significantly as more people get used to going online to see games illegally. This could get very serious when it is common place to link the TV to the internet and everyone can easily get pirated games in their living room. I could see football club's revenues in the big European leagues dramatically declining.

Will we as the consumers of entertainment end up suffering? I think so. It has been argued that music is still here despite the amount of illegal downloading going on - musicians can make money in other ways like more live shows. But the effects have yet to really filter through - high prices for recorded music have traditionally supported the promotion of new acts and maybe we will see a dearth of new bands in the future. I also worry for the future of the kind of films and TV shows I like - they are expensive to make and if noone wants to pay, even by watching advertising, then who will make them? At this moment in time, the internet's attack on expensive charges for entertainment looks like its all good news for us consumers but I suspect that within a few years the downside will be all to clear.

The unpalatable truth behind Manchester's football triumph

It would be a hard-hearted football fan who begrudged Manchester its double celebration at the weekend. Man U’s record 12^th title under Ferguson confirms his reign as being the most dominant English football has ever seen. City finally inched out from their neighbour’s shadow with a deserved FA Cup final victory on the same day. But looking beyond the cheering crowds of delighted and relieved fans, the two triumphs represent a more sobering and disturbing truth.

City first. They bought their day in the sun. Ending the barren spell without a trophy took unheard of spending by a rich family with no prior connection whatsoever with Manchester or the football club. The winning goals in both the semi-final and final was scored by YaYa Toure, who was lured to City by a reputed £10 million a year salary. The club’s wage bill is now bigger than United’s, second only to Chelsea and clearly will never be properly sustainable – City lost £121 million last year.

Does this matter? Football’s big club prizes mostly go to the richest and why shouldn’t some nouveaux riche horn in on the trophies? If billionaires from the Gulf and Russia hadn’t come along to buy success then that probably would just have meant Man U and the “usual” big clubs would have been even more successful. Their largesse has also attracted some real superstars to the Premiership and boosted English clubs’ record in Europe. Sad to think though that clubs without a sugar daddy are seemingly doomed to play for scraps, although it should be remembered that Stoke made the Cup Final and Birmingham won the League Cup.

The red half of Manchester is celebrating a 19^th league title. As ever the manager deserves huge credit for getting a far from vintage United squad over the line. Most commentators have pinpointed Wayne Rooney’s new contract in the Autumn as the turning point. The argument goes that he has made all the difference in the second half of the season and Fergie was right to give him the new contract when many – including a lot of fans – had lost patience with his sleazy antics, perceived greed and alarmingly poor form.

It’s hard to fault that analysis. Rooney has not set the Premiership alight in 2011 but has recently been effective in that space between an inconsistent midfield and an inexperienced striker (Hernandez). More importantly there is no one else that could have done the job; he has been the missing link during the title run in, although credit too belongs to the heart of defence and especially Van der Sar in goal.

So shovelling £35 million at Rooney last year was a smart piece of business but it still leaves you feeling uneasy. Here is a player who dragged his family and club through the tabloid mud, openly played his employers off against other clubs to get more money and offered up only half a season of reasonable performance (11 league goals including penalties). United fans will know that paying Rooney off was a vital part of title win number 19 but I doubt he will ever join the real legends of Old Trafford like Charlton, Robson and Giggs.

Are Spanish private pensions a waste of money?

I have just been researching Spanish private pensions for an article on our main website ("Tax treatment of Spanish private pensions") and it left me feeling somewhat depressed. The system is supposed to encourage private pension provision by making the contributions tax free but, having dug into the topic, I wouldn't touch a Spanish pension scheme with a bargepole. How come?

If you focus solely on the tax benefits then you may well ask “what’s not to like?”. You can offset up to 10.000€ year against taxable income and you save your highest rate of tax – up to 43%. It gets even better for over-50s who can offset 12.500€ annually. But when you consider what happens once you have signed up to a pension plan and paid over your contributions, then the warm feeling generated by the tax saving starts to wear off. Here are the issues:

1) Barring some minor exceptions, your money is well and truly tied up until the normal state retirement age (65 and rising)

2) When you retire the accumulated fund can be taken as income or capital in a variety of different ways (lump sum, draw-down, annuity purchase) all of which are taxable like any other income. There used to be some tax deductions for pensions income taken from these plans but these have been scaled back.

