Struggling Setanta is facing relegation from the big league of broadcasters

As Setanta's future hangs in the balance this weekend, it wouldn't be a surprise then if O'Rourke turned to the turf for comfort as he contemplates the challenging few days ahead.

After starting the football season with a bang, Setanta is now hovering dangerously close to the relegation zone. City tongues have been wagging about cash problems for several months, but the alarm bells rang out loud and clear last week when Setanta did not make a scheduled 3 million payment to the Scottish Premier League. The Irish broadcaster has until tomorrow before it officially defaults on the payment, but concerns about the company's financial state are so grave that the SPL took the rare decision on Friday to dip into its own reserves and cover the payment to clubs.

The City is on high alert this weekend as the digital broadcaster continues crisis talks with the SPL and potential rescuers, including the Walt Disney Company's sports subsidiary ESPN. Analysts warn it is now a serious possibility that Setanta will not be around when the new season kicks off on 15 August.

Rewind ten months and it had all looked so promising. Setanta, whose roots can be traced to an Irish dance hall in west London, was nipping at the heels of arch rival BSkyB. It held the exclusive rights for live SPL games, and broadcast a third of live Barclays Premier League matches in England. With BSkyB holding the remaining rights for the Barclays Premier League, it appeared as though Setanta might succeed where many others have failed in breaking the Murdoch empire's stranglehold on the market.

But now analysts are warning it is in serious danger of meeting the same fate as the Irish warrior after which it is named. The folk hero Setanta was told at an early age that his feats on the battlefield would bring him great fame but his life would be short.

Insiders say Setanta is facing a "crucial few days" as another deadline looms next Monday when it has to make a 35m payment to the Barclays Premier League. The City is increasingly concerned that unless a rescue deal can be struck, O'Rourke and fellow founder Leonard Ryan will have no choice but to call in the administrators.

So what has gone so wrong? And more importantly, can Setanta avoid being kicked out of the league?

Setanta's meteoric rise is a legendary tale in the City. O'Rourke and Ryan, both alumni of the prestigious Blackrock College in Dublin where Bob Geldof went to school, were living in London during the 1990 World Cup, hosted in Italy. When they discovered that nowhere in the city planned to show Ireland's crucial group match against Holland, the pair decided to take matters into their own hands. They telephoned Fifa, the governing body, and the BBC and asked how much it would cost to show the match live at the Top Hat dance hall in Ealing. When more than a thousand expat Ireland fans turned up and paid 10 each, O'Rourke and Ryan realised they were on to a winner.

In its early years Setanta stuck to broadcasting Irish sport, such as Gaelic football and hurling, to a network of pubs. But Ryan and O'Rourke soon developed grander ideas, and negotiated the rights to broadcast English and Scottish football games to expat fans living in Ireland and other countries, including the United States. Rod Stewart is named among the company's earliest customers, subscribing to the service from his home in Los Angeles.

In 2004 Setanta made it quite literally into the premier league when it outbid rivals including BSkyB for two of the six 23-game packages of Barclays League games. With BSkyB holding the other four packages, it appeared as though Rupert Murdoch's empire had finally met its match.

Like many other companies before the credit crunch, Setanta borrowed heavily to fund its rise. With subscriptions pouring in before the recession, O'Rourke and Ryan were confident the gamble would pay off. It is thought they were working towards a deadline of this summer to sign up the 1.5-2 million subscribers needed to break even.

What the entrepreneurial pair hadn't gambled on was the severity of the recession. As households radically rethink their outgoings, Setanta is among the non-vital extras that consumers are cutting back on, and the City estimates that subscribers are at about 1.2m.

An even more serious spanner was thrown into the works in February when Setanta was outbid by BSkyB for one of its 23-game Barclays League packages for the 2010-11 season. Toby Syfret of Enders Analysis says it exposed Setanta to the possibility of "mass subscriber defection" to BSkyB, which will broadcast five Barclays packages from 2010.

Syfret says the double blow of the rights losses and the recession has left Setanta fighting for its life. He estimates the firm is haemorrhaging 100m a year.