3) Most of the pension plans I have seen charge 2% a year for administering your pension plan

Think about these drawbacks a different way – you don’t take out a personal pension plan and do your own savings. Ordinary (as opposed to pensions) savers won’t get the tax benefit of offsetting pension contributions versus taxable income and will have to pay tax on the investment income and capital gains on their savings. But on the other hand savers can invest their money themselves, avoid the 2% annual charges and draw down their savings when they like without paying income tax when they do so.

This last point is very important when comparing pension plans with ordinary savings and investments. You pay tax in both cases: pension plans save you tax initially and as you build up your returns but you pay tax when you retire on everything accumulated; ordinary savers get no tax relief to begin with and pay tax on their investment returns but don’t pay later on. You will really only gain if you pay higher rate taxes during your working life but pay the lower rate in retirement; not an uncommon situation as people mainly have lower incomes when they stop working but still food for thought. People who pay the same rate of tax pre- and post- retirement should think of pensions tax relief as “tax deferred” rather than “tax saved”.

And what about those charges? 2% may not sound so much but it is extremely significant both because it is high in terms of the returns available to most investors and because the effects are magnified over time. Additionally plan providers take a 0.5% commission on contributions as they are made to the plan. Also the underlying funds which the contributions are invested in may make charges which reduce the investment returns.

If pension plans were returning 8-10% a year, then a 2% annual management fee would not be so noticeable but when returns are down to today’s negligible levels, it makes a big difference. A 10 year government bond for example can yield as little as 2% today and the FTSE 100 yield is about 3%. Riskier assets yield considerably more but the risks to capital are greater. Inflation has recently been depressed by the recession but has been running at 3-4% in Spain. So with management charges and inflation eating away at capital, the underlying investments have to do very well (e.g. make 6%) just to stand still.

And how do the pension plans perform? Well there are literally hundreds but the ones I looked at didn’t inspire much confidence. For example La Caixa’s flagship fund “Nacional” would by my calculation have seen investments shrink by 7% (even before taking inflation into account) during the last 5 years. CajaMadrid charge 1% a year for their safest, fixed return funds but this has returned a measly 7.5% over the last 5 years, scarcely enough to cover the charges and a big loss after inflation. Their international fund (2% charge) has lost 32% in 5 years.

All in all it looks like Spanish pension plans are good for the banks who sell them but are to be treated with extreme caution by anyone who doesn’t fit a certain tax profile.

Obama´s no hero (but he could be)

The real significance of Osama Bin Laden´s demise is not so much the blow to Al Qaeda or the avenging of 9/11, it is the spotlight it has cast on the ambiguous role of Pakistan in relation to Islamic terrorism. It could be a real opportunity to shake up what has become a depressingly unproductive and pointlessly bloody campaign in the region. But many of the headlines have been grabbed by President Obama´s role and the supposed strength, courage and leadership he has shown.

It is very puzzling that he has been lionised simply for making some rather obvious decisions in his own and America´s interests. Is it so surprising that he asked his intelligence service to prioritise finding America´s biggest bogeyman since Hitler? Was it so courageous to order his special forces to kill or capture him once he was tracked down? Should we credit him or the Pentagon for the fact the raid went so smoothly from a US point of view?

It is said that he made "a gutsy call" over whether or not to send troops to the ground rather than bomb the suspected hiding place. But since a bombing would have obliterated the evidence Obama needed to show his electorate and the world, he was always going to choose the dramatic option.

Risky? Perhaps for the special ops guys going in but any soldier in the world would want to be part of such a potentially glorious mission. If it had gone wrong all Obama had to do was tick the no publicity box.

I have nothing against the man and am certainly no wild-eyed "birther", but Obama has been over-praised on this one. If he really wants to show some courage he should take on two much bigger questions both of which have been allowed to drift for too long: the war in Afghanistan, which is achieving far too little for far too much, and the aforementioned role of Pakistan.

The mission itself showed that the US has the power to project force in the region without occupying Afghanistan or giving a blank cheque to Pakistan. Time to quit letting Pakistan play the West for fools and quit Afghanistan fullstop. Now that would be courageous.

From the Advoco website: Contracting in Spain