Setanta, which is backed by the private equity groups Balderton Capital, Doughty Hanson and Goldman Sachs, is notorious in the City for its limited reporting, but the cracks are evident for all to see.

In March, it was late with a 10m payment to the Football Association. Although the payment was eventually made, a new management team led by former Emap executive Sir Robin Millar was parachuted in to sort out the firm's mounting financial woes. Millar, who took the top job as chairman, was joined up front by former BSkyB executive Gary McIlraith.

The pair have since been in non-stop negotiations with shareholders to plug a 100m hole in Setanta's finances. But the talks have fallen short of expectations and its private equity backers only offered to stump up 50m.

Millar and McIlraith have been working against the clock to raise a further 50m as Deloitte, which already advises Setanta, waits on the sidelines in case an administrator needs to run on to the pitch. The situation is understood to be so desperate that Setanta even held out the begging bowl to BSkyB, asking for a 50m advance payment on a deal where Sky subscribers will be able to buy Setanta content. The request was turned down.

There is now speculation that ESPN may launch a bid for the troubled broadcaster. ESPN has been keeping a keen eye on Setanta for months and it was reported that it was among several firms, also including BT, which made enquiries about buying the Irish broadcaster early last year.

A spokesman for the channel in Europe confirmed it is interested in discussions about rights. However some analysts have questioned the wisdom of buying Setanta outright, and it is thought ESPN would be more likely to purchase just the TV rights or take a stake in the firm, providing much-needed equity.

In an attempt to stave off a takeover, Millar and McIlraith have also been renegotiating rights agreements with holders such as the SPL, the Barclays League and the PGA Golf tour. It is thought they are seeking to drive payments down by 25 per cent. Last summer the SPL signed a 125m four-year extension to its partnership with Setanta, which has already been negotiated down to 100m. SPL board members are understood to have serious doubts about whether even the revised contract can now be met.

If Setanta does survive the next few days, Syfret says it will have to radically rethink its strategy if it wants to avoid further cash crises. He says this year's events have exposed major flaws in its business model and the only escape route is for Setanta to become a uniquely wholesale business, supplying content to other digital broadcasters.

"Renegotiating rights is just one part of the jigsaw," he told Scotland on Sunday. "Simply getting a reduction in the fees would only get them so far."

Sam Hart, media analyst at Charles Stanley agrees. He says that even before the recession put pressure on Setanta's subscriber base, the package it offered most UK consumers was far less attractive than rival BSkyB's. Although it dominates the market in Scotland, south of the Border it owns the rights to "second tier" slots. It currently broadcasts Barclays League games on Monday nights and at Saturday teatime, which are considered far less attractive than Sky's prime 4pm Sunday slot.

Sources close to Setanta suggest management is also assessing the wholesale-only model. It is estimated that by allowing BSkyB to sell Setanta content on its behalf, the Irish broadcaster would cut operating losses by more than half.

Setanta is already well geared-up to concentrate on production in Scotland after it signed a deal with STV last summer to rent studio space, transmission and post-production services at STV's headquarters in Glasgow. The deal runs for two years.

However, Paul Richards, analyst at Numis Securities, suggests that a move to wholesale-only would not be easy. Relations with BSkyB are already believed to be fraught and Richards says Setanta cannot count on BSkyB chief executive Jeremy Darroch doing his rival any favours. "It matters a great deal more to Setanta than it does to BSkyB," Richards says.

Richards argues that Darroch would drive a hard bargain although ultimately it wouldn't be in BSkyB's interests to let Setanta fail. In 2005, after discussions with the European Union, it was ruled that no single provider could monopolise Barclays League games, and Richards questions how many other companies would want to take up the mantle after seeing Setanta fail. "Everyone is hoping that Setanta finds a way through this," he says.

Syfret agrees. The pay-TV market is already under investigation by Ofcom and Setanta's elimination could strengthen the regulator's perception that it is near impossible for alternative providers to challenge the dominance of BSkyB. The result could be a damaging crackdown by Ofcom and the EU.

"It's in no-one's interest for Setanta to sink," he says.